Kentucky IA - May/June 2016

May/June 2016

Help Google love your website Page 11

The race to respond to autonomous cars Page 24

KESA has been hitting the road in our beautiful state for 35 years. We have been meeting with our policyholders, handling claims, visiting our agency partners, conducting SAFETY WORKSTM seminars, and implementing loss prevention programs. KESA’s goal is simple - to reduce workplace injuries and keep Kentucky employees working safely and productively.

KESA knows Kentucky.

200 Executive Park, Louisville, KY 40207 502.894.8484 | 800.367.5372 | www.kesa.org

What's

Inside

Page 6

Contents

11 Help Google love your website

Page 21

14 Nonprofit Corporations Present Risk Management & Insurance Challenges 18 How to Create a Social Media Policy 21 Five tech pet peeves that can dog your firm

Page 24

24 Shifting Liability: The race to respond to autonomous cars

In Every Issue 4 From the Chair

The Kentucky IA is the official magazine of the Independent Insurance Agents of Kentucky, and is published bi-monthly.

Editorial offices are located at 13265 O’Bannon Station Way, Louisville, Kentucky 40223.

Telephone:(502) 245-5432 Email: iiak@iiak.org Fax: (502) 245-5750 The Kentucky IA welcomes all advertising and editorial submissions. Inquiries for advertising, news releases and editorial contributions can be directed to Nikki Robins at the editorial office address or via email at nrobins@iiak.org

17 Upcoming Events

5 DOI News

30 Advertiser Index

6 E&O

30 Classified Ads

12 Education Calendar

30 Social Media Links

16 Industry Partners

30 There’s an APP for that

Mission Statement The mission of the Independent Insurance Agents of Kentucky is to be the preeminent advocate for Kentucky Independent Agents and support their business and professional development needs.

www.iiak.org | May/June 2016 | 3

Officers David M. Houk

Chair, Horse Cave 270.786.2724 George L. “Chip” Atkins

Chair-Elect, Louisville 502.585.3600 Michael G. Johnson, CIC Vice Chair, Lexington 859.233.1461 James D. England, AAI

Treasurer, Pikeville 606.437.7361 Stephen R. Kinkade, CPCU, AAI

National Director, Leitchfield 270.259.5465 Michelle L. Love

Immediate Past Chair, Owensboro 270.926.2806

Directors Allen J. Crawford, CIC, CSRM

Somerset, 606.679.6311 Neel Ford, AU, CPIA

Owensboro, 270.926.2806 Sharon B. Hill

Jamestown, 270.343.3144 Aaron LaRue

Bardstown, 502.348.0050 Skip McGaw, CIC

Madisonville, 270.821.3122 Crystal Reid, CIC

Paducah, 270.442.3533 Ray A. Robertson, CIC

Mt. Sterling, 859.498.3410 Laura Yount, CIC, CISR

London, 606.878.0100

Staff Peggy P. Porter

President & CEO Crystal Brown

Administrative Assistant

Chair From the

Hello everyone!

School is out and summer is right around the corner. I hope that each of you are enjoying the beautiful weather and have made time for family and friends.

Your association is still making its way around the Bluegrass with Road Shows in Owensboro, Louisville, Lexington and Northern Kentucky. There was a great turn out at Kentucky Dam Village in May and hope that we can continue that trend in the months to come. Check out page 17 for dates near you and join us to hear Rick Pitts and Peggy Porter give an update on new state laws, hot topics and industry issues.

In this issue we will be taking on the subject of technology. While I know it can be a little intimidating - and even a little frustrating at times technology can help agencies to work smarter, not harder. Technology is not only affecting our daily operations but also what we can insure. If you would’ve told me 20 years ago that there would be drones or autonomous cars, I would’ve said you were crazy. But these things are reality and we need to make sure we’re able to keep up with the times.

Even though the old days of ink and paper are behind us, the core of what we do is the same: helping people protect their most valuable assets.

With that being said, I think it is our responsibility as agents to stay on top of the latest and greatest ways to serve our customers whether that’s taking online webinars or finding a better agency management system to streamline day-to-day operations.

In addition, we must continue to be vigilant in our security measures. What happened last year to Anthem could happen to any of us. Think about how much information you have on your clients and what could happen if it fell into the wrong hands. I personally have a cyber policy with IIAK and they can help protect you too. I encourage you to talk to Kristie Weyer sooner rather than later and get your policy today.

Sincerely,

Katie M. Freshley

Education & Events Director Tara T. Purvis

Marketing Director Nikki S. Robins

Communications Director Kristie Weyer, CISR

Insurance Services Director

4 | www.iiak.org | May/June 2016

David M. Houk

DOI News

From the Commissioner By: Brian Maynard Whether working internally with our department information technology staff or sitting in on national meetings regarding cybersecurity issues, I am increasingly aware of the role technology plays in our lives and in the insurance industry. So many things we submitted on paper just a few years ago now are available online.

