Issuu

GREEN MOUNTAIN AGENT VERMONT INSURANCE AGENTS ASSOCIATION | May 2022

IN THIS EDITION: Questions to Consider When Buying an Agency

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 ________________ May 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 On the Hill 17 Mergers & Acquisitions

VIAA Officers

Questions to Consider When Buying an Agency - Part I

President Michael R. Barrett

25 Cyber Coverage

Vice President Jessica Fleury, ACSR

What Your Clients Need to Know About Emerging Cyber Risks

Secretary/Treasurer Ian Sutherland, CIC, AAI-M National Director Ronald Bixby

33 E&O Corner

Directors

36 Commentary

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

40 Agency & Company News

Executive Director Mary M. Farley, MBA, AAIM

www.viaa.org

LETTER FROM THE PRESIDENT ______________________________

May 2022

As the calendar changes to another month, I have much news to report! First, on behalf of all our member agents, I wish to thank our DFR Commissioner, Michael Pieciak for all he has done for not only our association, but for the State of Vermont. Commissioner Pieciak's 6 years at the helm included many duties, including a large role in our state’s COVID-19 response. We wish him well in his next venture, and welcome his interim replacement, a long-time friend of VIAA, Kevin Gaffney. As I write this, I am filled with so much energy and enthusiasm for all that the VIAA has to offer. I am sitting in my hotel room in Washington, D.C., just wrapping the 2022 Legislative Conference with Big I. Such an honor to be here, as I stepped in for Ron Bixby, who was unable to attend this year, as I was able to keep a Vermont voice in the meetings.

Michael R. Barrett VIAA President

While I plan on presenting my findings at our next scheduled VIAA Board Meeting, I wish to express that my attendance in D.C. this week, has only fueled my desire as your President to put the tools and resources of both VIAA and the Big I into your hands. From Big I Hires to being a part of Trusted Choice, all the way to the numerous continuing education and designations available. Expect much more on these thoughts as we continue through 2022. That’s a wrap! Our initial phase of our two-phase advertising campaign is now in post-production. A huge “thank you” to our “talent” that sipped coffee in my kitchen, drove a Subaru (it’s the official car of Vermont, right?), to our skaters in Burlington, those who enjoyed ice cream on the Burlington waterfront and more. This month, keep an eye out for this :30 second commercial. It will air in WCAX, WPTZ, and NESN, just to name few. Finally, do not forget the amazing grant opportunity we have for agencies looking to join us on phase two of this campaign, which will be an opportunity for you to have a commercial specific to your agency! Have questions? Contact Mary Farley (mary@viaa.org) or myself (mike@thebarrettagency.com). Stay well! Michael Barrett President, VIAA

www.viaa.org

VIAA EDUCATION

Any time. Any where. Get it done. viaa.org/Education

www.viaa.org

ON THE HILL: Rep. Luetkemeyer is Big ‘I’ Legislator of the Year

Rep. Blaine Luetkemeyer (R-Missouri) is the Gerald Solomon – Big “I" Legislator of the Year for 2021. Representing the 13 counties that make up the 3rd Congressional District of Missouri, Rep. Luetkemeyer—pictured (center) with Bob Rusbuldt, Big "I" president & CEO (left) and Charles Symington, Big “I" senior vice president of external, industry and government affairs (right)—is a native of St. Elizabeth, Missouri, where his family has lived for four generations. In addition to having a background in agriculture, Rep. Luetkemeyer is a former family independent agency owner and small businessman. He served in the banking and insurance industry for over 30 years. He also served as a bank regulator for the state of Missouri. He currently serves on the House Financial Services Committee as ranking member of the Subcommittee on Consumer Protection

