GMA - March 2022

GREEN MOUNTAIN AGENT VERMONT INSURANCE AGENTS ASSOCIATION | March 2022

IN THIS EDITION: When Disability Strikes, Will You Be Prepared?

Vermont Insurance Agents Association is a statewide trade association representing nearly 100 independent insurance agencies in Vermont, with more than 900 employees. VIAA member independent insurance agents represent more than one insurance company, and as a result, can offer clients a wider choice of auto, home, business, life and employee benefits.t

Green Mountain Agent is a publication of

CONTENT ________________ March 2022

05 Letter from the President

600 Blair Park Road, Suite 100 Williston, VT 05495 Phone: 802-229-5884 Fax: 802-876-7912 www.viaa.org

11 Agency Management When Disability Strikes, Will You be Ready?

VIAA Officers

17 On the Hill

President Michael R. Barrett

25 Perpetuation

Vice President Jessica Fleury, ACSR

I Know My Agency's Value...Now What?

Secretary/Treasurer Ian Sutherland, CIC, AAI-M

31 E&O Corner

National Director Ronald Bixby

35 Commentary

Directors Daniel J. Rodliff, CIC, CPIA, LUTCF Aislyn M. Allen, CISR Laurie Audy

39 Agency & Company News

Executive Director Mary M. Farley, MBA, AAIM

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LETTER FROM THE PRESIDENT ______________________________

March 2022 While it may seem hard to believe, soon our grass will be green, our days will be longer, and the air will be warmer! That certainly gets me thinking of hitting the links, and I wanted to share with you some exciting news!

As you may remember, Evolve21 did not include our annual golf tournament; we made the decision to split these events, to provide another opportunity for VIAA members to get together.

Initially, I was to plan this event, but a very enthusiastic crew has requested to take this over this task!

I am pleased to announce that our golf tournament will be planned by our Young Agents Committee (YAC), to take place on Monday, June 20th, at the prestigious Vermont National Country Club in South Burlington! Make sure to mark your calendars and keep an eye out for more information so you can join us!

Michael R. Barrett VIAA President

While I have you, I also wanted to pose the question, “do you get the emails from VIAA?” As part of your agency’s membership, you, and your peers, should be getting all the benefits, which includes timely announcements of classes, events, and more. Ask around, check with your peers, it is never a bad time to make sure we have up-to-date contact information for your agency.

The education calendar is getting new additions, and while it may not be “crunch time” for CE, there are many offerings for you to grow your insurance knowledge, via the Education link at VIAA.org.

As always, if you have any questions, or if I can be of any assistance, do not hesitate to reach me, mike@thebarrettagency.com.

Stay well!

Michael Barrett President, VIAA

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AGENCY MANAGEMENT

WHEN DISABILITY STRIKES, WILL YOU BE PREPARED?

By Christine Munoz You might hear a little more about disability insurance this month. May has been designated Disability Insurance Awareness Month in order to educate consumers about the need for disability coverage. As an insurance agent, you spend your days protecting others from the risks of the unknown. But do you know your own risk when it comes to disability?

It’s a common misconception that disability is most often caused by accidents or work injuries. But illnesses like cancer, heart attacks and diabetes are the leading cause of long term disability. Approximately 90% of disabilities are caused by illnesses rather

than accidents, according to the Council for Disability Awareness Long Term Disability Claims Review 2010.

Disability is a widespread problem that continues to grow. According to the U.S. Census Bureau more than 30 million Americans between the ages of 21 and 64 are disabled. A few facts to consider: Almost one-third of Americans entering the work force today (3 in 10) will become disabled before they retire. Social Security Administration, Fact Sheet Jan 2009 Over 51 million Americans - 18% of the population - classify themselves as fully or partially disabled. Social Security Administration, Fact Sheet Jan 2009

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When Disability Strikes, Will You Be Prepared? continued In June of 2010, there were nearly 2.5 million disabled workers in their 20s, 30s, and 40s receiving SSDI benefits. Social Security Administration, Disabled Worker Beneficiary Statistics, ssa.gov What does this mean to you? Statistics show that working Americans routinely underestimate their own risk. Most working Americans estimate that their own chance for experiencing a long term disability are substantially lower than the average workers according to a research report by the CDA. That same report shows that 64% of wage earners believe they have a 2% or less chance of being disabled for three months or more during their working careers. The actual odds for a worker entering the workforce today are about 30%. That demonstrates an alarming gap between perception and reality on this issue.