As you know, the Department of Insurance (DOI) has worked diligently over the past few years to go “paperless” whenever possible, and many of those projects continue to expand. In addition to renewals and record correction changes, we allow for online submissions of surplus lines affidavits and quarterly tax payments, mine subsidence quarterly reports, and annual reconciliation documents.

Since we are in the spring storm season, it is also worth noting that companies can complete an online submission of all the paperwork needed for the approval of unlicensed adjusters to work in the state in the event of a natural disaster.

For agents, you may have noticed that the eServices portal has a new look. We continue to add services, many based on your suggestions. We welcome your input on how to make this portal work more efficiently for you and we are interested in any suggestions you have for future additions.

The DOI information technology staff and our Health and Life division are currently in the beginning stages of another initiative. Several states have created a life insurance search function, which allows consumers to assist individuals who need to locate a life insurance policy to claim the death benefit. On a weekly basis, we hear from individuals across the Commonwealth who either are unable to locate an insurance company due to mergers/acquisitions that have taken place over the years or those whose loved ones mentioned a policy existed but died without leaving any details. Often, the consumer has no idea what company may have held the policy, just that “Grandmother said she had a life insurance policy.”

Initially, company involvement in the Kentucky search would be voluntary. We will ask companies for a contact name. Once a consumer submits an inquiry, DOI will send an email to all of those contacts, asking that they search the company database to see if a policy exists to match the information in the inquiry. The company will contact the consumer directly if there is a hit.

I am very excited about this initiative and believe it will provide a much needed resource for consumers. The discovery of a missing life insurance policy can make a big difference to a family during their time of grief. We hope many life insurance companies will partner with us in making this possible. Watch for more information on this initiative in the near future.

I will be attending several agent events this summer and look forward to seeing you. Please feel free to contact my office if we can ever be of assistance.

www.iiak.org | May/June 2016 | 5

Agency websites have become a core component of the marketing strategy for many independent agencies, but they also may present errors & omissions exposures that must be managed. This article explores some of the major E&O exposures that may arise and provides several E&O tips for mitigating those risks, as well as sample website disclaimers.

link. Over the past eighteen months, however, applications for E&O show a clear trend toward agency websites expanding beyond standard advertising information, as might be expected from expanding consumer online behavior and the services being offered by competitors and other industries.

Over 40% of agencies insured through the IIABA-Swiss Re E&O program now have their own website, having grown from 19% in 2006.

Having a good website, with robust functionality, has become a core tool for agencies with a modern marketing strategy. Agencies are moving to more complex websites to respond to consumers and clients who increasingly want to shop online and be able to handle basic service needs when convenient for them.

Let’s first examine what errors and omissions exposures an agency can face from the more traditional type of website. Many of the exposures on these sites are the same that exist in the ‘paper’ world. Advertising liability can arise out of the use or misuse of a trademark, or from the copyrighted material of others, and statements regarding the services available through the agency may be subject to regulatory requirements. At least one state, New York, makes this clear in Circular Letter No. 5 (2001), “Advertisements, Referrals and Solicitations on the Internet,” where it states that “Advertisements that appear on the Internet are subject to all applicable existing statutory and

Virtually all agency websites provide basic advertising for the agency, showing the agency name, logo, phone number, address and email 6 | www.iiak.org | May/June 2016

Advertising Exposure

regulatory guidelines and restrictions applicable to advertisements in any other medium.”

E&O Tip: The same level of care in creating

‘paper’ advertising is appropriate for the agency advertising contained on the website. If in doubt, a quick consultation with your qualified legal counsel is well worth the cost.

Websites commonly provide a button allowing a site visitor to contact the agency via email.

One could certainly expect questions about what services the agency provides, hours open for business or even driving directions. Keep in mind, however, that there is no way to control what a visitor might choose to include in the content of their email. The visitor might decide to include confidential personal information (such as a name coupled with a social security, drivers license or credit card number) in the unprotected email, creating an exposure to breach of data privacy.

E&O Tip: To help mitigate the liability exposure

from this common website feature, posting an appropriate disclaimer is a best practice. A sample disclaimer is provided at the end of this article for agents to use as a starting point and to customize to their agency’s situation.

Posting Website Content

As a simplified case study, let’s view the stages a hypothetical agency might follow in expanding its website over time, and how these changes can affect the agency’s E&O exposure. After constructing a basic website, the next step an agency often takes is to add articles that will be of interest to site visitors. Articles of interest can range widely in subject matter and may be available for viewing only or also as a download.

“What is an umbrella policy,” “How to implement an employee wellness plan,” and “Where to find information on OSHA requirements” are examples of topics seen on agency websites.

Content can be general in nature or become more technical and specific to certain types of exposures.