and as ranking member of the House Committee on Small Business, where he advocates for Main Street businesses and, in particular, independent insurance agents. “Whether it was extending the time in which small businesses had to apply for the Paycheck Protection Plan (PPP) or working tirelessly to streamline the loan forgiveness process, Blaine was fighting for small businesses throughout the pandemic as ranking member of the House Small Business Committee," said Charles Symington, Big “I" senior vice president of external, industry and government affairs. “On the Financial Services Committee, Blaine has once again gone to bat for independent agents as he continues to be the lead Republican sponsor for one of our top priorities, H.R. 4699, the 'Continuous Coverage for Flood Insurance Act,'" Symington said. Read More

www.viaa.org

MERGERS & ACQUISITIONS

QUESTIONS TO CONSIDER WHEN BUYING AN AGENCY – PART 1 By Carey Wallace The best place to start in evaluating a potential acquisition is with you and your own agency. If you are clear on what you are looking for in an acquisition the process of evaluating opportunities becomes much more efficient and effective. Ask yourself these important questions: What are your current agency goals? How does this acquisition help you achieve those goals?

your ability to achieve what you are trying to accomplish. Here are some questions to consider before you get too deep into the process of evaluating another agency. I believe these will help you determine if the acquisition opportunity has the potential to be fit for you and your agency.

It is always best to pause and consider what you are trying to accomplish to ensure that you are able to maintain focus. An acquisition is a big undertaking, so if it is not aligned with your overall goals, it can impact

www.viaa.org

What is your current growth plan? What would strengthen it? Are you trying to grow into a new geographical location? Niche? Line of Business? Are you looking to add a particular carrier or gain access to certain markets?

Questions to Consider When Buying an Agency – Part 1 continued Are you looking to expand your team and expertise? Which roles? What expertise? Are you looking to gain and develop future owners of your agency? Are there specific relationships that you are trying to develop and build? Are you looking to expand within your current footprint or into a new or complimentary niche? We all know that acquisition add premium volume and revenue to your agency, but not all revenue is created equal. It is important to consider how a potential acquisition will fit into your overall plan. Once you have an idea if this potential acquisition fits into your overall plan, spend some time considering how it aligns with you and your agency. You will need to look at it from several perspectives including, geographic location, carrier and markets, current relationships and contracts, expertise, performance, customer type and behavior and most importantly culture. Book of Business Alignment What is the makeup of their book of business? What is the average size of their accounts? Are there any large accounts, specialized accounts, or accounts that would be at risk in a transition due to personal relationship with the current owner? Is the book heavy in personal lines, commercial lines, Life & Heath? If it is heavy personal lines, what percentage is home, auto, monoline? If it is heavy commercial lines, what is their focus, and do you have the right expertise to facilitate a seamless transition of their accounts? Are there opportunities to expand and cross-sell?

be sure to ask questions that help you understand the customers expectations and behaviors like: How often do you talk to your customers? What percentage of your customers come into the office for appointments? To make payments? What percentage pay online? Utilize your app or website? Expect to pay in cash? What percentage of your customers have minimum limits or are monoline customers? Asking questions like these will help you understand the fit and alignment with your agency and your practices, the gap in expectations, the need for cultural change and ultimately help you determine the risk that may exist in retaining the business. Carrier Alignment This is an area where alignment can make a huge impact and misalignment can do the same. What is the current carrier overlap? What will this purchase do to your volume, loss ratios, commission rates, potential contingencies, and overall revenue? For those carriers that both agencies have access to, be sure to consider how each of the agencies are accessing the carrier. Do both agencies have direct appointments or is their access through a network or aggregator? Do not assume that the shared

Customer Alignment What type of customers does the agency attract? Gather data on their average account size, average policies per customer, where customers they located, and how long have they been with the agency. In addition, 18

www.viaa.org

Questions to Consider When Buying an Agency – Part 1 continued how much of their business is local. This will help you determine the need to maintain multiple locations, the potential commute time, and how easy will it be for the team to work together and the potential synergies that may exist if this merger occurs. You will also need to consider how you will logistically manage the integration in the short-term and what the management of multiple locations will look like in the future. The above factors are just a piece of the bigger puzzle that you should analyze during your vetting process. In part two of this article, we’ll discuss some of the more “internal” factors to consider as you weigh your decision on agency acquisition. carrier will automatically move all of the business to be written under the direct appointment, based on your volume and performance the carrier may decide otherwise.

