June 20, 2018 A publication of the Pennsylvania Association of Mutual Insurance Companies
NAIC Meeting: Actuarial Changes of Note
Donegal Mutual Insurance Company Announces the Retirement of President & CEO Donald H. Nikolaus
Creating Separation: Insights into Overcoming the Competition
Pamic@pamic.org
1017 Mumma Road, Suite 202 Wormleysburg, PA 17043
(717) 303-0197
Contents Donegal Mutual Insurance Company Announces the Retirement of President & CEO Donald H. Nikolaus page 6
NAIC Meeting: Actuarial Changes of Note During the recent National Association of Insurance Commissioners (NAIC) Spring Meeting, several working groups and committees discussed items of import for actuaries, including the Big Data (EX) Working Group, Casualty Actuarial and Statistical (C) Task Force..
page 4
Creating Separation: Insights into Overcoming the Competition This article addresses how companies can work toward creating separation between their competition in a rapidly changing industry.
page 8
NEWS Rockingham Insurance Names Chad Covelli as Vice President of Insurance Analytics................................................................................................................... 6 Employment Practices Liability Insurance and the #MeToo Movement............................................................................................................................................ 7
Pennsylvania Legislative Update............................................................................................................................................................................................................ 10 Making Employees More Cyber-Aware................................................................................................................................................................................................. 11
REGULATION Maryland Insurance Administration Bulletin...................................................................................................................................................................................... 12 Domestic Foreign Insurers Bulletin No. 101 and Producers and Adjusters Bulletin No. 28.......................................................................................................... 13 Donegal Group Inc. Announces Sales of Donegal Financial Services Corporation......................................................................................................................... 13
RESOURCES General Regulatory Information............................................................................................................................................................................................................ 14 Legislation Tracker................................................................................................................................................................................................................................... 15
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EVENTS
The Future of Insurance Law? Restatement of Law Liability Insurance When: July 26, 2018 Where: PAMIC Online Time: 2:00 p.m. - 3:00 p.m. Info
The Restatement of Law – Liability Insurance. If you have not heard of this before, it will certainly become part of your vocabulary in the near future. But what is it and why should insurers take notice? Join us for this upcoming webinar to learn more!
Name
Date
Time
Location
International Tax Webinar
June 27, 2018
2:00 p.m.
PAMIC Online
Restatement of Law Webinar
July 26, 2018
2:00 p.m.
PAMIC Online
111th Annual Convention
August 5-7, 2018
Multiple
Baltimore Waterfront Marriott
Financial Management Seminar
September 6, 2018
TBD
Hershey Country Club
Information Technology Seminar
October 2018
TBD
Sheraton Harrisburg Hershey
Underwriting & Loss Prevention Seminar
November 2018
TBD
Hershey Country Club
For more information on PAMIC events please visit our website.
Special Thanks to our 2018 Premium Gold Sponsors
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NEWS
NAIC Meeting: Actuarial Changes of Note By Mike Dubin, Baker Tilly
During the recent National Association of Insurance Commissioners (NAIC) Spring Meeting,
several working groups and committees discussed items of import for actuaries, including the Big Data (EX) Working Group, Casualty Actuarial and Statistical (C) Task Force, Health Risk-Based Capital (E) Working Group and International Insurance Relations (G) Committee.
Big Data (EX) Working Group: Complex Model Review There was debate over a centralized or decentralized mechanism and structure for a mechanism to assist state regulatory review of complex models. Insurance organizations indicated they feel a centralized structure inappropriately delegates state responsibility, and prefer paying higher fees to individual insurance departments for a more complete review versus a centralized NAIC center for review. One state gave an example where it is currently receiving state filings based on predictive models that may be against state law, but they do not have the requisite expertise to approve or disapprove within their staff. In the best case, the Casualty Actuarial and Statistical Task Force should be asked to draft best practices, state guidance and to facilitate training. However, given the lack of consensus and multiple committees involved, it seems unlikely that a state assistance mechanism will be initiated soon.
