A MONTHLY PUBLICATION OF THE INDEPENDENT INSURANCE AGENTS & BROKERS OF LOUISIANA
LOUISIANAAGENT OCTOBER 2023
FEATURES: LOUISIANA INSURANCE CRISIS & IIABL REFORM PROPOSALS BY JEFF & BEN ALBRIGHT
COMPLIANCE WITH LOUISIANA CERTIFICATES OF INSURANCE LAW BY JEFF & BEN ALBRIGHT
CATALYIT EMPHASIZES THE POWER OF TECHNOLOGY IN DRIVING PROFIT BY JEFF & BEN ALBRIGHT
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IIABL STAFF Jeff Albright Chief Executive Officer jalbright@iiabl.com (225) 236-1366
Benjamin Albright Vice-President of Strategic Initiatives balbright@iiabl.com (225) 236-1357
Karen Kuylen Director of Accounting & Finance kkuylen@iiabl.com (225) 236-1353
Jamie Newchurch Director of Insurance Programs jnewchurch@iiabl.com (225) 236-1350
Kathleen O'Regan Director of Communications & Events koregan@iiabl.com (225) 236-1360
Brandi Van Pelt Insurance Programs Administrator bvanpelt@iiabl.com (225) 236-1358
Dustin Wambsgans Agency Consultant dwambsgans@iiabl.com (225) 236-1361
Karson Roberts Communications & Event Administrator kroberts@iiabl.com (225) 236-1351
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CONTENTS TABLE OF CONTENTS & FEATURED STORIES
16 Temple’s Advisory Council 18 Insurers Must Accept Producer of Record Changes 20 3 Ways to Help Small Business Customers Minimize Risk 23 2023's First-Half P&C Underwriting Loss Just $2 Billion Below Loss for All 2022
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CATALYIT EMPHASIZES THE POWER OF TECHNOLOGY IN DRIVING PROFIT
25 Build to Rent: How Agents Can Help Clients in the Emerging Homebuilding Market 28 Commercial Lease: Who Replaces Damaged Building Property After a Burglary? 30 Finding Solutions as Carriers Reduce Capacity in the Hard Market 33 Interest Rates are Stress Testing Internal Perpetuation
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COMPLIANCE WITH LA CERTIFCATES
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CATALYIT EMPHASIZES THE POWER OF TECHNOLOGY IN DRIVING PROFIT
36 Navigating 10 Common Restaurant Industry Risks 38 The Permanently Evolving Nature of the Cyber Insurance Market 41 Advertising Index
18153 E. Petroleum Drive Baton Rouge, LA 70809 Ph: (225) 819-8007 www.iiabl.com
43 IMS: Your Partner in Market Access 44 Upcoming Events 45 2023 Industry Partners 46 IIABL Officers and Board of Directors
Jeff & Ben Albright October, 2023
The Louisiana Insurance Crisis: The international and national primary and reinsurance markets are struggling with increased catastrophe losses, litigation and inflation which has negatively impacted profitability and created a historically hard market. However, Louisiana has inherent challenges which make our market much worse than the rest of the country. Some of our challenges include severe hurricane risks, a small insurance market, a struggling economy, and high-risk industries, all of which have led to the current insurance crisis. However, it's not just natural disasters at play. A report titled "It's Not Just the Weather," produced by APCIA, RAA, and the Bermuda Reinsurers, highlights how while insurers can handle natural risks, managing the “social inflation” brought about by legislative, regulatory, and judicial interventions remains a challenge. They specifically list California, Florida, and Louisiana as the three states in the country that have particularly bad legislation, regulation, and litigation.
Challenges Faced by Insurers in Louisiana: Legislative Environment: Restrictive statutes on insurers like prior approval rate regulation, and limitations on claims handling, non-renewals, and cancellations. Claimant friendly benefit and tort statutes compound the problem. Regulatory Environment: The elected insurance commissioner has resulted in excessive insurer regulations. Bureaucratic hurdles slow down rate and form approval processes, and there's a disciplinary rather than facilitative approach to regulation. Tort Environment: Increased frequency and severity of tort claims, combined with expansion of tort in property claims, bad faith penalties, and attorney fees. Social inflation due to plaintifffriendly legal venues and aggressive legal advertising. Proposed Reforms to Address the Crisis: IIABL 2024 Insurance Reforms 1) Deregulate insurer rate filing process Replace prior approval rating statutes with use & file statutes Modernize & streamline rate filing processes LDI provide assistance to insurers on rate filings
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INSURANCECRISIS 2) Modify the “more than 3-year rule” R.S. 22:1265.D. & R.S. 22:1333.C. Allow changes in individual policy deductibles Clarify “material change in the risk” Limit rule to policies that qualify before 1/1/2025 Repeal the statute entirely IIABL 2024 Claims & Loss Costs Reforms 1. License & regulate the appraisal umpire process (2023 HB 604) 2. License & regulate roofers; permit & inspect roofs 3. Require inspection by insurer before major demolition IIABL 2024 Tort Reform Ideas 1) Reform bad faith penalty statutes R.S. 22:1892 & R.S. 22:1973
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Combining bad faith statutes (La R.S. 22:1973 and 22:1982) so there is only one set of statutes and one set of penalties. Require a sworn statement by the policyholder as the “Satisfactory Proof of Loss” trigger. Unlike states like Florida and Texas, Louisiana has never statutorily defined what constitutes SPOL. Create a cure period or claims process that encourages insurers to make supplemental payments. Gives both parties an opportunity to resolve any dispute before a policyholder has to resort to costly and lengthy litigation 2) Reform collateral source Create something like balance billing statute in Medicaid (can only recover amount paid by insurer + deductibles, copays) Limit recovery to actual medical expenses paid (eliminate current 40% of the difference between the amount billed and paid)
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INSURANCECRISIS • Require claimants to use collateral sources of Workers Compensation or health insurance if available but allow claimant to recover deductibles, copays, etc.) 3) Transparency around actual medical costs Only allow medical bills that are actually paid or owed by the claimant to be introduced into evidence Limit evidence to actual medical costs and exclude billed charges 4) Third-party litigation funding arrangements Require disclosure of all third-party litigation financing arrangements in which a third-party funder will be entitled to a share of any earnings from a settlement or judgment Prohibit third-party litigation financing 5) Elimination or reduction of direct action statute Prohibit direct action against the insurer unless there is a reservation of rights or an inability to serve the plaintiff 6) Reduce or eliminate jury trial threshold
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Jeff Albright October 2023 One of the most common requests IIABL receives is for clarification on compliance with the Louisiana certificates of insurance (COI) statute. Following are the key points agents need to know to comply with the law.