For more information visit www.agencyfocus.com or contact Carey at carey@agency-focus.com

For the carrier appointments that differ, it is exciting to consider the potential impact that gaining access can have on your agency. It may open up an opportunity to cross-sell and expand your book, but do not overlook the process you need to go through to gain access to that carrier. You will need to consider the approval process that the carrier has in appointing new agencies. You should not assume that the carrier will appoint you automatically upon the purchase of an agency. This consideration often times happens too late in the process and agencies are faced with rewriting books which is both time consuming and laborious on top of the integration activities that they are already facing. Geographic Alignment There is no question that our world is getting smaller, but many agencies still have large concentration of their business within a close radius of their location. It is important to consider where the agency is located, and www.viaa.org

WHAT YOUR CLIENTS NEED TO KNOW ABOUT EMERGING CYBER RISKS

CYBER COVERAGE

By Eric Cernak Most businesses recognize a cyberattack can have a potentially devastating effect on their operations. These same businesses have purchased insurance for traditional cyber risks, such as breaches involving the unauthorized use of personal information, and report they are confident they have the right insurance protection in place, according to a study conducted by The Hanover Insurance Group and Zogby Analytics. But do they have a false sense of security? Very often, the answer is yes. As the study concludes, the evolving nature of cyberattacks is leaving some businesses exposed to emerging and increasing cyber risks they may not yet realize they face.

This presents an opportunity for independent agents to serve as trusted advisers, educating clients about cyber risks, key insurance coverages and important risk mitigation efforts to help protect their businesses. Perception Vs. Reality The reality is most businesses face cyber threats, and these threats are only growing in complexity and frequency as companies become more digital and interconnected organizations. Not surprisingly, nearly 70% of businesses surveyed identified breaches of personally identifiable information (PII) as their top concern. However, although breaches of PII frequently make for very public headlines, only 19% of respondents

www.viaa.org

What Your Clients Need to Know About Emerging Cyber Risks continued experienced a breach over a 12-month period.

Also consider whether there would be any implications to a client’s business if one of their suppliers were to experience a cyberattack. In these cases, it’s often beneficial to add coverage for contingent business income, as well.

In contrast, the study found only 11% of businesses were concerned with supply chain risks. Yet, cyber supply chain risk is one of the fastest growing cyber threats facing businesses today. Nearly 90% of businesses reported being dependent on third parties or outsourcing to vendors, including two-thirds that outsource their security operations or critical IT resources.

2) Reputational harm. What would happen if a business has its systems fully restored after an attack, but revenue does not immediately return to its pre-attack level because customers are hesitant to return? Reputational harm coverage goes beyond traditional business income coverage to help address a reduction in revenue after a system is restored.

Although it is encouraging to see that businesses recognize the need to leverage third-party experts to better protect their operations and data, it also is important to understand that outsourcing such a critical function can introduce an increased level of risk—specifically, business interruption exposure.

3) Systems remediation. Would a business have funds available to address systems vulnerabilities while also dealing with the fallout of a cyberattack?

While these third-party security organizations are often more difficult to breach, bad actors recognize the access they could gain to a larger number of businesses if they are breached, making them a desirable target. This has been playing out recently with managed service organizations increasingly being targeted by ransomware attacks. Customizing Coverage Given the prevalence of cyber risks, it’s important for businesses to have the proper insurance protection and risk management plans in place. Independent agents can help their clients identify risks and structure insurance programs that help mitigate possible exposures and address their unique needs.