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Casualty Actuarial and Statistical (C) Task Force: Appointed Actuary There was significant debate about the “Appointed Actuary Project.” This project aims to require actuaries to opine annually (on a company by company basis) on what is needed to be qualified, whether they are qualified and what they have done to be qualified. Significant opposition was expressed from the actuarial community. On the surface, this doesn’t seem extraordinary as examinations usually require that the examining actuary opine whether the appointed actuary is qualified to be the appointed actuary for the specific company. However, the draft “Attestation of the Appointed Actuary” form in the meeting materials had over 100 questions indicating many are concerned with a checklist approach to credentials. Some of the issue may be concern that years of experience will be discounted in favor of standard coursework.
Health Risk-Based Capital (E) Working Group: Stop-loss Interrogatories and Expanding use of NAIC Designations There was healthy debate over two proposals. The first is regarding stop-loss interrogatories. The American Academy of Actuaries expressed concern that information collected for RBC purposes would be used for other purposes. The other side of the debate is that
information on stop loss contracts is needed to appropriately reflect their risk in the RBC calculation. The second is regarding expanding the use of NAIC designations on Schedule BA from Life Insurers only to Health Insurers. The stated reason for proposing the change is to more accurately reflect investment risk and increase consistency between life and health insurers. One main objection was that it would be an additional cost to carriers without additional risk identification.
International Insurance Relations (G) Committee: Foreign Reinsurer Approval Framework There was discussion about a common framework for states to approve reinsurers from outside the U.S. The purpose would be to allow reinsurance receivables to be an admitted asset without collateral. One point debated was whether states could require the other jurisdiction to accept the state’s solvency monitoring and regulations. Michael Dubin joined Baker Tilly in 2017 as a member of the financial services practice group and the firm’s director of actuarial services. Mike delivers forward-thinking solutions to help clients drive growth, generate revenue, ensure regulatory compliance and achieve significant financial savings.
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Donegal Mutual Insurance Company Announces the Retirement of President & CEO Donald H. Nikolaus
Donegal Mutual Insurance Company, the holder
Company since 2014 and in other positions since 2000. Mr. Nikolaus will continue to serve as of majority voting control of Donegal Group Inc., chairman of the boards of directors of Donegal announced today that its President and Chief Mutual Insurance Company and the subsidiaries of Executive Officer, Donald H. Nikolaus, will retire Donegal Mutual Insurance Company and Donegal on September 1, 2018, after serving in that position Group Inc. for the past 37 years. Mr. Nikolaus will then serve as a consultant to Donegal Mutual Insurance Mr. Burke commented, “Don Nikolaus took the Company and Donegal Group Inc. and their helm as president of Donegal Mutual Insurance respective boards of directors pursuant to the Company in 1981 and led the development of terms of a consulting agreement. the Company from a one-state mutual insurance company writing approximately $30 million in The board of directors named Kevin G. Burke, annual direct premiums to the lead company Acting Chief Executive Officer of Donegal Mutual of the Donegal Insurance Group, which today Insurance Company since October 2017, to succeed includes eleven insurance companies serving 26 Mr. Nikolaus. Mr. Burke is the President and Chief states and writing approximately $1 billion in Executive Officer of Donegal Group Inc. and has annual direct premiums. On behalf of our board served as Executive Vice President and Chief of directors, we thank Don for his many years of Operating Officer of Donegal Mutual Insurance dedicated service and expert leadership.”
Rockingham Insurance Names Chad Covelli as Vice President of Insurance Analytics
Rockingham Insurance has named Chad Covelli
VP of Insurance Analytics, a newly created position. President & CEO, Robert Lyon said of Mr. Covelli’s hiring, “he brings a wealth of experience and extensive background in property and casualty pricing, general management and data analysis to the position.” Chad will lead the Insurance Analytics department responsible for compliance, rate and form filing,
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product development, oversight of external actuarial resources, including reserving practices. The newly formed department will provide services for both core and specialty lines. His previous positions include Vice President of Claims, Chief Actuary, and Auto Pricing Director at national insurance companies. He is a Fellow of the Casualty Actuarial Society (FCAS), Chartered Property and Casualty Underwriter (CPCU), and Member of the American Academy of Actuaries (MAAA).
harassment, employment discrimination, and other employee claims, a company’s insurance policies are a crucial source for financial support against such claims. If your company is faced with an employment practice claim, notify, in writing, all insurance companies that may provide coverage for that claim and forward all pertinent information to the insurance company.