The Louisiana statute on certificates of insurance is R.S. 222:890 ; The Louisiana Department of Insurance has LDI Bulletin 09-02. Definitions: The LA statute R.S. 22:890 lays out specific definitions for terms such as "Certificate of Insurance", "Insurance Producer", "Insurer", "Selfinsurer" among others. Notably, a "certificate of insurance" serves as evidence of property and casualty insurance coverage, but it is not an insurance binder and does not alter the contractual terms of the insurance policy. Policy Defines Coverage: Certificates issued by property or casualty insurers, or insurance producers do not alter, amend, or extend the coverages provided by the policy. Additionally, certificates do not confer contractual rights to the certificate holder. COIs are strictly synopses of underlying policies and cannot change, alter, or modify the policy's terms.
Standard COI Forms: Unless you're a lender, certificates of insurance must be issued on standard forms from insurance companies or recognized insurance industry entities like ACORD, AAIS, or ISO. Accurate Reflection of Coverage: Certificate holders are not permitted to demand or request a certificate that contains false or misleading information and may not request insurance producers to issue opinion letters or other such documents in lieu of a certificate of insurance. Applicability: The provisions apply to all certificate holders, insurers, and insurance producers delivering certificates of insurance for insurance coverages on properties, operations or risks located in Louisiana, irrespective of the location of the certificate holder, insurer, or insurance producer.
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INSURANCELAW COI Stands Alone: A certificate of insurance may not refer to legal or insurance requirements in any contracts, like construction or service contracts. Only the forms or endorsements within the insurance policy can be listed to represent the coverages provided. Cancellation Notices: Rights to notices of cancellation or changes apply only to persons named in the policy or by endorsement and in accordance with the laws and regulations of Louisiana. These terms cannot be modified by a certificate. Commissioner Oversight: The commissioner of insurance has the authority to investigate any complaints or violations related to this LA statute R.S. 22:890 and to enforce its provisions. Penalties for Violations: Certificates prepared, issued, or requested in violation of the provisions are null and void. Willful violators could be fined up to one thousand dollars per violation. Producers, brokers, or insurers violating the regulations could face both administrative sanctions from the LDOI and criminal penalties.
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Continued from page 10 Supplying fraudulent insurance documents is illegal. Louisiana law criminalizes the act of knowingly creating or possessing a false COI. Penalties for producing, manufacturing, or distributing fraudulent COIs could include a fine of up to five thousand dollars, imprisonment for up to five years, or both. Those intentionally possessing falsified documents face fines up to five hundred dollars and/or imprisonment of up to six months. For any concerns regarding the LA statute R.S. 22:890 or LDI Bulletin 09-02, the LDI Fraud Division is the point of contact. In Summary: Both the LA statute R.S. 22:890 and the LDI Bulletin 09-02 emphasize the integrity, authenticity, and unaltered representation of insurance policies through Certificates of Insurance. Any deviation, especially one that misrepresents the terms of an insurance policy, will result in penalties, including potential criminal charges. It's essential for all stakeholders, including certificate holders, insurers, insurance producers, and policyholders, to understand and adhere to these laws and regulations.
Technology is not just a functional aspect that ensures computers work; it's become a driving force for profits in modern independent insurance agencies. This is the primary message delivered by Catalyit, the Big I organization that is urging independent agencies to embrace the vast potential of technology. Turning Tech into Opportunity When you contemplate the world of technology, rather than feeling overwhelmed, Catalyit believes one should feel exhilarated. With the correct technological tools and software, agencies are poised for unprecedented success. Navigating the Catalyit Success Journey™ Recognizing that technology is fluid and constantly evolving, Catalyit introduces its Success Journey - a roadmap designed to guide agencies as they scale up their tech capabilities. The Catalyit platform offers myriad resources, supporting agencies at every step. The Tech Stack Evolution A 'tech stack' encompasses all the technology, tools, and software an agency utilizes to operate and engage with its clientele. Catalyit has identified four primary benchmarks on this journey:
Jeff Albright October 2023
1) Baseline: This involves the use of a basic agency management system (AMS), an accounting system, Office 365 Business, VoIP phone system, a website, social media accounts, video conferencing tools, and antivirus software.
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TECHNOLOGYPROFIT 2) Better: Building on the baseline, this includes enhanced AMS integrations, active website management, encrypted email, marketing automation, managed technology services, offsite backups, and more. 3) Best: Going a notch higher, it involves a comprehensive AMS, carrier submission management, website chatbots, sales management software, text messaging management, online reputation management, data analytics harnessing, and more. 4) Beyond: This is the pinnacle, where agencies automate repetitive tasks, use generative AI, robotic process automation, offer content in multiple languages, and more. Where Are You on Your Tech Journey? Catalyit offers a tech assessment to IIABL members that allows agencies to identify their current position in the tech journey. Those who subscribe to Catalyit not only receive a customized report of their assessment but also benefit from a follow-up session to address any questions.
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Continued from page 13 IIABL pays for all IIABL members to have a subscription to Catalyit! Your tech assessment, customized support and tech consultation is FREE! Catalyit: Your Catalyst for Change With a name inspired by the term "catalyst," Catalyit embodies the spirit of sparking transformative changes in agencies by illuminating the path forward in the tech landscape. For newcomers or those curious about Catalyit, they offer services ranging from tech assessments, guides & reviews, to consulting. They also have a range of resources available, such as TechTips articles, Catalyit® TechSelector™, The Vault, and Catalyit Live. With a mission of being the guiding light in the ever-evolving world of independent agency technology, Catalyit is poised to assist agencies in maximizing their potential and profitability. Agencies looking to navigate the tech maze can connect with Catalyit for tailored guidance and insights.
