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Insurance Agency Structure: Asset Sale or Stock Sale? Most insurance distribution firms are structured as an asset sale and not as a stock sale.
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ValueMomentum Unveils Major Enhancements To Its Bizdynamics Digital Solution Version 1.2 offers new capabilities for carriers looking to deploy digital environments for customers, agents, and employees.
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Glenn W. Clark, CPCU, Publisher CHART Exchange Founder & Earliest Adopter
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NetRate Systems, Inc. is pleased to announce the hiring of Leslie Curtis as Sales Executive.
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Become A CHART Action Hero - New Products!
Lloyd’s Announces New Measures To Support Syndicates Following OnceIn-A-Generation Loss Lloyd’s has set out a clear internal structure and segregation of duties to ensure the Corporation is best placed to respond to an MTE.
New EU Data Protection Regulations To Reach US Companies The GDPR imposes dozens of new obligations and technical requirements that present pitfalls for companies should they fail to alter their established business practices.
Join us October 8-11, 2017 for three full days without negativity.
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Leslie Curtis Joins NetRate Systems As Sales Executive
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FAA Drone Licensure: Thing Of The Past Or In A Holding Pattern? The Court upheld the challenge by a drone user who claimed the Federal Aviation Administration’s (FAA’s) drone Registration Rule promulgated in December 2015 ran afoul of the clear mandate...
Cover Image Credit: By , wiki+spam@eindruckschinderdomain.de (Own work) [CC BY-SA 2.5 (http://creativecommons.org/licenses/by-
CHART EXCHANGE
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Growth & Operational Efficiency In The Digital Age A 2016 survey of insurers by Celent cites that growth and retention of insureds and distribution channels is the number one priority.
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Extreme Cyber-Attack Could Cost As Much As Superstorm Sandy A major global cyber-attack has the potential to trigger $53 billion of economic losses, roughly the equivalent to a catastrophic natural disaster like 2012’s Superstorm Sandy.
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NSM Insurance Group Announces New CPS Northeast Regional Underwriting Manager NSM Insurance Group, one of the leading program administrators of niche industry-specific insurance programs, is pleased to announce that Jennifer Johnston has joined NSM as the Northeast Regional Underwriting Manager for Social Services.
AUGUST 2017 VOLUME 2 - ISSUE 7 Publisher: CHART Exchange Glenn W. Clark, CPCU Membership Services Kate Boyle Advertising: Kate Boyle Managing Editor: Kate Boyle Contributing Editor: Frank Huver Layout, Design & Circulation: Ron Manera AdMax Corp., Inc.
CHART Exchange
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MESSAGE FROM THE EARLIEST ADOPTER
BECOME A CHART ACTION HERO – NEW PRODUCTS!
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committee meeting, or workrelated conversation at the pub? You had the opportunity to feel creative and invigorated because the environment removed all negativity and was conducive to outside-the-box thinking. If so, the CHART Exchange is built How about a time when you just for you. Imagine being in a heard about a new product and room with 200-300 peers with the thought: “Wow, my team could singular goal of doing more new have made that work, wish we business between the U.S. and had thought of it first”? London. As new business developers, we share many Join us October common characteristics 8-11, 2017 for three like: optimism, forward full days without thinking, and ability to multi-task (evaluating negativity. We have tools factors like market to help you present your conditions, uniqueness, ideas, partners to provide need, financial potential, appointments for you to etc. simultaneously). We’ve discuss your ideas, and lots all encountered managers, colleagues, and critics of opportunities to learn who immediately respond about new products.” “it won’t work” to any potentially ground-breaking new idea. Our small event is built on Remember a brainstorming intimacy. Everyone attending session, new products has agreed to sign on to our re you responsible for new business development, premium production, strategic direction, niche programs, or distribution for your firm?
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Glenn W. Clark, CPCU Publisher & Earliest Adopter
core theme of Exchange: “To give up something of value in order to obtain something of greater value”. The theme of this year’s annual Event is Becoming A CHART Action Hero”. Imagine returning from the October meeting with the following: • 50 new contacts that you know by name and expertise. • 10 new business ideas for your agency. • Understanding the diverse risk appetites of multiple London Syndicates – and possessing contact information on the decision makers within each. • 20 new products your agency can sell. • Obtaining a network of vendor partners committed to helping you grow.
www.chart-exchange.com
CHART EXCHANGE • Seek risk taker partners to refer them to existing Coverholders who can utilize their services • Offer meeting attendees tailored support designed to grow their new business
Tens of opportunities to become the CHART Action Hero for your team. We have four distinct audiences to serve:
1. Risk Takers – London Syndicates • Seeks new programs and partners in the U.S. market • Have proprietary products they have built yet need qualified and committed distribution partners
Join us October 8-11, 2017 for three full days without negativity. We • Need distribution partners have tools to help you present your ideas (click here to be linked to the in the U.S. 3. Potential Coverholders Program Questionnaire), partners – desire to develop specialty to provide appointments for you programs to differentiate to discuss your ideas, and lots of opportunities to learn about new themselves. • Seek knowledge of the products: (See List Below!) London market and how to access it. • May become distribution partners for existing Coverholders • Need guidance on how to develop their own specialty niches
2. Coverholders – U.S. specialists with the “pen” for 4. Vendor Partners – Lloyd’s. each possessing expertise in • Seek expanded relationship disciplines needed within the with London U.S. London marketplace.