Employment Practices Liability Insurance and the #MeToo Movement
Horkovich, Robert, and Mark Garbowski. “Employment Practices Liability Insurance and the #MeToo Movement.� Risk Management, 8 May 2018, www.rmmagazine. com/2018/05/08/employment-practices-liability-insuranceand-the-metoo-movement/.
The #MeToo movement has caused many companies to increase efforts to prevent sexual harassment in the workplace. Protecting employees from any form of sexual misconduct or harassment should be the primary focus of these efforts. Even with safeguards in place, there will be incidents that require companies to protect their interests. In such situations, counsel and risk managers should look to employment practices liability insurance (EPLI) which can provide coverage and pay for the defense of such claims. EPLI policies provide coverage for many types of the claims employees make against their employers that are not covered by workers compensation policies, including sexual harassment. Although there are many requirements needed to secure insurance coverage for sexual
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Creating Separation: Insights into Overcoming the Competition By Victor T. Ehre, Jr.
Ours is a competitive industry and in a changing world which has added online multicarrier marketing, multi-distributional selling (including those who are competing directly with their own independent agents), and even direct writers with their own agencies selling non-direct writer policies, everyone is looking for the “secret sauce” which can create separation from their competitors and with it, success. Watch any football game and multiple times one announcer or another will reference the receiver’s attempt to create separation to improve the potential for a successful pass reception. Seeking advantages in sports may take the form of enhanced equipment, all to gain that separation which hopefully results in success. But, what about our industry? Our technical enhancements may take the form of improved computer systems, unique product tweaks (Drone insurance, Cyber policies, etc.) not to mention new social media, apps, blogs and more. Your competition, however, is
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often exploring similar paths, so any perceived advantages sought are usually short-lived. In the search for that elusive “secret sauce,” management may create internal task forces to develop new directions to pursue. Consider the following “P’s” which are some of the first tossed out in those committees: Product. Management frequently looks at the products the company offers and considers one of two things. First, they may look at ways to tweak an existing product’s coverages, scope, and market. What frills or expanded coverages can they add to separate their product from others? Years ago, I was with a company which decided to enhance some BOP classes and presumably make them hot tickets for their agents. When launched, I was sent out to do sales meeting to ramp up interest. One of the classes was funeral parlors. We bombed! The brainchild of senior management, it had corporate underwriting research the rates for the top 20 commercial writers in the state without verifying that those carriers wrote any funeral parlors. Done without any outside research by marketing, no one knew that those carriers, while having the class, were NOT active writers of the product. A little research with funeral directors or even their agents would have uncovered the fact that a non-top 20 commercial carrier had the monopoly on a statewide program! Besides the tweaking of an existing product, there is the whole impetus to add a completely new product line to a portfolio. The pressure
may come from outside the company (the agency plant) and be pushed up the line by marketing, department management or others. I have seen that all too often the necessary supporting infrastructure is forgotten. How involved was underwriting? Do they have underwriters with the expertise to assess the exposures of a new product line? Were appropriate underwriting guidelines created, so all know what is acceptable? Was the company’s claims department brought into the picture? Will their Claims personnel have the necessary knowledge and training to be assured of the proper assessment of coverages to competently adjust a potentially unique set of exposures, unlike anything they have known and worked with before?
Gretz and Steven R. Drozdeck. The title of the chapter I contributed was Internal Branch Communications. As I reread it, I was reminded of every company’s “not so secret” sauce for growth and success: its staff and the right types of communication within the company internally as well as externally with their agency plant. Regardless of a company’s size, our Front Line is not our systems, but our people and their understanding and embracing of their roles and the value they add to the company’s success.