The options are practically endless.

Posting informative articles on the agency website can draw visitors, generate stickiness with existing customers, and lead people to contact the agency for additional information. In addition to these

positive benefits, there are risks that accompany posting information.

E&O Tip: If the content is original material

created by the agency, practicing due diligence to ensure accuracy of the information is a key preventative measure. The more specific the information provided, the higher the risk of generating allegations against the agency for misrepresentation or providing inaccurate advice.

There is one significant difference between content posted on a website and content published in more traditional forms. Posting content online makes the information available to anyone regardless of their physical location.

This instantaneous world-wide availability raises the issue of jurisdiction. It is not yet clear how legal jurisdiction might be applied to content published on a website. Including an appropriate legal disclaimer as part of posted information is for now one’s most effective tool in mitigating the jurisdictional risk.

E&O Tips: If the content is obtained from another source, the first step in risk management is to verify the expertise of the information’s source. This step helps minimize the exposure to allegations of misrepresentation or inaccurate advice. The information is also most likely copyrighted, creating exposure to allegations of copyright infringement. Obtaining written permission from the owner or licensor of the material prior to posting and giving appropriate credit of authorship can help mitigate the copyright exposure. If the content is obtained under a licensing agreement, explore what options may exist to protect the agency via contractual indemnification. As with information authored by the agency, it is recommended that appropriate legal disclaimers be clearly posted with information obtained from other sources.

Website Referrals

As agencies often receive requests from customers for referrals to other service vendors, it is a natural next step for the agency website to include links to these types of service vendors. Windshield repair services, CPAs for tax preparation, and disaster recovery solutions firms, are just a few www.iiak.org | May/June 2016 | 7

examples of service vendor links seen on agency websites. Linking to vendors on the agency website can create the same exposure to negligent referral that exists when the referral takes place verbally, through email or snail mail. Regardless of how a referral is provided, the best practice recommendation is to provide at least two referrals, leaving it to your customer to choose which vendor to use. If the agency site links directly to a vendor, there also may be exposure to allegations of trademark infringement or unfair use of cyber marks from the vendor.

to “Submit Application.” The Submit Application button led to a page where a full spectrum of personally identifiable information can be submitted, including: name, address, date of birth, social security number, drivers license number – basically all the information one needs to carry out identity theft. There was no indication of security being enabled by an ‘https’ displayed before the URL (evidence of creation of an SSL connection), and nothing contained within the web page itself referred to secure transmission of this data.

E&O Tips: The best practices to follow to mitigate

An agency has the duty to protect personally identifiable information and a myriad of both state and federal laws apply. Violations of these laws carry significant financial penalties, not

allegations of negligent referral for vendor referrals, including linking, are to: 1. obtain written permission from the vendor or site to which the link leads 2. provide always more than one selection for each type of service 3. ensure there are appropriate disclaimers regarding the services being provided by these vendors.

Interactive and Web-based Transactions

Agencies are increasingly adding interactive website features to increase the effectiveness and efficiency of the agency. When interactive features are included on an agency website, more unique E&O exposures can quickly develop. The most rapidly growing exposure we have seen is the number of agency websites that are accepting application information.

As part of the underwriting process on a recent renewal, we reviewed an agency website. The site opened to a very professionally designed home page. The site had clearly written text, eye-pleasing graphics, was well-organized, and quick-loading. At the bottom of the first page, a link to the agency privacy statement was prominently posted. Following the various tabs, one could easily find informative articles which clearly showed authorship and contained appropriate disclaimer language. So far, so good.

We then clicked on a button titled Personal Lines, on through the Auto Insurance button, 8 | www.iiak.org | May/June 2016

1 in 4

underwriters at J.M. Wilson previously worked for a retail agency

3

GENERATIONS OF LEADERSHIP

RELATIONSHIPS IT’S ALL ABOUT WHO YOU KNOW

1947

the year our longest-standing carrier relationship began

MGA and E&S Broker since 1920

(800) 666-5692 | JMWILSON.COM

55% OF OUR AGENTS HAVE WRITTEN BUSINESS WITH US FOR 10 YEARS OR MORE

BROKERAGE / PROFESSIONAL PERSONAL LINES PROPERTY & CASUALTY TRANSPORTATION SURETY

to mention the extreme damage that can be done to the agency’s reputation. One state, for example, specifically requires “encryption of all transmitted records and files containing personal information that will travel across public networks, and encryption of all data containing personal information transmitted wirelessly.” At the most recent count, forty-six states have some type of law or regulation addressing the protection of personal information.

E&O Tips: Agencies that collect personally

identifiable information (whether on their websites or not) should take the necessary steps to be knowledgeable about state and federal laws and regulations that protect such personal information and provide the level of data security required by them.