Some cyber offerings only pay for a business to mitigate the effects of a cyberattack. However, others also provide funds to help address system deficiencies identified after a loss. This can help reduce vulnerabilities to emerging attack vectors that may not have been previously recognized or understood. Leveraging Outside Experience To protect against emerging risk, businesses

Three cyber coverages to consider are: 1) Business income. Would a business be affected if a malware attack forced it to close its doors? Business income loss coverage covers the cost of lost income and extra expenses incurred while a system is being restored following a cyberattack. 26

www.viaa.org

What Your Clients Need to Know About Emerging Cyber Risks continued need more than just the right insurance protection. It’s the combination of coverage and risk mitigation that will yield the best results. Many businesses are taking initial steps to help reduce cyber threats and the majority have plans in place to identify, respond, and prevent cyberattacks, including employee training programs. While these are great steps in the right direction, less than 50% of businesses engage external experts in the preparation of their plans, which is where insurance carriers can step in with additional resources to help best protect businesses. Some carriers partner with incident response or risk prevention vendors that can help businesses develop and implement response management and prevention plans. Agents can help encourage clients to take advantage of these education and loss mitigation resources. As new technologies continue to emerge and businesses become increasingly interconnected, it is more important than ever for businesses to have the right cyber insurance protection in place. With more than 70% of businesses purchasing cyber insurance on the recommendation of an independent agent, it’s evident that your advice and influence is critical in guiding business owners to the right protection that addresses both the traditional and emerging cyber risks they face. Eric Cernak is president of cyber at The Hanover Insurance Group, Inc. All products are underwritten by The Hanover Insurance Company or one of its insurance company subsidiaries or affiliates (“The Hanover”). Coverage may not be available in all jurisdictions and is subject to the company underwriting guidelines and the issued policy. This material is provided for informational purposes only and does not provide any coverage or guarantee loss prevention. (For more information visit The Hanover website.)

Reprinted from IA Magazine. www.viaa.org

www.viaa.org

C E O & R O N ER

Agency Strategies to Send & Receive Personal Data Securely By Jeff Yates

The Internet and mobility revolutions have enabled agents and their clients to live in an electronic world where the parties can work and communicate with each other from anywhere, opening up wonderful new opportunities for agencies to reach out to new consumers and provide their clients with enhanced services and responsiveness. These developments, however, have multiplied the security risks that agencies must manage in order to protect their clients’ personal data. It is no wonder then that E&O underwriters extending coverage for data breach to agencies increasingly are asking their applicants whether they encrypt or use other protective measures to safeguard this client personal data when it is being transmitted. This article explores approaches agencies can take to protect personal data in transit and then references a number of resources to assist agencies. Encryption A common question agents ask is: “what is encryption?” When you think of encryption consider those codes the military employs to keep conversations unintelligible to the enemy. You can find many definitions of encryption on the Internet, but I like this simple one from Microsoft: Encryption is a way to enhance the security of a message or file by scrambling the contents so that it can be read only by

someone who has the right encryption key to unscramble it. For example, if you purchase something from a website, the information for the transaction (such as your address, phone number, and credit card number) is usually encrypted to help keep it safe. Use encryption when you want a strong level of protection for your information. Requiring a strong password to gain access to your system is an important security Procedure, but it is not the same as encrypting the data within the system. Personal Data What are the types of “personal data” that are most sensitive and need to be encrypted when transmitted? The definition of “personal data” can vary by state and is contained in the state data breach notification and privacy laws, as well as in various federal laws, such as HIPAA (PHI – Protected Health Information). Insurers, too, might employ various definitions of “personal data” in their policies, so it is incumbent upon the agency to be familiar with not only the specific laws but also the coverage definitions that apply to the agency. Note also that the applicable state law is based upon the residency of the individual whose personal data is being protected, not the location of the agency. This is an important consideration for both agencies writing business in multiple states and agencies writing policies that cover individuals who reside in multiple states. Read More