Commissioner-Elect Tim Temple aims to use his experience and success as a businessman and community leader to improve the availability and affordability of insurance to Louisiana families and businesses. Temple has made one of his main focuses to make the Louisiana marketplace more welcoming environment for insurers. To accomplish this goal, he recently announced the formation of an Insurance Advisory Council to tackle the state insurance crisis. The Insurance Advisory Council will focus on five areas of the insurance crisis: 1. Property Insurance chaired by Jimmy Ordeneaux, Partner at Plauche’ Maselli Parkerson LLP 2. Automobile Insurance chaired by Randy Guillot, President of Triple G. Express and former Chairman of American Trucking Association 3. Life and Health Insurance chaired by Derek Babcock, President of Insurance and Financial Services, Inc. and Allied Benefits Solutions, LLC 4. Residual Market and Safety Nets chaired by Mike Adams, Partner at Decuir, Clark & Adams LLP 5. Future of the Louisiana Marketplace chaired by Noel Bunol, Executive Vice President of Gulf States Insurance The goal is to bring all stakeholders to the table to aggressively tackle the insurance crisis in Louisiana. The Council will identify legislative recommendations for upcoming legislative sessions designed to make fundamental changes to how Louisiana works with and regulates the insurance industry. Temple says this marks the most comprehensive and ambitious effort in recent history to find tangible solutions to address the insurance burden on Louisiana families and businesses.
We can’t sit around and wish this problem away. I ran on a platform of immediately getting to work for the people of this state and that’s exactly what we’re doing,” says Commissioner-Elect Temple. “We’re going to bring everyone to the table and we’re going to figure this out. Families and businesses can’t wait any longer. It’s time to get to work.” His transition team is made up of stakeholders from across the state. From insurance providers to insurance policy holders, he believes that it’s critical that everyone has a seat at the table and works together to solve this crisis.
Kathleen O’Regan October, 2023
Jeff Albright October 2023 One of the most common requests IIABL receives is for clarification of the Louisiana producer of record statute. Louisiana is unique in setting out a statutory process to protect the right of policyholders to select their producer of record at any time. The law also protects insurance producers by setting out a clear procedure for changes in producers of record. Clarification of the producer of record statute can be found in three documents: 1) Louisiana statute R.S. 22:1564 2) LDI Directive 211 3) IIABL TA-335 is information regarding the Louisiana statutory requirements for all insurers, including surplus lines insurers and brokers to accept producer of record changes. I draw your attention to LDI Directive 211, which reads in part: It has come to my attention that some insurers, including surplus lines insurers, have refused to accept a written request for a change or removal in the "producer of record" on insurance policies. When the owner of the policy or the first-named insured requests in writing a change in the producer of record, the insurer shall accept the producer of record letter and make the requested change.
All insurers, including surplus lines insurers, who receive a request in writing from the owner of the policy or the first-named insuredto change or remove the producer of record shall comply with the law andmake the change or removal of the "producer of record" as set forth in La. RS. 22:1564. Any insurer who refuses to accept a written requestand recognize a change in the "producer of record" from the ownerof the policy or the first-named insuredmay be in violation of La. R.S. 22: 1564 and subjectto regulatory sanctions. The law clearly requires all insurers, including surplus lines insurers, to accept producer of record changes when made by the policyholder in writing.
3 Ways to Help Small Business Customers Minimize Risk Christina Villena - Vice President, Risk Solutions, at The Hanover Insurance Group
Small businesses face an influx of risks daily. From the uncertainties of inflation, to changing weather patterns, to the ever-looming threat of cyberattacks and even employees' distracted driving, these risks can pose significant challenges to small enterprises. Traditionally, small businesses have relied primarily on insurance coverage to address these risks, but recent loss trends indicate that proactive risk management can also be an effective and impactful approach to protecting operations. Shifting the traditional mindset around risk from "repair and replace" to "predict and prevent" can prove invaluable for small businesses, but knowing where to start can be overwhelming, especially for business owners who already are juggling countless responsibilities. Fortunately, independent insurance agents can play vital roles, helping small business owners structure effective risk management programs.
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Here are three opportunities for agents to help their small business customers prevent losses:
These online courses cover various topics, such as employment practices liability and worker safety.
1) On-demand resources. Access to free policies, procedures and best practices around common risks is extremely beneficial for small businesses. Carriers that recognize the importance of proactive preparation serve as strong partners in this area. For example, agents should select carriers that offer business continuity planning toolkits and templates that small businesses can easily download and implement. This way, in the event of a loss, small businesses can be better equipped to recover quickly and efficiently.
By investing in their employees' knowledge and awareness, small businesses can minimize potential risks arising from human error and workplace incidents. These online trainings can be included as part of a new hire's onboarding or built into annual training programs.
2) Online training. Employee education plays a critical role in risk management. Small businesses can benefit from self-paced online training opportunities, which some carriers offer as an added benefit of their insurance programs.
3) Discounts for key services. Partnering with a carrier that aligns risk management solutions with emerging risks can be a game-changer. For instance, water damage has become the leading cause of property damage for businesses. Carriers that offer discounted technology-enabled water sensors can empower small businesses to address this risk in real time, mitigating potential losses.
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MINIMIZERISK Additionally, services to combat distracted driving and enhance cybersecurity are important considerations for small businesses when selecting an insurance program. Carriers dedicated to helping small businesses stay ahead of risks understand the value of continuous investment in education, services, and solutions. When seeking insurance programs for small business clients, it is essential to choose carriers that not only offer coverage but also proactively support risk management efforts, such as The Hanover's Risk Solutions. These partnerships help small businesses adapt their risk management strategies to tackle the evolving landscape. Embracing proactive risk management with the help of on-demand resources, online training and cost-effective risk solutions offered by insurance carriers can empower small businesses to remain resilient, stay operational and thrive in an ever-changing business environment.