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TABLE OF CONTENTS
Glenn W. Clark , CPCU CHART’S Earliest Adopter
AUGUST 2017
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NEWS
LLOYD’S ANNOUNCES NEW MEASURES TO SUPPORT SYNDICATES FOLLOWING ONCE-IN-A-GENERATION LOSS Lloyd’s announced new plans today to enhance and speed up the process of approving syndicate business plans in the aftermath of a market turning event (MTE), an insurable loss so significant it results in a rapid upturn in pricing.
T
he measures were included as business by focusing our oversight paperwork. We want to make it as part of a report setting out six efforts on the important things. One straightforward as possible to raise guiding principles explaining important area where we can help is new capital. Doing so will ensure that Lloyd’s is even better how Lloyd’s would prepared for once-in-aLloyd’s has set out a clear respond to a MTE. The six generation market turning principles are categorised internal structure and events.” into two areas: crisis segregation of duties to ensure management, to ensure the Corporation is best placed to The last clear market the market responds respond to an MTE. Lloyd’s also changing event was caused to a crisis effectively, by the World Trade Center pays claims as quickly recommended that Managing Agents attacks in September 2001, consider in advance the possible as possible and remains after which there were rate solvent; and opportunities implications of an MTE and prepare increases of approximately to support the market. suitably proportionate, robust and 40% across all classes of well tested contingency plans.“ business. More than half Lloyd’s said it would focus the new reinsurance capital on shortening the review and agreement process of business to make sure the Lloyd’s market is in a raised globally in the immediate and capital plans, allowing syndicates position to act swiftly and decisively aftermath of 9/11 went to Bermuda. to respond more effectively to the to any future market-turning events. aftermath of a major catastrophe This is about stronger, smarter The new plans, which are designed to help managing agents, syndicates and enable capital to flow into the oversight.” and their policyholders, are laid out market more efficiently. He continued: “We don’t want in a guidance paper published today. Jon Hancock, Director of Performance to impose overly burdensome Management, Lloyd’s, said: “We want requirements on syndicates or insist to make it easier for syndicates to do on any unnecessary processes or See Lloyd’s Plans For MTE Pg 30 www.chart-exchange.com
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ANALYSIS - M&A SERVICES
INSURANCE AGENCY STRUCTURE: ASSET SALE OR STOCK SALE?
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By Chris M. Hughes
ost insurance distribution firms are structured as an asset sale and not as a stock sale. There are two main reasons that acquisitions are structured as asset sales: (1) The Buyer receives a stepped up basis of the assets purchased and (2) there is limited successor liability transferred to the Buyer. In this article, we will discuss the financial and legal implications for doing an asset sale versus a stock sale. First, there is a significant tax implication to the buyer for purchasing the assets of a company versus buying the stock
of the company. In structuring the purchase of an insurance agency as an asset purchase, the buyer receives a step up in the basis of the assets purchased and is able to depreciate the good will of the purchase over a fifteen (15) year period. In most agency transactions, the primary asset being purchased is the insurance book of business, which is characterized as good will. Therefore, most of the purchase price being paid, will be a depreciated by the buyer over 15 years. This adds significant value to the deal.
agency is being purchased for $10,000,000 with 90% of the assets being assigned as “good will.” The $9,000,000 good will value will be depreciated over 15 years, putting $210,000 per year in value to the buyer. If we take that $210,000 of depreciation value at a 6% discount rate that equates to a $2,000,000 present value, or approximately 20% of the entire deal value. This depreciation value is built into the financial models that go into creating a valuation for the agency. Therefore, all other things being equal, the value
For example, assume that an
See: Asset or Stock Sale Pg 12
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bout the author: Christopher M. Hughes serves as Managing Director of Insurance Distribution for Merger & Acquisition Services, specializing on insurance agencies, MGAs, MGUs, E&S agencies, wholesalers, and ancillary insurance businesses. Mr. Hughes comes to Merger & Acquisition Services, Inc. with over 10 years of insurance and legal experience, working on engagements with Property / Casualty and Life / Health insurance distribution businesses. He previously served as an advisor for a boutique firm in CT where his exclusive focus was on insurance distribution companies. In addition, Mr. Hughes spent 7 years as a senior product manager for Hartford Financial Services Group (“HIG”) with full P&L accountability for specialty products, and as director of HIG’s internal retained asset and structured settlement departments. Prior to The Hartford, Mr. Hughes practiced commercial litigation in Boca Raton, Florida. Mr. Hughes was honorably discharged from active duty in the United States Marine Corps (USMC) in 1992, after serving with E Company, 2nd Battalion, 8th Marines, 2nd Marine Division. While in the USMC, he served as an infantryman in the 1991 Northern Iraq operations: Provide Comfort, Encourage Hope, and Force Hope. Mr. Hughes has earned a J.D. degree from Northern Illinois University, a M.B.A. from the University of Connecticut, and a B.A. from the University of West Florida. www.chart-exchange.com
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ANALYSIS - M&A SERVICES Continued From Page 11
DIFFERENCE IN ASSET OR STOCK SALE of an agency is increased by approximately 20% if the buyer is able to depreciate the purchase. Furthermore, depending on your specific corporate structure, there are certain deal structures which may allow the purchaser to amortize the good will value in a stock transaction. Your tax advisor and M&A professionals can advise you on these structures if an asset deal is not a viable option. Secondly, in the purchase of a company’s stock, the buyer will be purchasing all of the assets and liabilities of the company, including, all known and unknown liabilities. This
First, the C Corporation is taxed at the corporate tax level for the sale of the assets. Then, secondly, the selling shareholder is taxed at the personal tax level for the distribution from the company to the shareholder. Therefore, the selling shareholder will be subject to double taxation, Further, the selling company will making an asset purchase very, continue to assume all liabilities very tax inefficient. that are not specifically being purchased. This means that the The below example (Figure Selling entity will continue to 1) illustrates the difference in have the most, if not all, liabilities taxation of an asset deal vs a for acts prior to the transaction. stock deal for a “C” Corporation. This is a much more legally palatable transaction from the As you can see, for the Selling Shareholder, the after-tax cash buyer’s standpoint. available on a hypothetical Lastly, there is a limitation to $10,000,000 transaction can be being able to consummate an very significant in structuring asset deal. The limitation being the deal as an asset purchase the corporate structure of the if the Selling Company is a C Selling entity. If the Selling Corporation. With that in mind, Company is a “C” Corporation, for most insurance distribution then an asset deal may not be firms, an S corporation or LLC, financially viable to the selling or other “pass through” entity shareholders as there are 2 levels structure is the most tax efficient at the time of a transaction. of taxation. creates a scenario or deal, where the buyer will assume all unknown and prior liabilities of the company they are buying. In an asset purchase, the buyer is able to carve out specific assets and liabilities that are being purchased or assumed.