Systems and factors such as products and price may add temporary advantages over your competition. One of the biggest “catch phrases” in our industry is the ease of doing Then, of course, there is Price. Talk about business. Rating systems, online applications, a topic to potentially divide the camps in a company! Marketing, as a proxy for the agency and other programs attempt to offer unique attractions to the customer. As noted before, plant, is promoting lowering prices, sending these are often short-lived advantages since presumed solid marketing data showing these are the focus of so many other carriers. what the competition is doing. Meanwhile, But it is the very uniqueness of our people, underwriting is pulling company data which when properly cultivated, will lead to a defending the need for no change or, heaven truly positive experience for your customers forbid, a rate increase! And frankly, pricing AND ultimately to creating the separation remains the two-edged sword: it may cut a which will lead to long-term success. temporary swath of increased writings, but it may equally cut one’s profitability if that Read “Creating Separation: Insights into pricing was poorly thought out. Overcoming Competition,” in full on our blog. I believe that the most tried and true ways of Victor T. Ehre, Jr. is the General manager of Centre County creating separation and success lie in the Third Mutual Fire Insurance Co and a member of PAMIC. In his 45 years in our industry Vic has been an agent, a casualty “P,” our People. Recently I was rereading a facultative reinsurance underwriter, founder and president of chapter I had contributed to a book entitled an Excess and Surplus Lines Agency, as well as holding senior The Effective Manager, written by Karl F. management positions with both stock and mutual carriers.
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Pennsylvania Legislative Update By Vince Phillips, Phillips Associates
Workers Compensation Addresses Court Ruling
On June 4, the House Labor & Industry Committee reported out House Bill 1840 (Kauffman-R-Franklin) concerning a state Supreme Court ruling invalidating a 1996 provision of the Workers’ Compensation Act which utilized a central way to determine the extent of an employee’s disability. Called Impairment Rating Evaluations (IREs), the WC law specified the most recent AMA guidelines be used. The Supreme Court ruled that in effect, the state gave up its authority to the AMA IRE by automatically accepting AMA updates (Protz vs. Workers Compensation Appeals Board.) HB 1840 specifies use of the 6th Edition of the American Medical Association guidelines for Impairment Rating Evaluations. It will now be on second consideration on the House calendar. This means that it needs one more consideration by the House before it is put to a vote. The 16-9 committee vote was partisan with Republicans voting yes and Democrats voting no.
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A similar bill is Senate Bill 963 (Ward-RWestmoreland), currently on hold.
Agri-Liability Bills See Movement
A pair of Senate bills, SB 819 and SB 820, which provide limited liability immunity to farms engaging in agri-tourism or agrientertainment are seeing progress. Senate Bill 810 was reported out of the Senate Agriculture & Rural Affairs Committee. Senate Bill 820 is on the voting calendar for the Senate Judiciary Committee’s June 12 meeting. Both bills are sponsored by Senator Ryan Aument (R-Lancaster).
Ambulance Reimbursement Bill Clears Senate
The Senate unanimously passed Senate Bill 1003 (White-R-Indiana) on June 4 to provide for insurer reimbursement to EMS and ambulance services that respond to a call, arrive on the scene, and then are told that the affected driver does not need to go to the hospital. Currently, those services are reimbursed when
there is hospital transport. SB 1003 now goes to the House. Meanwhile, similar House Bill 1013 (Barrar-R-Delaware/Chester) previously passed the House and has not been acted upon by the Senate Banking & Insurance Committee where it has been since May 31, 2017. One difference between HB 1013 and SB 1003 is that the Senate bill mandates the change for Medicaid as well as for private sector insurers.