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Rising loss costs, above-average catastrophe activity, and the struggling personal lines segment—especially homeowners insurance—were factors listed as contributing to the losses. The total net underwriting loss for U.S. property & casualty after the first half of 2023 is $24.5 billion, just $2 billion short of the total recorded for all of last year, according to AM Best. 2022's first-half P&C underwriting loss was just $6.6 billion. Rising loss costs, above-average catastrophe activity, and the struggling personal lines segment —especially homeowners insurance—were factors that AM Best listed as contributing to the losses. Global average estimated losses are now significantly higher than in years past after CAT losses in 2023 recently surpassed the total CAT losses in 2022.
Anniemarie Mcpherson Spears IA News Editor
CAT losses added 9.6 points to the industry combined ratio, which is estimated at 104.5 for 2023's first half, compared to 100.2 for the first half of 2022, when 5.6 points were attributed to CAT events. The first six months of 2023 did see 1.4 points in prior-year loss reserve development, compared to 1.8 points in 2022. AM Best's estimates are similar to the Insurance Information Institute (Triple-I) and Milliman's recent projections, which said the P&C industry will not post a combined ratio of below 100 until 2025.
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UNDERWRITING During the first half of 2023, P&C net investment income declined 8%, according to AM Best's report, sinking pre-tax operating income to $9.4 billion, a drop of 69.5%. Additionally, a 40.7% drop in realized capital gains reduced net income down to $8.8 billion, or a decrease of 71.9%. The P&C industry's surplus, which is defined as an insurer's total assets minus its liabilities, has increased 6.7% from the end of 2022, up to $1.05 trillion thanks to unrealized capital gains. Losses driven by CAT events may now be the norm, according to models from Verisk. The insurance industry should expect loss totals of at least $100 billion every year, according to the data and analytics firm's projections. The average annual losses over the past five years, 2018 to 2022, were $101 billion, significantly higher than the average of $70 billion from 2013 to 2017. However, the global modeled average annual loss is now $133 billion, an increase in the modeled average annual loss of $123 billion in 2022, a new high that is being driven by factors other than climate.
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Continued from page 23 “The growth in exposure values, driven primarily by continued construction in high-hazard areas, and rising replacement costs—largely due to inflation—are the most significant factors responsible for increasing catastrophe losses," said Bill Churney, president of extreme event solutions at Verisk. “The other significant factor is the impact of climate change, which is often cited as the primary reason for the increase in losses. But, while this plays a role, year-over-year growth of exposure and rising replacement values have a far greater short-term impact." 2023 has already set the record for yearly billiondollar weather disasters in the U.S. There have been 23 extreme weather events that cost at least $1 billion this year through August, according to the National Oceanic and Atmospheric Administration (NOAA). In addition to Hurricane Idalia and Hawaii's firestorm, NOAA added an Aug. 11 Minnesota hailstorm, severe Northeast storms in early August, and other storm, hail and flooding activity across the U.S. to its list of billion-dollar storms.
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BUILD TO RENT: HOW AGENTS CAN HELP CLIENTS IN THE EMERGING HOMEBUILDING MARKET McCay Bowdoin: Vice President & Homebuilders Practice Lead for Oakbridge Insurance
With more people being priced out of homeownership, build-to-rent is among the fastest-growing asset classes in commercial real estate. To say the homebuilding industry is confused would be quite an understatement. The headlines around residential construction are gloomy at best. High interest rates—currently around 7%— elevated median home prices, while flat existing home sales and an ongoing shortage in new homes driving demand and exacerbating these other issues provide a bleak outlook, according to Forbes. Consumer confidence in purchasing a new home has not increased since 2021, according to Fannie Mae's Home Purchase Sentiment Index®. In short, “it's a bad time to buy," the survey said. These factors are combining to create a seemingly no-win scenario for homebuilders and those who insure them. However, we are seeing a dramatic uptick in the number of build-to-rent (BTR) projects across the Southeast, particularly in Georgia, Tennessee and the Carolinas. For example, Atlanta's BTR inventory has increased by 380% since 2017, according to Atlanta Agent Magazine.
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What Is a Build-to-Rent Home? BTR is a relatively new concept in the housing industry. It's a hybrid approach to multiunit construction that provides traditional, starterlevel homes for lease instead of purchase. Much like apartments, an entire neighborhood is constructed at once. Unlike the traditional apartment complex or building, the units are typically free-standing or clustered, much like for-purchase dwellings.
For consumers, there are considerable advantages to renting these homes. The amenities offered in BTR communities are on par with multifamily developments in larger cities, as well as traditional suburban subdivisions.
Unit construction is standardized to make ongoing maintenance and upkeep more efficient. Builders can customize their communities to meet the specific tastes of their tenants. Municipalities are also now more open to the traditional look and layout of BTR communities versus urban-style apartment complexes or towers.
With more and more people being priced out of homeownership yet wanting more space than an apartment, BTR is among the fastestgrowing asset classes within commercial real estate, according to a report from Berkadia. The report projected that the number of BTR units delivered in the U.S. in 2023 will grow 21% over last year.
Residents enjoy the privacy and space of a detached single-family home without the maintenance and upkeep of ownership.
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HOMEBUILDING Build-to-Rent Construction Insurance Coverage For homebuilders specializing in smaller and medium-sized developments, transitioning to the BTR model can be worthwhile. A proven track record of success will go a long way in attracting financing for the project. In the last couple of years, there's been a huge influx of capital into the sector, with major players investing billions in BTR projects. But homebuilders need to insure the buildout of these communities. Here's what independent agents who are interested in entering this niche should consider: 1) This market needs significant amounts of expertise. If you're looking to build a BTR book, you can't dive in head first. Homebuilders need agents that provide value by helping their business reduce job site risk, provide employee safety training, handle workers compensation filings and administration, and who will routinely revisit and update their coverage based on the volume of starts. 2) Partner with an experienced carrier. Most of a homebuilder's risk comes from the subcontractors active on the site. Agents can help clients choose a carrier that is experienced in screening subcontractors and their individual coverages. Look for an insurer with years of experience in new home construction coverage. Ask if they have a specific program for homebuilders.