In summary, the deal structure one uses when selling their agency can greatly impact both the seller and the acquirer. It is important to discuss your specific scenario with you accountants, tax advisors and M&A advisors to determine what deal structure maximizes value for you.
Figure 1 12
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NEWS
VALUEMOMENTUM UNVEILS MAJOR ENHANCEMENTS TO ITS BIZDYNAMICS DIGITAL SOLUTION
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rom the IASA Annual Education and Business Conference ValueMomentum Inc., a software and services provider to the insurance and the broader financial services industry, announced today the immediate availability of the enhanced version of its BizDynamics Digital Solution, a cloud-based offering designed to help property/ casualty insurance carriers deploy and manage digital engagements and experiences. Version 1.2 is the second major enhancement released since the introduction of BizDynamics at last year’s IASA event.
operations APIs that enable BizDynamics offers a number agents to update their personal of new capabilities that bring profiles, preferences, and even greater value to our BizDynamics user community. Version 1.2 We are committed to continue offers new our strong investment in the capabilities for carriers offering to align with the rapid pace digital technology is looking to deploy evolving,” said James Carlucci, digital environments Vice President, Insurance for customers, agents, at ValueMomentum. “Since introducing BizDynamics at last and employees.” year’s IASA we’ve enjoyed strong market adoption. We look forward passwords via quick links. to bringing our new capabilities to our early BizDynamics clients HIGHLIGHTS OF NEW CLIENT WINS and to attracting other carriers IN 2017 INCLUDE: looking to enable their digital A regional insurance carrier environments.”
HIGHLIGHTS OF CAPABILITIES OFFERED VERSION V1.2 INCLUDE:
Self-service capabilities for agents, enabling them to service customers with post-new business capabilities including endorsements, renewals, cancellations and reinstatements. Collaboration between agents and underwriters via Deal Wall capability, such that agents can view all activities related to a quote in a live feed.
has licensed BizDynamics to establish a platform for its digital engagement initiatives, with the first rollout focused on segment specific digital experiences during the quote and buy journeys.A leading program administrator has licensed BizDynamics as its omni-channel digital platform for its multiple programs, and has launched its first consumer facing program using BizDynamics. The program was setup in five months.
Provision
“This
of
user
www.chart-exchange.com
NEW WITH
profile
latest
version
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With BizDynamics insurers are able to provide customers, agents and employees with uniform digital experiences across all touchpoints. BizDynamics can accelerate an insurer’s digital transformation with out-of-thebox applications for customers, agents and employees. It provides insurers powerful tools to rapidly develop new applications and digital experiences while leveraging their investments made in core systems through APIs. AUGUST 2017
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NEWS SPECIAL REPORT - WILSON ELSER
LESLIE CURTIS JOINS NETRATE SYSTEMS AS SALES EXEC
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kemos, MI, August 16, of Sales. “Leslie is joining us at a time 2016 – NetRate Systems, of high growth as we continue to Inc. is pleased to announce enhance and expand our capabilities the hiring of Leslie Curtis as Sales to deliver solutions that help the Executive. One of her multiple commercial insurance marketplace responsibilities streamline operations, is educating the gain deeper insights MGA, Program from their data, and Ad m i n i s t r a to r, enhance the customer Lloyd’s Coverholders experience. Leslie’s and Risk Takers, knowledge of the and Insurer market marketplace and places about the extensive experience powerful capabilities will enable her to of NetRate Systems’ provide insights to the latest release, the Leslie Curtis marketplace on how NetRate Portal. to best leverage the Leslie’s 15 years of experience capabilities of the NetRate Portal working with MGA’s, brokers, and solutions to the benefit of their insurers to find Vertafore rating and underwriting, sales & marketing, Epic-Premier policy admin solutions and IT teams. As we continue to is going to be a tremendous benefit enhance and deliver solutions to both NetRate and all that have ranging from cloud-based web the opportunity to work with her. services to functionally rich endto-end systems, she will be an Understanding the needs of these important part of our sales and market places will help her package marketing effort.” a cost effective NetRate Systems solution that increases the efficiency Leslie is equally excited about of insurance operations from the becoming a part of the NetRate suite of submit, quote, underwrite, family, commenting: “NetRate issue, report, and data analysis is a proven industry leader and capabilities available on the hosted, I have always admired NetRate web based NetRate Portal platform. for their superior solutions and professionalism. I’m thrilled to have “We are very pleased and excited the opportunity to return to the to welcome Leslie to the NetRate rating segment and I’m elated to be team”, said Tom Rahl, Vice President part of the team”.