Don’t take the chance that a disabling illness or injury won’t happen to you. You insure your car, your home, your valuables - why not insure your “income”? Aside from health insurance and retirement plans, short and long-term disability insurance is one of the most valuable benefits an employer can offer to their employees.

The Big “I” Employee Benefits program can help protect both you and your employees. As a member benefit, we offer access to group short- and long-term disability, group life insurance and dental programs. All benefits are provided through The Guardian Life Insurance Company, a known leader in the insurance industry.

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ON THE HILL: Big ‘I’ Testifies Before Congress on Pandemic Risk

Republicans from the U.S. House of Representatives' Committee on Financial Services held a roundtable to discuss pandemic risk.

The roundtable consisted of three panels.

The first panel included testimony from various academic experts, the second panel included testimony from policyholders, and the third panel included witnesses from the insurance industry.

Wyatt Stewart, assistant vice president at the Big “I," testified on behalf of the association on the insurance industry panel. Robert Gordon, senior vice president at the American Property Casualty Insurance Association (APCIA), Scott Sinder, outside chief legal officer at the Council of Insurance Agents and Brokers (CIAB),and Andrew Pauley, public policy counsel at the National Association of Mutual Insurance Companies (NAMIC), also testified.

In his testimony, Stewart noted that pandemics produce an immense magnitude of potential financial losses and do not allow for an insurance-like spreading of risk, making it impossible for the private marketplace to provide traditional coverage and protection to the millions of businesses and nonprofit entities in the United States.

Stewart went on to say that if Congress ultimately considers the establishment of a new government mechanism for addressing future pandemics, it should satisfy the following principles: Any potential legislative solution must effectively meet the needs of the businesses independent agents and brokers serve and the carriers we work with, who represent our markets.

Given the unique nature of pandemic risk, it would be essential that the federal

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On the Hill continued government bear all—or nearly all—of the financial responsibility for business losses associated with COVID-19-like events. The insurance industry is simply unable to cover these potential losses.

The product or program designed to fill this protection gap must reflect the unique nature of pandemics. Among other things, this means the product must be parametric in nature and avoid the need for insurance-like claims adjustment.

Throughout the testimony, Stewart noted that the Big “I" worked with APCIA and NAMIC on developing the Business Continuity Protection Program (BCPP), which the Big “I" believes would meet the three principles noted above.

The BCPP would work more like a prospective Paycheck Protection Program (PPP) than an insurance product and would establish a voluntary federal program within the U.S. Treasury Department that allows for the purchase of short-term revenue replacement assistance for business interruption caused by a pandemic.

Finally, Stewart noted that if Congress moves forward with legislation, the Big “I" would recommend starting the discussion with something closer to the BCPP as opposed to a reinsurance backstop. As Congress considers various proposals to provide economic support to businesses for future pandemics, the Big “I" will remain at the center of the discussion and provide updates via News & Views.

Teddie Norton Reilly is Big “I" director of government affairs operations.

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I KNOW MY AGENCY'S VALUE...NOW WHAT?

PERPETUATION

By Carey Wallace In many cases agency owners wait far too long to learn the value of their agency. This delay is due to many factors including time, cost, fear, and the worst of all – they really don’t think that they need to know. The reality is knowing the value of your agency goes way beyond knowing just a number, it reveals several opportunities for agency owners to work on their business, not just in their business.

Over the past 8 months, I have completed over 50 agency valuations, here are the most common actions that agency owners take once they learn what is driving the value of their agency and realize that they have the opportunity and power to maximize it.