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3) Think through unique policy needs. While items such as general liability, property coverage, workers comp, employee practices liability insurance and hired and non-owned auto shouldn't be overlooked, it's also wise to consider covering specific losses related to soil sedimentation, mold, silica and synthetic stucco damage. Opportunity in a Confused Market With a cumulative affordable housing shortage estimated at around 4.3 million total units, according to Zillow, the vast majority of metro areas in the U.S. will continue to suffer from a lack of affordable, single-family housing for both renters and homeowners. This outlook, of course, is for the foreseeable future and bodes well for BTR.
Commercial Lease: Who Replaces Damaged Building Property After a Burglary? Big “I” Virtual University Faculty October 2023
During a burglary at a commercial insured's rented premises, a security door at the rear of the premises was extensively damaged and required replacement. The carrier is declining to pay for the door based on its interpretation of the lease that there is no obligation for the tenant to pay for the building owner's property. The agent contends that based on the lease and the policy, there should be coverage, referring to the coverage for building property of others. Q: Is the landlord or tenant responsible for replacing a door after a burglary? Response 1: We'd need to see the policy, but based on the lease, I agree with the insurance company. While under the “Tenant's Duty of Maintain Premises" section of the lease the tenant has the obligation to “make all needed repairs to the Premises," including “all doors and door frames", the following lease provisions support my conclusion that the door replacement is the landlord's responsibility: Condition of Premises. With this provision, the tenant has the obligation to “repair or replace any damage or injury to all or any part of the Premises caused by the Tenant or any of the Tenant's Agents." Here the damage was caused by the burglars; the tenant has no repair obligation. Damage or Destruction. “If by fire or other casualty, the Premises are damaged, or partially destroyed, to the extent of less than 25% of the replacement cost thereof, the Landlord shall restore the Premises to the condition existing prior to such casualty." The door value is far less than 25% of the replacement cost of the premises, so the landlord has the obligation to restore it.
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DAMAGEDPROPERTY Tenant's Insurance. “Tenant shall maintain 'all risk' casualty insurance upon all property in the Premises owned by the Tenant or for which Tenant is legally liable." The tenant does not own the door and is not legally liable for the criminal acts of the burglars. Landlord's Maintenance. “Notwithstanding anything in the Lease to the contrary, Landlord shall maintain and repair…exterior walls and structure of the Property except to the extent damage is caused by the Tenant." The door is part of the structure the landlord is required to repair since the damage was not caused by the tenant. Operating Expenses and Impositions. The tenant is required to pay its share of the “Operating Expenses" which include “any and all insurance premiums and other costs of all insurance coverages which the Landlord maintains with respect to the Center." This tenant is paying their share of the landlord's building insurance premium.
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Continued from page 28 It is unreasonable for the landlord to expect the tenant to pay to replace the door given that the tenant has helped pay for the building insurance that covers the door replacement. Response 2: This is a legal question based on the interpretation of a lease agreement and I am not an attorney. However, it appears from my very quick perusal of the lease that this is a double-net lease and not a triple-net lease. I found provisions requiring the tenant to pay taxes and fees and maintenance, but nothing requiring the third element of the insuring of the building. Response 3: The carrier seems to be correct. If a lease creates a legal, contractual obligation to maintain physical real property, the tenant would be responsible for paying for the door repair and therefore the tenant's property coverage would pay for it—or if the tenant was negligent in causing building damage, its liability policy would pay. Neither seems to be the case here, so the landlord, who suffered the direct financial loss, should have coverage for that repair or replacement
Olivia Overman: IA Content Editor October, 2023
The insurance market has changed significantly in past months, particularly the auto and homeowners markets, with carriers pulling out of certain segments or significantly altering their capacity offerings. For independent agents and their clients, these changing dynamics are considerable and demonstrate the importance and value of the independent agent distribution channel. Over the past year, the industry has witnessed “a perfect storm in the homeowners market of increased weather events—both catastrophe and non-catastrophe weather events, from hurricanes and wildfires to convective storms, tornadoes and just strong thunderstorms," says Brian Foley, vice president, personal lines, RPS. “And then there's inflationary impacts on the cost to rebuild homes, both in terms of the cost of materials and the cost of labor, as well as the social inflation factors and complex legal environments in some catastropheprone states as well." The industry is also being impacted by “the underlying pressure to achieve rate adequacy after years of underperformance in the insurance market," Foley says. “And then there are a number of carriers that have become insolvent recently."
In California and Florida, coverage and the availability of coverage is shrinking. In particular, the California personal lines market is being impacted by a regulatory environment entirely dependent on the state insurance department approving rate changes to address carriers' increasing loss ratios. “Large carriers pausing writing new business and subsequent carriers just pulling out of California is changing the risk pool," says Robert Arnold, managing director at Charles Taylor, a global leading claims services provider. “In the next couple of years, I expect we're going to see the marketplace tightening up further in California because the states aren't letting them assess the premium appropriately." “The hope for the future is, however, that more carriers will move into the marketplace eventually and start writing business, or at least start writing pockets of business so that it can be more competitive," Arnold adds.
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HARDMARKET However, in a move to address issues in the Golden State, California Insurance Commissioner Ricardo Lara announced his Sustainable Insurance Strategy on Sept. 21. The agreement will allow his agency to work more quickly to assess and adjudicate carriers' rate-increase requests, which now take six months. California reversed its position on barring insurance companies from using forward-looking catastrophe models, which is standard in most other states. Previously, California had only allowed carriers to use historical 20-year data when pricing policies. Additionally, Lara wants his agency to more accurately price at-risk homes and encourage residents to better harden and protect them from wildfires, and squelch the rapid growth of California's FAIR plan, which, has become the “first resort, not last resort" for many residents. Still, carrier appetites will remain picky. “Carriers that have traditionally written on admitted paper are now choosing to retract from their admitted paper and redeploy that capacity to their excess & surplus paper," Foley says.