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ABOUT NETRATE SYSTEMS, INC.
NetRate Systems, Inc. supplies Commercial Lines Submission, Underwriting, Rating, Policy Issuance, and Data Reporting and Analysis Systems to the Property and Casualty insurance marketplace, primarily to MGAs, Program Administrators, Lloyd’s Coverholders, and Insurers. Its systems are designed to eliminate manual references, reduce data entry key strokes, and automate rating through the full policy life cycle. NetRate Systems products include nationwide rating of ISO® General Liability, Property, Business Auto, BOP, Crime, and Inland Marine, as well as NCCI Workers Comp. NetRate also offers custom development of all lines of business. NetRate rating and policy issuance solutions include cloud-based web portals and web services that power web-based point-of-sale submission, rate, quote, and issue applications. NetRate Systems also provides integration of third-party data sources and services to speed up the quoting and subsequent reporting processes. The firm also has strong partnerships and integrations with third-party policy administration systems. For more information, please visit www. netrate.com. www.chart-exchange.com
ANALYSIS - WILSON ELSER
NEW EU DATA PROTECTION REGULATIONS TO REACH US COMPANIES regulations from around the globe. As the result of a lengthy effort by Christopher J. Seusing of Wilson the European Union to strengthen Elser data security on the continent, the ompanies that handle GDPR contains a number of new EU citizens’ data must be protections for EU citizens, from prepared to comply with a 72-hour data breach reporting requirement a sweeping set The GDPR to data of data security imposes dozens minimization regulations that data go into effect on of new obligations and and May 25, 2018. technical requirements p o r t a b i l i t y standards. The EU’s General that present pitfalls Data Protection for companies should A company’s Regulation (GDPR) they fail to alter their failure to will significantly established business c o m p l y burden any practices.” with these company that re g u l at i o n s, handles or processes personal data of EU regardless of size or country of residents. Never before has domicile, can result in a fine of up a privacy regulation had the to four percent of global annual potential to reach companies revenue turnover or €20 million, anywhere on the globe on such whichever is greater. an immense scale. EU data protection authorities The GDPR dramatically changes can enforce this significant the rules of data security and may penalty against any company, be a harbinger of stricter privacy which touches data of an EU data
subject in relation to the offering of goods or services, including those in the United States. Under the GDPR, it will no longer be necessary for a company to have conducted business in or even have minimum contacts with the European Union to be subject to the continent’s data security regulations. (1)
1. The Administrative Court of The Hague upheld a decision of the Dutch Data Protection Authority against WhatsApp on November 22, 2016, which found that the Dutch Data Protection Act applied to companies outside the EU if they had some minimal business contacts with the EU. Go here for more information
The new regulations also put
By Sean Letz, Richard Reiter and
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OBLIGATIONS AND REQUIREMENTS
TECHNICAL
While many companies already have privacy processes and procedures in place, the GDPR imposes dozens of new obligations and technical requirements that present pitfalls for companies should they fail to alter their established business practices. For example, prior to the use or processing of data, controllers are required to demonstrate that consent is received with “clear affirmative action;” silence or inaction is no longer acceptable, as had been the practice for many organizations.
See New EU Data Regs Page 24 AUGUST 2017
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Bringing U.S. Entrepreneurship to the London Market The CHART/Wilson Elser strategic partnership combines the innovative underwriting philosophy of the world’s oldest insurance brand with the entrepreneurial mindset of U.S. agencies. For close to 40 years, Wilson Elser has helped organizations to better navigate challenging markets and realize improved combined ratios. We provide London- and Europebased insurers with ready access to more than 60 discrete legal services delivered by nearly 800 attorneys in 31 strategic locations throughout the United States. Guided by a proprietary, systematic legal project management program, we help clients define strategies and achieve outcomes that align with agreed business requirements. We also implement dedicated Program Claim/Litigation Management services, creating value and driving efficiencies with respect to legal spend and indemnity. Wilson Elser is especially proud of its strategic partnership with CHART Exchange and our shared commitment to strengthening relationships between cover holders and risk takers on either side of the Atlantic.