5. Re-evaluate your Carrier Strategy Concentration with one carrier creates risk inside an agency. If an agency’s lead carrier changes their compensation, appetite, or rates the impact to an agency can be significant. Many agency owners take a closer look at their carrier strategy as a result of going through the valuation process and explore alternative options. In addition, those agencies that are spread too thin across many carriers explore implementing a strategy to maximize their carrier relationships by focusing on areas that will allow them to place business with key carriers and put themselves in a position to be eligible for contingency. By focusing on a carrier strategy, and agency

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I know my agency's value...now what? continued owner can reduce their risk over time as well as relieve some pressure on their staff who may be struggling to keep up with too many carriers.

4. Put Producer and Employee Contracts in Place Having a high concentration of your book with a single producer or account manager creates risk. There is even more risk when there is not contract in place with that employee. Agency owners that work to put in producer and employee contracts that define and protect trade secrets and also include non-compete and non-piracy language can mitigate their risk in this area. While the risk of losing business when a person leaves your agency still exists, these contracts if written appropriately can give the agency some recourse and also prevent an employee from attempting to take their customers with them just by making clear what the cost of this action would be. Any agreements that are put in place after the employee after the hire date will require consideration for executing the agreement.

3. Compensation Plans The largest controllable expense inside an agency is payroll. An agency’s staff is their most valuable asset and their biggest expense. Depending on the size of your agency, compensation and benefits will use over half of the agency’s resources.

Understandably, this is an area that is most often adjusted in the valuation process.

Many times, compensation plans are not tied to agency production causing the compensation to become out of proportion. It is difficult for an agency to invest in marketing, technology or additional staff when their current compensation plans are not healthy. Working to implement compensation changes requires time, great communication and a clearly defined pathway to success to do it correctly.

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2. Reallocating Resources Part of the valuation process includes creating a pro forma financial statement that takes into consideration what the standard industry benchmarks are for main categories of expenses inside an agency. An agency owner that is not familiar with these benchmarks is able to easily see the areas where they are both over and under allocating resources. This is an incredibly valuable exercise and can uncover opportunities of where reallocations can be considered to invest in the areas that will drive growth and/or efficiency n the agency. #1 Document a Perpetuation Plan The number one action taken by an agency owner after going through the valuation process is documenting a perpetuation plan or putting a buy-sell agreement in place. Not having a plan for your agency is the number one risk especially for agencies that have a single owner past the age of retirement.

Taking steps to formalize and document how the agency will be operated or sold should something happen to the current owner will minimize the risk and uncertainty that exists when a sudden life event occurs. Far too often, when an agency does not have a documented plan or agreement in place, confusion creates a delay and the agency is at risk of losing business while a plan is figured out, causing the agency value to decline.

While it’s impossible to eliminate all risk inside an agency, those that the time to understand the factors that are impacting the value of their agency have the power to take action and maximize their agency value. For more information visit www.agencyfocus.com

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C E O & R O N ER

Why Failing to Upsell Coverages Creates a Lose-Lose Scenario

By Matthew Davis

It's true, we spend a lot of webinar time and magazine ink repeating what we hope is a familiar refrain: Do not carelessly take on a higher duty to your customers than exists under your jurisdiction, most notably via website promises and marketing puffery. Why? A court may conclude, in one fell swoop, that you've both taken on a higher duty to your customer and failed to carry that burden to a successful conclusion.

From that message, some have drawn the inference that what we're saying is, “Be an order taker. Just sit at your desk and wait for an order to come in." On the contrary.

There is a lot of territory between making impossible promises on a website, such as “the best coverage at the best price," and sitting on your hands. The middle ground is where you need to operate.

Broadly speaking, avoid substituting yourself for your customer in the decisionmaking process. In most cases, subjective judgments about coverages and limits require knowledge of the risk that surpasses your limited familiarity with the subject. That knowledge resides with your customer.