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Continued from page 30 “With E&S coverage, they're able to be more selective on what risks they want to write, how they're going to write those risks and, especially with some of these tough catastrophe states, they're able to exit those states a lot quicker." “In personal lines, agents are now having to piece together coverage on homes, similar to what you would expect in bigger commercial accounts or what we used to do in the ultra-high net-worth space, but they're having to do that more often on what we would consider an affluent homeowner account," Foley says. This instability means that clients are looking for financially strong carriers that maintain flexibility and are likely to remain reliable during this period of economic uncertainty. Agents can provide these carriers in a number of ways. The best places to start are “focusing on relationships, reading up on what's causing these market conditions and staying abreast of them, both up and downstream," Foley says.
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HARDMARKET .For agents, their relationships with their clients are key because they're the ones that are ultimately paying the price or making the sacrifice in terms of what coverage they're giving up." “The more you speak to your clients, the more you advise them of what's happening to set that expectation of perhaps big premium increases or some coverage changes for certain perils—that needs to be communicated," Arnold agrees. With 17% of consumers rating the cost of insurance among their top financial worries and 51% looking for ways to save money on their existing insurance policies, according to a recent Nationwide Agency Forward survey, agents can deliver a solution through relationships outside the client-agent-carrier paradigm. Other important relationships for agents include those “with insurance market carriers and wholesale partners," Foley says. “Wholesalers can really be a huge value-add in a time like this when things are just chaotic— they're able to bring together some creative solutions and additional markets that agents may not generally have access to." Also, advising clients on whether they are taking unnecessary risks by cutting back on insurance coverage will ensure that clientagent relationship continues. In July, Trusted Choice®, the Big “I" consumer branding program for independent insurance agents and brokers, released the Hard Market Toolkit. The toolkit assists Big “I" member agencies in navigating the current insurance market and helps them effectively communicate with their clients about its complexities.
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Harrison Brooks: Partner, Reagan Consulting
Preserving the affordability of an agency’s stock is key for internal perpetuation. However, rising interest rates are challenging the affordability of an agency’s valuation Prior to June 2022, the cost of debt was nearly free, with interest rates around 3-4%. Today, the Prime Rate is 8.5%, a level not seen since 2001. The chart below compares agency valuations in our Reagan Value Index (“RVI”) to the Prime Interest Rate. The RVI is a select group of approximately 35 privately held independent agencies, that Reagan appraises annually, with average revenues of $28 million. From 2018 to today, the RVI Enterprise Value / EBITDA, a common valuation metric, increased 27.1% while interest rates increased 54.5% over the same period. The combination of these two factors is stress testing stock affordability and causing concerned agency leaders to ask, “What immediate and actionable plans can we take to enhance affordability”?
When Reagan published the Private Ownership Study in 2010, roughly 59% of firms were financing stock purchases internally (agency financing or seller-direct financing). As interest rates have dropped in recent years and more lenders have entered the insurance distribution space, more agencies have left the banking business and turned to external financing (banks or other specialty lenders). Today, due to rising interest rates, agencies are considering returning to internal financing to create more flexibility and provide lower rates than outside banks and lenders. This creates an interesting tension between an agency and its next-generation stock purchasers. The agency may prefer to have employees buy stock directly from the company, with their purchases financed externally from a bank or other 3rd party lender. Although this is more costly to the borrowing employee, it creates a cash arbitrage for the agency since the agency can use the proceeds from stock purchases to reinvest in agency growth initiatives (e.g., hiring more producers, service staff and technology). It becomes an additional source of agency capital.
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INTERESTRATES The next-generation stock purchaser may strongly prefer financing provided either by the company or the selling-shareholder, since internal financing might come with an interest rate and terms more favorable than they could receive from a 3rd party lender. In any case, regardless of the source of financing, agency leaders must solve the affordability equation if they hope to preserve independence for the next generation. Over the past 12 months, many of our clients have been forced to dust off their shareholder and buy/sell agreements to address stock affordability. Below are a few strategies being used to combat the impact of rising interest rates. Strategies to Improve Stock Affordability in a Rising Interest Rate Environment: 1) Focus on first-time stock purchasers. These purchasers are typically rising stars but given their stage of life have extremely limited capital.
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Continued from page 33 Agency leaders are getting increasingly creative at how to get shares in the hands of these first-time buyers. Once these rising stars get past their first stock purchase, things get easier – since they can use already-owned stock for subsequent down payments on additional purchases and/or can use profit distributions to help with funding. 2) Establish a defined stock purchase program. Agencies can leverage their scale to negotiate preferential rates and terms. Additionally, establishing a program removes ambiguity – the more employees know about the specifics of how and when they can buy stock, the more they can prepare to do so. 3) Offer interest-only payments for the initial 6-to24-month period of the loan. Typically, this period is when a new purchaser is most strapped for cash, so they will be motivated to sell more insurance. Nothing motivates a producer to sell quite like a pending debt repayment! 4) Extend payback periods. We’ve seen certain agencies extend financing over 10 years (or even longer) to ease near-term cash flow pressure.
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INTERESTRATES Although shareholder financing terms that extend longer than an agency’s own borrowing terms can hurt short-term agency cash flow, it likely will generate a long-term payoff as more employees will be able to afford stock. 5) Provide interest rate collars on existing and new stock purchases while always adapting and offering creative financing solutions given the ever-changing environment. The path to internal perpetuation success requires flexibility and a thoughtful approach to an ever-changing valuation and interest rate environment. There is no single prescription for improving stock affordability, but agencies are encouraged to review existing programs and converse with new purchasers. A modest investment in preserving stock affordability can result in a big pay-off for an agency if it leads to enthusiastic buy-in from the next generation of high performers.