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ANALYSIS - WILSON ELSER
IS FAA DRONE LICENSURE A THING OF THE PAST OR JUST IN A HOLDING PATTERN? By Charles W. Planek, Wilson Elser
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n May 19, 2017, the District of Columbia Circuit Court of Appeals upheld the challenge by a drone user who claimed the Federal Aviation Administration’s (FAA’s) drone Registration Rule promulgated in December 2015 ran afoul of the clear mandate found in the FAA Modernization and Reform Act of 2012 in which Congress provided that the FAA “may not promulgate any rule or regulation regarding model aircraft.” In a ruling authored by Circuit Judge Brett Kavanaugh, the court pointed out that the FAA’s Registration Rule, which called for the registration of drones (actually the registration of “all small unmanned aircraft, including small unmanned aircraft operated as model aircraft used for
recreational purposes”), was just that, a regulation regarding model aircraft, which was prohibited. This ruling seems to apply only to registration of such unmanned aircraft flown visually if the unmanned craft is also “flown for hobby or recreational purposes.” This means that commercial drones
still need to be registered and flights by any craft in Washington, DC, are restricted to certain locations. What happens next is up to the FAA. Given that drone terrorism attacks have been the subject of
See Drone Licensure Page 27
C
huck Planek has more than 30 years of experience defending catastrophic, highexposure claims in the areas of premises, product, professional and transportation liability. His civil litigation practice has grown to encompass general liability and workers’ compensation defense and matters as well. Chuck is adept at investigating, analyzing and defending underlying medical issues along with the factual and often scientific components inherent in complex personal injury and wrongful death claims. He frequently presents lectures on Illinois civil practice as part of the firm’s continuing legal education program for associates. Chuck also frequently handles matters at the Illinois Worker’s Compensation Commission throughout the state for his clients.
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ANALYSIS - VALUE MOMENTUM
GROWTH & OPERATIONAL EFFICIENCY IN THE DIGITAL AGE
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2016 survey of insurers by Celent cites that growth and retention of insureds and distribution channels is the number one priority. Operational efficiency is a close second. While the survey results are unsurprising, the drivers for these priorities can be attributed to big tectonic shifts occurring in the P/C insurance industry.
A
BOUT THE AUTHOR: Abhijeet Jhaveri is Chief Marketing Officer at ValueMomentum and leads ValueMomentum’s softwareas-a-service business targeted at the MGA, Program Administrator and Coverholder markets. Abhijeet and his team works with MGAs, Program Administrators and Coverholders to deploy ValueMomentum’s iFoundry rating software with support for ISO, NCCI, AAIS and proprietary rate plans and extend these to agents, customers and employees with ValueMomentum’s BizDynamics Digital Experience Solution and App2Data ACORD forms processing Solution.
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Distribution channels are changing with innovative business models emerging – with large swaths of funding from not only traditional venture capitalists, but also by the venture arms of large global insurance carriers. Digital agencies such as The Zebra, EverQuote, Coverhound, Embroker, Insureon amonst a host of others are emerging on the scene. Technology is also paving the way for new business models. The Internet of Things (IoT), Peerto-peer insurance, On-demand insurance are fueling new business models with new Insuretech companies emerging on the scene such as Metromile, Bunker, Slice Labs, Lemonade, Notion, amongst others.
factors – there’s inefficiencies to be eliminated in the distribution process and there’s new markets to win. And all of these are adopting a “digital first” approach. The impact of digital is getting bigger and consequently, there are major shifts underway that make it necessary for insurers to adapt. Failing to embrace the opportunities presented by digital and not moving fast enough, is a risky proposition. Take for example, Blockbuster Video – which failed to heed the challenge from Netflix with streaming video – and filed for bankruptcy. There are other cautionary tales such as Blockbuster, who became irrelevant even though they commanded dominating positions in the marketplace.
So how are MGAs, coverholders and program administrators positioned to respond to these business drivers, and not only survive, but thrive? The first step is to understand what digital truly means. According to McKinsey, for some, it’s about technology. For others, digital is a new way of engaging with customers. And While not all of these are assured for others still, it represents an of success, massive funding in this space is driven by two See Growth In The Digital Age Pg 20 TABLE OF CONTENTS
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ANALYSIS - VALUE MOMENTUM Continued From Page 18
customers benefit from preventive digital also involves rethinking how maintenance – for example to use new capabilities to improve smart buildings are expected to how customers are served. This bring down risk of loss. Sensors is grounded in an obsession in jet engines are jumping from with understanding each step 250 to 5000 resulting in the of a customer’s purchasing ability to benefit from predictive journey—regardless of channel— maintenance. Similarly, monitoring and thinking about how digital weather, animal health, changes capabilities can design and deliver in soil, can help in taking timely the best possible experience, action and reducing losses. These across all parts of the business. examples suggest that insurers entirely new way of doing business. can embrace digital to provide Let’s juxtapose this to the desire McKinsey helps define digital as higher value to their customers. to attract and retain not just top encompassing three attributes: producers, but also the new creating value at the new generation of producers. frontiers of the business Insurers may minimize These constituents simply world, creating value in won’t stand for the manual processes the processes that execute challenges presented by by enabling agents and/or a vision of customer manual processes. They experiences, and building customers to engage throughout are accustomed to, in their foundational capabilities daily lives, getting instant their buying and servicing that support the entire gratification throughout journey through an agent portal structure. Let’s take a look their journeys and demand at each. or customer portal that enable the same from the insurers them to fulfill their work in as they partner with.
GROWTH IN THE DIGITAL AGE
CREATING VALUE AT THE NEW FRONTIERS OF BUSINESS
few keystrokes as possible by pre-filling data from third party providers, while guiding them every step of the way.”