Department Issues Export List
into the Surplus & Excess Lines market. Current law specifies that there must be three declinations. The Export List represents insurance that is recognizably not regularly available and is updated yearly. Examples are Private Sector (not NFIP) Flood Insurance, Fireworks Sale/Manufacturing, Monoline Dog Bite Liability, etc. The full list may be obtained from the PA Bulletin June 9, www.pabulletin. com.
In the June 9 PA Bulletin, the PA Insurance Department listed those types of insurance coverage where a diligent search of the standard market is not needed before going
The legislative update is provided by Vince Phillips of Phillips Associates. For more detailed info on issues facing the PA legislature please contact Vince at xenobun@aol.com.
Making Employees More Cyber-Aware A report from Accenture, “Cost of Cyber Crime Study,” found that employees are the weakest link when it comes to cybersecurity. As the cost of dealing with the aftermath of a security breach has risen, new research has revealed that staff training can greatly help reduce the risk of cyberattacks. The report found that the average cost of cybercrime in the United States reached $21.22 million per organization last year, compared to $17.26 million the year before. Cyberattacks are expensive and require lots of manpower to restore productivity. In order for a company to be completely secure, they must implement proper measures to provide all employees, including non-technical staff, with comprehensive and continuous cybersecurity awareness education. Employees should be trained to recognize phishing and other IT attacks. Regardless of industry, an employee cybersecurity awareness program should raise awareness, engage users with interactive content, test, and measure to identify who needs more training and report the results to show the value of the training. Fox, Dan. “Making Employees More Cyber-Aware.” Risk Management, 1 June 2018, www.rmmagazine.com/2018/06/01/ making-employees-more-cyber-aware/.
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REGULATION
Maryland Insurance Administration Bulletin: Coverage For Loss Caused by Water that Backs up Through Sewers or Drains and Flood Insurance MIA has issued Bulletin 18-10 and Bulletin 18-11 to property/casualty insurers and producers. The bulletins concern coverage for losses caused by back up of water from sewers and drains and the availability of flood insurance, respectively. Compliance impact/requirements: 1. Bulletin 18-10 applies to insurers and their producers.
оо Any insurer that issues, sells, or delivers a policy of homeowner’s insurance in Maryland must offer coverage for loss caused by or resulting from water that backs up through sewers or drains and is not caused by the negligence of an insured. оо The offer must be made at the time of application and at each policy renewal. оо The offer must include an option to purchase limits equal to the limits of liability for dwelling coverage, other structure coverage, personal property coverage, and loss-of-use coverage under the policy of homeowner’s insurance.
2. Bulletin 18-11 applies to insurance producers.
оо The MIA recommends that insurance producers advise their clients to consider the costs and benefits of flood insurance coverage, regardless of whether their property is located in a flood zone, and to carefully review their existing policies to address any gaps in coverage. оо Property/casualty producers who sell flood insurance must complete two credit hours of continuing education in a course designated as “flood” in order to renew their licenses.
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Domestic Foreign Insurers Bulletin No. 101 and Producers and Adjusters Bulletin No. 28 Roles of Insurance Adjusters and Contractors in Claims Involving Insurance Coverage for Property Damage The purpose of this Bulletin is to ask insurance companies to assess and implement methods to improve policyholder education about the role of adjusters and contractors involved in property damage claims and to ask adjusters to be fully informed of their duties and obligations during claims processing. For complete details, please see the attached Domestic Foreign Insurers Bulletin No. 101/ Producers and Adjusters Bulletin No. 28. The attached Bulletin is also posted on the Delaware Department of Insurance’s website. Any questions should be submitted via email to consumer@state.de.us.
Donegal Group Inc. Announces Sales of Donegal Financial Services Corporation Donegal Group Inc. announced today that Donegal Group Inc. (“DGI”) and Donegal Mutual Insurance Company (“DMIC”) have entered into an agreement to sell Donegal Financial Services Corporation (“DFSC”) and its wholly owned subsidiary, Union Community Bank, to Northwest Bancshares, Inc. (“Northwest”) for approximately $85.0 million in a combination of cash and Northwest common stock. Immediately prior to the closing of the merger, DFSC will pay a dividend of approximately $30.0 million to DGI and DMIC. Thus, the total proceeds to DGI and DMIC will be approximately $115.0 million. Under the terms of the agreement, Northwest’s payment will be 50% cash and 50% stock, with the stock portion consisting of a fixed exchange of 137.84 Northwest shares for each of DFSC’s 17,864 outstanding shares. The exchange ratio was based upon the average per share closing price of Northwest’s stock for the ten trading days ended June 4, 2018, which was $17.26.