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Continued from page 34
RMS Insurance October 2023 Owning a restaurant is a prevalent ambition among individuals seeking entrepreneurial success. However, it is imperative to recognize that several risks inherently accompany the restaurant industry. Having adequate information about risks and adopting proactive strategies to mitigate their impact is vital for the longterm prosperity of your business. This blog post will delve into ten common risks that restaurant owners and managers should be mindful of to thrive in the industry. 10 Common Restaurant Industry Risks 1) Financial Risks Financial instability is one of the biggest concerns facing the restaurant business. Cash flow problems may result from high operating costs, variable food prices, and erratic customer demand. You must create a thorough financial plan, keep a careful eye on costs, and have a reserve fund to deal with unforeseen events if you want to reduce this risk. 2) Food Safety As a restaurant owner, it is essential to uphold high standards for food safety and train your staff on safe handling and storage procedures. Foodborne infections can damage your restaurant’s reputation and have legal repercussions. You must adhere to health rules to protect your client’s health and the importance of your business.
3) Employee Turnover Employee turnover is notoriously high in the restaurant industry. Hiring and training new employees can be time-consuming and expensive. Invest in employee retention methods, including competitive pay and growth opportunities, to save your business from the hassle and to establish a happy work environment. 4) Compliance and Legal Issues Restaurants must comply with various local, state, and federal regulations related to licensing, employment, health and safety, and more. Failing to meet these requirements can result in penalties, lawsuits, or even closure. You must stay informed about relevant regulations and consult legal experts regularly to ensure compliance.
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INDUSTRYRISK 5) Reputation Management: For every restaurant owner, implementing a solid strategy for managing your business’s online reputation is essential, as a single unfavorable online review or social media post can seriously harm a restaurant’s reputation. You must keep a close eye on client feedback and online reviews and address all the feedback, positive or negative. It will demonstrate your dedication to customer service and enhance your company’s reputation. 6) Competitor Pressure: The restaurant industry is highly competitive, with new establishments constantly entering the market. You must stay updated on industry trends, continuously innovate your menu and dining experience, and emphasize exceptional customer service to stand out. 7) Supply Chain Disruptions: Due to the steady influx of new eateries, the restaurant industry is highly competitive. You must continually reinvent your menu and dining experience, stay abreast of industry trends, and emphasize excellent customer service to differentiate yourself.
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Continued from page 36
8) Technology Challenges: Adopting and managing technology can be challenging for some restaurants; however, it is crucial in enhancing customer experience in today’s digital era. To streamline operations, you can include simple technology solutions in your business operations, such as pointof-sale systems, online ordering platforms, and reservation management software. 9) Seasonal Fluctuations: Many restaurants experience fluctuations in customer demand throughout the year. The holiday season or local events may bring a surge in customers, while slower periods can test your profitability. You can plan for seasonal changes by adjusting staffing and inventory levels and exploring creative marketing strategies to attract customers during slower periods. 10) Natural Disasters and Emergencies: Natural disasters or unforeseen emergencies can significantly impact a restaurant’s operations. It would be best to have a comprehensive emergency response plan, including protocols for evacuation, backup power, and communication channel. Also, it is essential to regularly review and update this plan to ensure the safety of your staff and guests.
Olivia Overman: IA Content Editor October 2023 “In 2020 and 2021, if you solved ransomware, you solved cyber," says Shawn Ram, head of insurance at Coalition Inc. “During the coronavirus pandemic, ransomware increased substantially when people were working from home and IT departments were not entirely prepared for employees to operate in a secure fashion because of how quickly the pandemic came upon the world." Fast forward to 2022: The cyber market had evolved, with ransomware attacks declining and cyber liability rates softening, creating an increase in capacity. “After two years of significant rate increases, we're seeing a trend of rates flattening in some pockets, especially for mid-market and larger businesses," says Adam Glaude, director of small commercial product solutions at Liberty Mutual. “And although many markets across personal lines and small commercial are experiencing challenging rate environments, cyber is in a better place than it was a few years ago." Yet, the fast-moving world of technology continues to turn, and cyber isn't without its challenges. “In the first half of 2023, we observed a 27.3% spike in ransomware claim frequency compared to the second half of 2022," Ram explains. “Couple that with a nearly 53% increase in claim severity from the average of the full year 2022 to 2023."
While this market is not currently considered to be a major contributor to the hard insurance market that is enveloping both the auto and property lines of business, indicators point to its potential for volatility. “Looking ahead for rates, much will depend on the current ransomware trajectory, and there's always the specter of a systemic catastrophic event," says Steve Ventre, senior vice president, management liability & surety, The Cincinnati Insurance Companies. “If a catastrophe event occurs, all bets are off and the current market will dramatically pivot. And while the cyber line has been significantly growing—in part due to rate increases, in part due to new risks—the reality is it's still very much an immature market." Currently, changes are afoot because of increased ransomware attacks, but other factors are also at play on the claims side. “Threat actors are now using a double extortion method to monetize their crime," says Kirsten Mickelson, cyber product group leader, Gallagher Bassett. “What that means is not only will they go into your system and encrypt the data and demand a ransom payment for the decryption tool, but the attackers are also exfiltrating the data and using double extortion to then demand a fee for data deletion."
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CYBERINSURANCE In August 2023, more than two months after the data breach of Progress' MOVEit Transfer file management program that handles sensitive information such as pension information, Social Security numbers, medical records and billing data, nearly 40 million people have been affected by the hack. In addition, digital extortionists have generally been found to be increasingly aggressive about releasing data into the public domain. Further impacting the severity of claims is the exponential increase in wire fraud. “This is where you transfer money electronically, but erroneously, to a threat actor account," Mickelson explains. “That includes through a business email compromise on the policyholder side. It can happen on the counterparty system or it can happen through straight-up impersonation where no system was compromised. Approximately $27 billion has been lost to wire fraud in the last five years, according to an FBI report, with $10 billion lost in 2022 alone." So, where does cyber liability stand in an overall difficult property & casualty landscape? “At the present, cyber shouldn't be included in the current hard market, but it's not a soft market either," Ventre says. “Rather, the cyber market is in a more of a moderate, yet cautious phase." In essence, the world of cyber insurance is in a state of flux. “While pricing has stabilized and we are not experiencing the astronomical increases felt the past two years, renewal rates are generally flat to slightly higher in the small and midsized enterprises (SMEs)," says Steve Robinson, national cyber practice leader for RPS. “We have witnessed rate reduction in middlemarket and large risk sectors in the range of 5% to 25%, sometimes higher—the biggest pricing reductions are found in the excess market."