Consumers are making digital part of their daily lives and their daily experiences – accessing almost infinite information in their palms via mobile phones or in their cars, homes and places of work. Smart devices or apps on your phone help individuals and businesses monitor their assets – for example the NEST device which can control your home temperature remotely and also alert you in case of hazards like fires. Insurers can help their end 20
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No longer is it sufficient to provide prompt quotes during business hours. The agents today, are always connected and may research where to place their business at anytime MGAs, coverholders and program from any device. And they want administrators are uniquely to be guided on the products positioned to do this since you offer, not be knowledgeable they already specialize in niche on these products by reading segments and can deliver such your marketing literature in a value at scale. static website! They expect you to support the process for winning CREATING VALUE IN CORE new business and servicing existing BUSINESSES business in the most efficient way, According to McKinsey, embracing without having to spend their time TABLE OF CONTENTS
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ANALYSIS - VALUE MOMENTUM keying in data in multiple systems. pace, from those that support And this applies to the end insureds fast-moving, often customeras well as insurers’ own employees! facing interactions. Agent portals, customer portals and related apps BUILDING FOUNDATIONAL DIGITAL that engage customers, agents CAPABILITIES and other stakeholders accomplish According to McKinsey, the final the fast-moving customer facing attribute of digital involves the interactions, while administration technological and organizational systems – or systems of record, processes that allow you to be address the more critical functions agile and fast. Such a foundation, that require rigor in evolving them. according to McKinsey, involves two elements - mindsets and systems architecture. McKinsey advises that digital is all about making better and faster decisions, and developing iterative and rapid ways of doing things. For instance, insurers may minimize manual processes by enabling agents and/or customers to engage throughout their buying and servicing journey through an agent portal or customer portal that enable them to fulfill their work in as few keystrokes as possible by pre-filling data from third party providers, while guiding them every step of the way. In another iteration, insurers may roll out capabilities that help their end customers manage their risks and assets through new data capabilities.
According to a Celent report, digital engagement facilitated by agent portals and/or customer portals are a top priority for insurers in their quest for growth and operational efficiency. Although portals are not a new concept, the requirements have changed. Here are some of the reasons: •
•
•
• •
Attract and retain top producers and a new generation of producers who will not stand for legacy operational inefficiencies Have a slick user interface that is intuitive, easy to use and requires little or no training Have self service capabilities for agents and insureds for policy life cycle transactions Integrates easily to multiple back-end systems Connects real time between agents and insurers Provides an omni-channel experience Creates value that is compelling such that the insurer becomes a market of choice by providing significantly higher value
Establishing foundational capabilities also involves putting • in place a systems and data architecture. Such an architecture, • involves creating a two-part environment that decouples systems which support critical functions and run at a slower In summary, to achieve growth www.chart-exchange.com
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and operational efficiencies, MGAs, coverholders and program administrators must acknowledge the shifting landscape fueled by digital. Responding to this changing landscape requires thinking about adding value in the frontiers of your business, in designing your systems and processes to deliver delightful agent and customer experiences and instituting foundational capabilities. There are many choices available for the latter – ranging from vended solutions to do-it-yourself approaches. Time is of essence, though as the pace of change is rapid and presents both – tremendous opportunities and also significant risk to becoming obsolete!
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Don’t let your clients pay the price for
WORKPLACE BULLYING!
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NEWS
EXTREME CYBER-ATTACK COULD COST AS MUCH AS SUPERSTORM SANDY
T
he report, “Counting the cost: catastrophes, cyber events can and risk pricing, set appropriate Cyber exposure decoded”, cause a severe impact on businesses limits and expand into this fastreveals the potential and economies, trigger multiple growing, innovative insurance class economic impact of two scenarios: claims and dramatically increase with confidence.” a malicious hack that takes down insurers’ claims costs. Underwriters a cloud service provider with need to consider cyber cover in For the cloud service disruption estimated losses of $53 billion, and this way and ensure that premium scenario in the report, average attacks on computer operating calculations keep pace with the economic losses range from US$4.6 billion from a large event to $53 systems run by a large number of cyber threat reality. billion for an extreme event. This businesses around the world is the average in the scenario, which could cause losses of A major global because of the uncertainty $28.7 billion. By comparison, cyber-attack has the around aggregating cyber Superstorm Sandy, the second losses this figure could be as potential to trigger $53 costliest tropical cyclone on high as $121 billion or as low as record, is generally considered billion of economic losses, $15 billion. Meanwhile, average to have caused economic losses roughly the equivalent to a insured losses range from between $50 billion and $70 catastrophic natural disaster US$620 million for a large loss billion. to US$8.1 billion for an extreme like 2012’s Superstorm loss. The findings also reveal that, Sandy, according to a while demand for cyber scenario described in new In the mass software insurance is increasing, the research by Lloyd’s, the vulnerability scenario, the majority of these losses are not currently insured, leaving an world’s specialist insurance average losses range from US$9.7 billion for a large event insurance gap of tens of billions market, and Cyence, a to US$28.7 billion for an extreme of dollars. leading cyber risk analytics event. And the average insured losses range from US$762 Download 'Counting the cost' modelling firm. million to US$2.1 billion. report Inga Beale, CEO of Lloyd’s, said: “This report gives a real sense of the scale of damage a cyber-attack could cause the global economy. Just like some of the worst natural www.chart-exchange.com
“We have provided these scenarios to help insurers gain a better understanding of their cyber risk exposures so they can improve their portfolio exposure management TABLE OF CONTENTS
The uninsured gap could be as much as $45 billion for the cloud services scenario – meaning that less than a fifth (17%) of the economic losses See Cyber Attack Cost Page 27 AUGUST 2017
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ANALYSIS - WILSON ELSER Continued From Page 15
NEW EU DATA REGS significant restrictions on automated processing of personal data to analyze or predict an individual’s behavior. Specifically, the regulations restrict this activity if it will have a significant impact on an individual, such as in a hiring or credit decision. Many companies will have to adjust their business models around such restrictions.
aware of the breach. There is a limited exception to the reporting requirement if “the personal data breach is unlikely to result in a risk for the rights and freedoms of natural persons.”
respond immediately in the event of a data incident.