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RESOURCES
General Regulatory Information
Use this table to discover important links to information on Insurance Department’s that affect PAMIC members.
Pennsylvania Insurance Department Bulletins Notices SOP’s
Regulations
Title 40 Statutes Unconsolidated Statutes
Press Releases PID Newsletter Consumer Alerts News & Notes
Title 18 Statutes
News
Title 11 Statutes
General Info
Statutes
News
Title 38.2 Statutes
News
Delaware Department of Insurance Bulletins
Regulations
NJ Department of Banking & Insurance Bulletins
Regulations
Maryland Insurance Administration Bulletins
Regulations
Virginia SCC - Bureau of Insurance Admin Letters Admin Orders
Regulations
West Virginia Office of the Insurance Commissioner Info Letters
Regulations
Statutes
Consumer Advocate
Statutes
News Releases Newsletters
Ohio Department of Insurance Bulletins
Regulations
New York Department of Financial Services - Insurance Opinions Circular Letter
Regulations
Statutes
Press Releases Statements
Michigan Department of Insurance and Financial Services Bulletins
Regulations
Statutes
Press Releases
Maine Department of Professional & Financial Regulation Bulletins
Regulations
Statutes
Press Releases
Statutes
Press Releases
California Department of Insurance Bulletins
Regulations
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Legislation Tracker Legislative Tracking Information on PAMIC’s Website A significant and growing part of PAMIC’s mission is to provide advocacy (government affairs ) services to our members. The General Assembly is prolific in producing over 4,000 pieces of legislation during their 2-year Session covering all facets of life in Pennsylvania. Fortunately, only a handful of these bills actually make it into law. For example, Governor Wolf just signed Act 22 and Act 23 of 2018 into law last week (the latest bills to become law) and they happen to deal with the elimination on the prohibition on rebates and inducements in insurance transactions. However, there are many other Bills “in the hopper” that PAMIC is keeping an eye on. Below is a list of bills that the association is currently tracking. For a full list visit our PA Bill Information Page.
Bill #
Sponsor
Description
HB 409
Eli Evankovich (R)
Amends the PA Construction Code Act, in preliminary provisions, further providing for defs. & for UCC Review & Advisory Council & providing for review of sections; for changes in UCC; for education, training & applicability.
HB 544
Dan Moul (R)
Amends Act further providing for liability for landowners to recreational users.
HB 1335
Tina Pickett (R)
Amends Title 40 (Insurance), in preliminary provisions, providing for Insurance Regulation and Oversight Fund; and making a related repeal.
HB 1576
Tina Pickett (R)
Amends the Insurance Department Act providing for limited lines travel insurance.
HB 1840
Rob Kauffman (R)
Amends the Workers’ Compensation Act, in liability & compensation, further providing for schedule of compensation and for physical examination or expert interview.
HB 1846
Brian Ellis (R)
Amends the Breach of Personal Information Notification Act further providing for definitions, for notification of breach and for notice exemption.
HB 1840
Tina Pickett (R)
Amends Title 40 (Insurance), in regulation of insurers and related persons generally, providing for corporate governance annual disclosure.
HB 1851
Tina Pickett (R)
Amends the Insurance Department Act, in examinations, further providing budget estimate & revisions, for invoices and examinations
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Baltimore Marriott Waterfront August 5-7, 2018
111th Mid-Atlantic Mutual Advantage Convention
Info
Pamic@pamic.org
1017 Mumma Road, Suite 202 Wormleysburg, PA 17043
(717) 303-0197