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Continued from page 38 For insurers, “cyber insurance also presents a particularly interesting challenge as the CAT modeling and historical data typically relied on for more established markets—think wind and hail—are less mature and, unlike other lines of business, are subject to human factors that can lead to more volatility in the market," Glaude says. “Every few years, cybercriminals come up with a novel new way of extracting data and stealing money from businesses and consumers," Glaude continues. “And when these new types of cybercrimes crop up, the industry is required to look at the risk in a different way and adapt its modeling." Nevertheless, the cyber market has a unique ability to control its CAT events. “There's lots of ways to interdict in cyber and manage the potential event that's occurring," Ram says.
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Continued from page 39
CYBERINSURANCE “You can update your software, you can establish controls, you can monitor the activity, but a cyberattack is unlike an earthquake, where there are very few limits on what damage an earthquake can do," Ram says. “As long as insureds continue to update, protect and educate themselves to mitigate the severity of breaches, I think the market will stay stable," says Derek Kilmer, associate managing director, professional lines broker, Burns & Wilcox. “And with the new carrier entries into the marketplace coupled with increased retentions and strict IT controls (like MFA) we're expecting stabilization in the market overall." “Nevertheless, we're always one large incident away from the market hardening," Kilmer warns.
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ADVERTISER INDEX COMPANY
Accident Fund Ins Company of America Agile Premium Finance Amerisafe AmTrust North America AmWINS Access Insurance Services, LLC Aspera Insurance Services Berkshire Hathaway GUARD Ins Cos Burns & Wilcox, Ltd. Commercial Sector Insurance Brokers EMC Insurance Companies FCCI Insurance Group Forest Insurance Facilities Homebuilders SIF Imperial PFS Iroquois South, Inc. LA Workers Compensation Corporation
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32 24 5 34 19 42 40 21 8 42 37 32 27 12 35 2
COMPANY
Lane & Associates, Inc. LCI Workers' Comp Louisiana Restaurant Association (WC) LUBA Workers' Comp National General, An Allstate Company Progressive RISCOM RLI RPS/Risk Placement Services Safepoint Insurance Company Selective Insurance Stonetrust Commercial Insurance Co. Summit Consulting, Inc. The Gray Insurance Company UFG Insurance Wright Flood
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As an independent insurance agent, your success depends on access to competitive insurance markets. Without a range and the right mix of insurance products to offer your clients, your agency may struggle to thrive. Independent Market Solutions (IMS), an agency network that always puts [insert association name here] members first, aims to address that problem by offering an alternative approach to market access. You likely already take advantage of other programs and professional services provided by your association; why not make the most of another member-exclusive benefit that provides access to high-quality insurance markets with competitive terms?
IMS is owned and operated by a conglomerate of state associations that are solely motivated to make independent agents more prosperous. That’s why IMS agents earn competitive commission rates, enjoy flexible terms, and maintain direct working relationships with all appointed markets. For certain markets, IMS also allows agencies to “graduate” to a direct appointment with no strings attached. The program, available to member agencies at no additional cost, is an excellent way for independent agents to gain access to new markets, build relationships with carriers, and grow their businesses. To learn how to connect with IMS carrier partners, visit imsaccess.com.
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LOUISIANAAGENT
UPCOMINGEVENTS
Event
Date & Time
Location
Registration
Independent Insurance Agents of Baton Rouge Luncheon with Louisiana Commissioner Elect, Tim Temple
Nov. 16 11:30 am - 1:00 pm
Juban’s
Online Registration
Independent Insurance Agents of Shreveport Bossier November Luncheon (Rescheduled rom Sept.)
Nov. 28 11:30 am - 1:00 pm
The Shreveport Club
Online Registration
Independent Insurance Agents of Greater New Orleans Past President’s Christmas Luncheon
Dec. 8 11:30 am - 1:30 pm
Metairie Country Club
Online Registration
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IIABL 2023-2024
BOARD OF DIRECTORS & OFFICERS PRESIDENT, ARMOND K. SCHWING Schwing Insurance Agency, Inc. - New Iberia PRESIDENT-ELECT, BRET HUGHES Hughes Insurance Services, Inc - Gonzales SECRETARY-TREASURER, ROSS HENRY Henry Insurance Service, Inc. - Baton Rouge NATIONAL DIRECTOR, JOHNNY BECKMANN, III Assured Partners - Metairie PAST PRESIDENT, MICHAEL SCRIBER Scriber Insurance - Ruston YOUNG AGENT REP, KRISTIN SWANSON SCOTT Swanson & Associates - New Orleans ANN BODKIN-SMITH Thomson Smith & Leach Insurance Group - Lafayette MATTHEW DEBLANC Continental Insurance Services - Marrero CHRISTY DESOTO 1st Insurance of Marksville - Marksville DOMINIQUE DICARLO CROUCH Riverlands Insurance Agency - LaPlace ROB W. EPPERS Risk Services of Louisiana - Alexandria MATT GRAHAM Lincoln Agency - Ruston CHRISTOPHER S. HAIK Higginbotham Insurance - Lafayette STUART HARRIS McClure, Bomar & Harris, LLC - Shreveport BEAU HEAROD Jeff Davis Insurance - Jennings CHARLES H. LEBLANC Bourg Insurance Agency, Inc. - Donaldsonville CRAIG MARTEL Insurance Unlimited of LA, LLC - Lake Charles LYDIA MCMORRIS Alliant Insurance Services - Baton Rouge A. EUGENE MONTGOMERY, III Community Financial Insurance Center, LLC - Monroe JOE KING MONTGOMERY McGriff Insurance Services - Monroe HARTWIG "ROBBY" MOSS, IV Hartwig Moss Insurance - New Orleans ROBERT LOUIS PALMER, JR. Insurance Underwriters, Ltd. - Metairie RANDY PERISE Blumberg and Associates - Ponchatoula ROBERT STONE Stone Insurance, Inc. - Metairie