The GDPR also codifies the “right to erasure” and the “right to be forgotten.” Recognized in a 2014 case from the European Court The vague language of this of Justice involving Google, exception does not provide this remedy allows individuals much guidance to companies to request deletion of their and will require clarification and personal data. Under the GDPR, interpretation by the supervisory a company that processes EU authorities. In light of the limited citizens’ data must delete the guidance provided, it is important personal data without undue to have incident response policies delay if an individual objects to and procedures in place to the processing of data. avoid the inefficient or improper handling of an incident. Individuals also have the right to
request personal data Additionally, data concerning them from Between now and the date of breach notification the company, which implementation in May 2018, obligations are must be transferred to expanded under the companies should take steps to ensure them in a “machineGDPR, which defines readable” format. compliance by becoming familiar with “personal data” as examples the GDPR and guidelines for compliance These “any information are only a few of issued by various authorities.“ relating to an the requirements identified or identifiable natural with which all companies person.” These procedures should be that process EU citizens’ data consistent with other company must be ready to comply. A company that discovers there has policies, such as requirements been a “breach of security leading under a cyber insurance policy, GUIDANCE to the accidental or unlawful and should be regularly tested Recognizing the complexity of destruction, loss, alteration, through employee training these obligations, the GDPR will unauthorized disclosure, or exercises. Additionally, companies require companies that regularly access to personal data…” must should establish relationships process data on EU citizens or notify the supervisory authority with experienced breach handle especially sensitive types of the relevant EU member state notification counsel and forensics of personal data (such as race, within 72 hours of becoming vendors, so that a team is ready to ethnicity, political opinions, or
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ANALYSIS - WILSON ELSER religious beliefs) to appoint a “data protection officer” with expert knowledge of data protection law and practices. The regulations do not contain any exemptions based on company size, but do allow the “data protection office” to be outside counsel hired on behalf of the company. In addition, many data protection authorities within the EU have begun issuing guidance to companies to assist in compliance with the GDPR, and more will follow. The Information Commissioner’s Office in the United Kingdom issued 12 guidelines for companies, including educating key decisionmakers about the effect of these new regulations, reviewing privacy policies, and appointing a data protection officer. Additionally, the French data protection authority authored a six-step guide for companies, including mapping how personal data is treated within a company, implementing internal data security procedures, and documenting compliance. Further, data protection authorities are expected to issue guidance throughout the coming year. Between now and the date of
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implementation in May 2018, companies should take steps to ensure compliance by becoming familiar with the GDPR and guidelines for compliance issued by various authorities. The first steps toward compliance include: (1) assessing current data security systems, policies, and procedures; (2) identifying the location of all data; (3) determining the scope of data retained; and (4) evaluating the safeguards in place.
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If personal data of EU citizens is maintained in any manner by any part of a company, it will be necessary to thoroughly review the various provisions of the GDPR to ensure the company is in compliance with these regulations. Companies affected by GDPR also should consult their insurance brokers to determine the impact of the regulations on their insurance programs. In particular, companies should discuss adequacy of limits, coverage for GDPR violations, and the ability of policies to pay into GDPR-regulated countries. The GDPR, by design, will subject significantly more companies to its regulatory framework than current regulations, and companies of all sizes and locations should prepare accordingly.
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NEWS Continued From Page 17
Continued From Page 23
DRONE CYBER LICENSURE ATTACK COST two popular White House dramas, there might be some incentive to revisit the FAA Modernization and Reform Act of 2012, which may itself need to be modernized given the proliferation of drones and their growing popularity. The FAA Registration Rule was accompanied by certain model aircraft flight restrictions in Washington, DC, so maybe that will be sufficient security for those concerned about the potential for nefarious drones in our capital. FAA statistics regarding registration in the short time the Registration Rule has been in effect (17 months) reflect that close to 800,000 drone pilots have registered and the cost of drone ownership continues to drop. Even five years ago, estimating the increase in drone sales and the potential security implications that could follow would have been difficult. Judge Kavanaugh now has pushed the matter back to the legislature to decide if drone regulations require even more modernization and reform. Maybe a drone is not a model aircraft? For more information about the current legislation, contact Wilson Elser Of Counsel Charles W. Planek. www.chart-exchange.com
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are actually covered by insurance. The insurance gap could be as high as $26 billion for the mass vulnerability scenario – meaning that just 7% of economic losses are covered. Lloyd’s worked with Cyence to collect data at internet scale to model cyber risk and evaluate the financial, economic and insurance impact of these scenarios. Arvind Parthasarathi, CEO of Cyence, added: “Cyence is excited to be working with Lloyds on empowering the insurance industry to understand and model cyber risk. Leveraging Cyence’s unique cyber risk platform, we’re excited to see insurers providing more capacity, bringing innovative products to market with greater confidence and creating a more robust and sustainable insurance market.” For more information contact Nathan Hambrook-Skinner, Senior Manager, Marketing and Communications, Lloyd’s, at nathan.skinner@lloyds.com or on +44 (0)20 7327 6125.