Who is more likely to know the value of a commercial building? The number of hours worked, residence address and working address of a customer's employees? The ultimate use of a company's products and the risks entailed in their use? Does the

customer have assets that will be exposed to a judgment in excess of primary limits? Which individuals will be using the insured vehicles?

How much have homes in the vicinity appreciated in recent years?

Even in a so-called order-taker jurisdiction, you can and should regularly ask questions that will bring changes to light in the risk since you originally wrote or last renewed the policy.

The Big “I" offers some terrific sample checklists.

To the extent that your question exposes uncertainty, such as the current cost to replace a commercial building, be prepared to offer suggestions as to how your customer can find that information. Maybe they need to work with a third-party appraiser or contractor to arrive at a realistic valuation.

The answers to these questions should prompt you to ask more questions. Do you want to add the new warehouse to your policy? Do you want a quote for non-owned auto? You're insured for actual cash value now, but do you want a replacement cost quote? Do you want an umbrella quote?

Coverage for the new driver? The new garage? The new addition? The new employees? The new roofing process? The new construction site?

This upselling is likely to generate one of three responses. The first is a straightforward, “Yes, please." You follow up promptly with a quote. If they opt to purchase, that's a win-win for your customer and your agency.

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Why Failing to Upsell Coverages Creates a Lose-Lose Scenario continued

The second likely response is a request for more information. Your response should make it easier for the customer to arrive at their own thoughtful conclusion. If the line between educating and advocating is unclear to you, it certainly will be to your customer and their attorney. Take the time to offer sound, objective information that illuminates the decision your customer is facing.

The final possibility is “No." Every agency has a customer who reacts angrily to attempts to offer more coverages and higher limits, accusing you of just trying to “get in my pocket!" At Westport, we've seen this movie before—many times. Of all your customers, this one is the most likely to throw you under the bus if an underinsured or uninsured loss occurs because they trusted you to provide “full coverage."

Several benefits flow from upselling this truculent customer. First, if a subsequent claim arises from the absence of a particular coverage or limit, you can document that you both offered it and your client rejected it. Also, you may be eligible for a waiver of the deductible under your Westport or FSIC policy—up to $25,000— in connection with that claim.

But even if a claim does not arise from that particular coverage or limit, you will have shattered one of the most compelling arguments any errors & omissions plaintiff can make: “I trusted you. I purchased every coverage and limit you offered to me!" Except for this one. And this one. And this one … Just remember: Documenting your offer and the client's rejection is essential to making your defense work.

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Offering a new coverage or limit is not the same as recommending, much less choosing it. That choice belongs to your customer. But you do have a decision to make when it comes to upselling. The choice is yours. Win-win or lose-lose?

Matthew Davis is a vice president and claims manager with Swiss Re Corporate Solutions and works out of the Kansas City office. Insurance products underwritten by Westport Insurance Corporation, Kansas City, Missouri, a member of Swiss Re Corporate Solutions.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re") and/or its subsidiaries and/or management and/or shareholders.

This article originally ran in the January 2022 issue of Independent Agent magazine.

Using “Big Data” to Make Unilateral Policy Coverage Changes

William C. Wilson, Jr. CPCU, ARM, AIM, AMM is the founder of InsuranceCommentary.com. He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and Director of the Big "I" Virtual University for over 17 years. www.viaa.org

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Someone contacted me recently after moving in with his significant other (SO). The SO owns the house and insures it on an HO-3 policy. He insures his own property and liability on an HO4 renters policy.

When he received the policy, he noted that the insurer had, without his input or agreement, added his SO as a named insured. He was told by the underwriter that they knew of her residency from “publicly available information.”

After he explained the situation, the underwriter agreed to remove her from his policy.

Has anyone encountered this, where an insurer makes unilateral coverage changes based on information gathered from public records (which are notoriously unreliable), social media, etc.?