www.viaa.org

In Claim Disputes, Disregard Case Law At Your Own Risk

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. 36

www.viaa.org

The International Risk Management Institute has several free newsletters. Recently, I received my copy of the IRMI Construction Risk Manager newsletter which featured a court case, Security Nat’l Ins. Co. v. Construction Assoc. of Spokane, No. 2:20-cv-00167, 2022 U.S. Dist. LEXIS 53533 (E.D. Wash. Mar. 24, 2022), that involved whether a general contractor was an additional insured under a subcontractor’s CGL policy. But the issue I’d like to address in this article is, according to newsletter editor Ann Hickman, CPCU, CRIS, ARM, the court’s holding the insurer “in bad faith for denying a claim without making a reasonable attempt to review the legal precedent cited by the insured’s counsel.” According to Ann, the court held that “insurance companies must take reasonable steps to ensure adjusters are equipped to make appropriate coverage and defense determinations. ‘Such steps could include teaching adjusters to run case searches or, more likely, supplying adjusters with subscriptions to relevant legal newsletters, a resource most attorneys rely on to keep apprised of legal developments,’ the court opinion states.” I make precisely this point in my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” In the book, I devote over 70 pages to 17 legal and contractual principles that can be used to resolve such disputes. One of these principles is what I refer to as “Unconscionable Advantage.” In my discussion of this principle, I cite the following court case: “In situations where a layman might give the controlling language of the policy a more restrictive interpretation than the insurer knows the courts have given it and, as a result, the uninformed insured might be inclined to be quiescent about the disregard or non-payment of his claim and not to press it in timely fashion, the company cannot ignore its obligation. It

cannot hide behind the insured’s ignorance of the law; it cannot conceal its liability. In these circumstances it has the duty to speak and disclose, and to act in accordance with its contractual undertaking.” — Bowler v. Fidelity & Cas. Co., 53 N.J. 313, 327-328, 250 A.2d 580, 588 (1969) More specific to the Security National decision referenced in the IRMI newsletter, the Bowler decision expresses how important and valuable governing case law can be to a claim. If the insurer is made aware of case law under identical or significantly similar circumstances where coverage has been found, it is with great risk that it continues to deny the claim. In fact, consider the following case cited in my book [emphasis added]: “An insurer bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy irrespective of the source of the information.” — Smith v. Travelers Indem. Co., 32 Cal. App. 3d 1010, 1017, 108 Cal. Rptr. 643 (Ct. App. 5th Dist. 1973) The adjuster and insurer failed to acknowledge the case law cited by the claimant’s attorney. Governing case law is often critical to resolving claim disputes and, as the Security National case illustrates, this does not mean just the case law one party believes supports its opinion. Finally, as my book in its entirety demonstrates, not only is case law of value, but ANY reputable source of credible, substantive and material authority may be relevant.

www.viaa.org

COMPANY & AGENCY NEWS 40

www.viaa.org

George MacKinnon joins Union Mutual Insurance Company as Vice President of Underwriting Union Mutual Insurance Company announced that it has hired George MacKinnon to be the Company’s Vice President of Underwriting. MacKinnon starts with the Company in April. MacKinnon has more than 30 years of experience in the insurance industry, working most recently at Patrons Oxford as Vice President of Underwriting. He has experience in Commercial Lines insurance, Workers Compensation, Personal Lines Insurance, Information Technology, Accounting, and Sales. MacKinnon and his wife are relocating from Maine to Vermont and MacKinnon will be based in the Company’s Montpelier office.

The Richards Group is Hiring The Richards Group is currently seeking individuals for the following positions: Commercial Lines: P&C Project Manager- https://smrtr.io/8td9z Commercial Lines Account Manager Assistant- https://smrtr.io/8MmDD Account Manager- Personal Insurance- https://smrtr.io/7WBRAccount Manager- Commercial Insurance- https://smrtr.io/8wzFq Operations Software Specialist- https://smrtr.io/7G3yt