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OUR TEAM IS THERE FROM THE START TO THE FINISH NSM Insurance Group Comprehensive Insurance Coverage for: Social Services I Addiction Treatment I Professional Liability Staffing Firms I Workers' Compensation I Collectible Vehicles Coastal Condo Associations I Breweries and Wineries Sports and Wellness I Specialty Aviation
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access to program premier markets. • Risk participationgain & aggressive management • New revenue opportunities: Warranty & Premium Financing As an admitted market conduit for Lloyd’s coverholders who exceed • Product, marketing, training, & compliance partnershipand support the status quo, Fortegra canlegal deliver the same transparency underwriting involvement found with a binding facility.
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NEWS Continued From Page 9
approval process.
LLOYD’S PLANS FOR MTES
PRINCIPLE 6: LLOYD’S PRIORITIES
Corporation staff will focus on supporting the market in response to the event – potentially all other non-essential central activities will be temporarily suspended.
In the report, Lloyd’s outlined six guiding principles. PRINCIPLE 1: MARKET STABILITY AND PAYMENT OF CLAIMS
Lloyd’s primary focus is on the stability of the market by ensuring it is solvent and liquid to ensure prompt payment of claims to affected policyholders. PRINCIPLE 2: MANAGEMENT OF FAILING SYNDICATES/ MEMBERS
In addition Lloyd’s has set out a clear internal structure and segregation of duties to ensure the Corporation is best placed to respond to an MTE. Lloyd’s also recommended that Managing Agents consider in advance the possible implications of an MTE and prepare suitably proportionate, robust and well tested contingency plans. These should reflect Lloyd’s approach of reactive and proactive planning following an MTE. Download the report here.
It is likely that some syndicates/members will fail following an MTE. Lloyd’s will ensure that the run off of those syndicates are managed in an orderly fashion to minimise any wider impact to the market. PRINCIPLE 3: STAKEHOLDER/DATA COLLECTION/ COORDINATION AND COMMUNICATION
Lloyd’s would look to take a lead with coordinating interaction and collation of data with key external stakeholders (e.g. regulators, governments, rating agencies) minimising any duplication where possible. PRINCIPLE 4: SUPPORT THE MARKET
Support the market in responding to opportunities arising from an MTE which ultimately supplies capacity to clients. Where possible, activities in support of existing businesses may be prioritised ahead of new entrants.
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PRINCIPLE 5: ACCELERATE KEY PROCESSES
Lloyd’s approach will be commercial and pragmatic. This may include the use of an accelerated version of syndicate business and capital plan review/ 30
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NEWS
NSM INSURANCE GROUP ANNOUNCES NEW CPS NORTHEAST REGIONAL UNDERWRITING MANAGER
C
truly an expert in the behavioral healthcare and social services industries. Our team will benefit from her knowledge and proven track record of underwriting good profitable business while developing strong relationships with agents,” said Geof McKernan, CEO of NSM Insurance Group. “She has made significant contributions to NSM in the past, and we are confident that she will play an instrumental role in growing our social service business in the northeast region moving Jennifer Johnston forward.”
ONSHOHOCKEN, PA (July 18, 2017 – NSM Insurance Group, one of the leading program administrators of niche industry-specific insurance programs, is pleased to announce that Jennifer Johnston has joined NSM as the Northeast Regional Underwriting Manager for Social Services on July 18, 2017. Johnston will be responsible for overseeing new business development and renewal retention in the northeast region for NSM’s Care Providers Insurance Program. Johnston, a seasoned insurance professional with more than 15 years of experience, previously worked at NSM as an Underwriting Manager for the Addiction Treatment Providers Program. M ost recently, Johnston served as the Underwriting Consulting Director at CNA Insurance.
AUGUST 2017
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ABOUT NSM INSURANCE GROUP
For more than 25 years, NSM Insurance Group has been an industry leader in the development, implementation, marketing, and underwriting of industry-specific insurance programs. The company’s insurance programs include “We are pleased to welcome social services and behavioral Jennifer back to NSM. She is health; CAT driven property; 32
collector cars; workers’ compensation; staffing; sports and fitness; breweries and wineries; professional liability for architects and engineers; and pet insurance. NSM Insurance Group is aggressively seeking to acquire additional program managers and niche specific insurance businesses. For more information, contact Bill McKernan at 800-970-9877, ext. 111.
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York Risk Services Group, Inc. is honored to be a Preferred Vendor Partner of the CHART Exchange. We are a premier provider of TPA Services, Specialized Loss Adjusting, Customized Claim Solutions, & Risk Control Services for Lloyd’s of London & the London company market. We offer:
Dedicated Binding Authority Adjusting Team Dedicated E&S/Specialty Lines Open Market Adjusters Back office team for banking, bordereau production, MI reporting Customized Physical Risk Assessments (Risk Control) Virtual Risk Evaluation Services To learn more, contact Aubrey Fountain, at 850.650.2380 or Aubrey.Fountain@yorkrsg.com.
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LLOYD’S OF LONDON
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AUGUST 2017 35 Image Credit: Creative Commons