I have the same concerns about the overreliance on data and information that hasn’t been vetted or qualified by the insurer. I wrote about this in a blog post: Our son moved out of the house three years ago and we removed him from our insurance program, including his vehicle. He still uses the same agency (different insurer) I’ve used since 1973 to insure his auto, condo, and personal umbrella.

person’s time to make a phone call and confirm my son’s residency.

Neither we nor our agent received any notice or inquiry prior to the invoice, but my agency CSR (who, thankfully, is still an empathetic human) was able to quickly fix the problem.

In the same article, I wrote about my bad experience with insurance scores where twice I received significant premium increases based on faulty credit data. In other articles, I’ve written about online homeowners quotes where the calculation of Coverage A limits on my dwelling were based on county tax records used by real estate web sites that understated the size of my home by 1,000 sq. ft. The average consumer would quite possibly not challenge these kinds of information errors.

Is it going to get worse with “black box” rating using secretive, proprietary algorithms that may be discriminatory, noncausal, or rely on erroneous data?

Our insurer learned that his vehicle registration notice is still mailed to our address. With that information, they (i.e., their underwriting model) unilaterally concluded that he still must live here, so they added him back to our insurance program and made him the primary driver of one of our three autos (the most expensive one, of course).

I’m not sure what they thought happened to his vehicle. But, of course, no one “thought” about anything. An algorithmic decision tree spit out a boiler-plated invoice.

I’ve been with this carrier now for four years, loss free, and paid them somewhere in the neighborhood of $20,000 in premiums, yet they could not invest 10 minutes of a clerical 36

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COMPANY & AGENCY NEWS www.viaa.org

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Union Mutual Earns Ninth Consecutive Best Places to Work Honor Union Mutual Insurance Company announced today that it was recently named one of the 2022 Best Places to Work in Vermont.

This is the ninth consecutive year that the Company has received this award, which is based in part on anonymous employee surveys.

The 16th annual list of the Best Places to Work in Vermont was created by Vermont Business Magazine, the Vermont Chamber of Commerce, the Vermont Department of Economic Development, the Vermont Department of Labor, the Society for Human Resource Management (SHRM) – Vermont State Council and Best Companies Group.

This statewide survey and awards program is designed to identify, recognize and honor the best places of employment in Vermont, benefiting the state's economy, its workforce and businesses. The 2022 Best Places to Work in Vermont list is made up of 50 companies.

To be considered for participation, companies had to fulfill the following eligibility requirements: - Be a for-profit, not-for-profit business or government entity; - Be a publicly or privately held business; - Have a facility in the state of Vermont; - Have at least 15 employees working in the state of Vermont; and - Be in business a minimum of 1 year.

Companies from across the state entered the two-part survey process to determine the Best Places to Work in Vermont. The first part consisted of evaluating each nominated company's workplace policies, practices, and demographics. This part of the process was worth approximately 20% of the total evaluation. The second part consisted of an anonymous employee survey to measure the employee experience. This part of the process was worth approximately 80% of the total evaluation. Best Companies Group managed the overall registration and survey process in Vermont and also analyzed the data and used their expertise to determine the final rankings.

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Union Mutual Announces Robert Cotton to Join Board of Directors The Union Mutual of Vermont Companies are pleased to announce that Robert (“Bob”) Cotton was elected to the Board of Directors of the Union Mutual Fire Insurance Company and the New England Guaranty Insurance Company at the annual meetings held on February 23, 2022 at the Companies’ Montpelier headquarters.

Cotton is Chief Operating Officer of National Life Group where he has also served as Treasurer, SVP, CFO, and EVP. He is the former accounting manager at Library Bureau, Inc., and as a senior accountant at Coopers & Lybrand. Cotton graduated from Clarkson University, and holds a MBA from UVM. He is a Chartered Financial Analyst (CFA), a Certified Public Accountant (CPA), a Certified Treasury Professional (CTP), a Fellow of the Life Management Institute (FLMI), a member of the Association of Financial Professionals, the LOMA Treasury Committee, the New York State Society of CPAs, the Vermont Society of CPAs, and the Vermont Security Analysts Society.

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