A best practice is that the agency website create an SSL connection with the visitor’s browser before the visitor is asked to enter an id or password or any personal information, such as that included on insurance applications, so that this information cannot be read by unintended parties over the Internet.

Many agencies are now expanding their online presence to include social media as a part of their advertising and customer interaction. ACT has an article and webinar on the E&O exposures arising from the use of social media which can be found at www.iiaba.net/act at the “Website & Social Media” link.

Key activities for mitigating E&O exposures generated by a web presence

It’s an exciting time as agencies become more creative in using the opportunities that websites can provide. Be creative, but not naive. Keep in mind that with every opportunity, there is risk.

Consider the following quick tips to help mitigate your agency’s exposure to errors and omissions that may arise from your agency’s website: 1. Review website advertising with the same level of legal scrutiny toward copyright and trademark issues as the agency’s more traditional advertising

2. Post an appropriate Privacy Statement prominently on the website 3. Review original content posted on the website for accuracy and post appropriate disclaimers 4. Obtain written permission for content obtained from other parties, be confident they are a knowledgeable source, credit their authorship, obtain the author’s indemnification (if feasible) and post appropriate disclaimers 5. If you decide to refer to other service providers, provide more than one provider name, obtain written permission to link to them and post appropriate disclaimers regarding the services provided by the vendors 6. If the website has interactive features that collect personally identifiable information, comply with all state and federal privacy and data breach notification laws and regulations and create an SSL connection with the visitor’s browser before the visitor is asked to enter an id or password or any personal information.

Sample Website Disclaimers

Agents should consult with their local counsel to customize these sample disclaimers so that they fit their website, are positioned at the appropriate places on the site and comply with all of the federal and state laws and regulations that apply to them. These disclaimers are in addition to the Privacy Statement that the agency should include at the bottom of its website setting out its privacy policies.

Website Disclaimers Please review carefully!

“This information is not an offer to sell insurance.

Insurance coverage cannot be bound or changed via submission of this online form/application, e-mail, voice mail or facsimile. No binder, insurance policy, change, addition, and/or deletion to insurance coverage goes into effect unless and until confirmed directly with a licensed agent.

Note any proposal of insurance we may present to you will be based upon the values developed and exposures to loss disclosed to us on this online www.iiak.org | May/June 2016 | 9

form/application and/or in communications with us. All coverages are subject to the terms, conditions and exclusions of the actual policy issued. Not all policies or coverages are available in every state.”

“Please contact our office at 555.555.5555 to discuss specific coverage details and your insurance needs. In order to protect your privacy, please do not send us your confidential personal information by unprotected email. Instead, discuss that personal information with us by phone or send by fax.”

“Statements on this website as to policies and coverages and other content provide general information only and we provide no warranty as to their accuracy. Clients should consult with their licensed agent as to how these coverages pertain to their individual situation. Any hypertext links to other sites or vendors are provided as a convenience only. We have no control over those sites or vendors and cannot, therefore, endorse nor guarantee the accuracy of any information provided by those sites or the services provided by those vendors.”

constitute professional advice. If you have legal, tax or financial planning questions, you need to contact a qualified professional.”

This article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advice. You should consult legal or other professionals with respect to any specific questions you may have. Further, the statements and/or opinions contained are those only of the author and do not constitute and should not be construed to constitute any statement, opinion or position of Swiss Re, IIABA or ACT. Sabrena Sally, CPCU is Senior Vice President of Westport Insurance Corporation, a Swiss Re company, and manages the Big “I” Agency Professional Liability Program, which is endorsed by IIABA and 51 Big “I” state associations. Sabrena can be reached at sabrena_sally@swissre.com. Sabrena produced this article for the Agents Council for Technology (ACT), a part of the Independent Insurance Agents & Brokers of America. For more information about ACT, visit www.independentagent.com/act or contact Jeff Yates, ACT Executive Director at jeff.yates@iiaba.net. This article reflects the views of the author and should not be construed as an official statement by ACT or IIABA.

“Information provided on this website does not

.®

.

There can be no doubt that all our knowledge begins with experience. – Immanuel Kant

www.summitholdings.com

Policies are underwritten by Bridgefield Casualty Insurance Company and Bridgefield Employers Insurance Company, authorized insurers in AL, AR, FL, GA, IN, KY, LA, MS, NC, SC, TN and TX; BusinessFirst Insurance Company, authorized in FL, GA, KY, NC, SC and TN. ©2016 Summit Consulting LLC | 2310 Commerce Point Drive, Lakeland, FL 33801

10 | www.iiak.org | May/June 2016

Help Google love your website By: Steve Anderson Many consumers start their search for purchase information online. Google has the largest share of online searchs (64% in March 2016). Making sure Google likes your website will help your site – and thus your agency show up in on-line searches.

How Google decides what sites to display has evolved over the years. It will only show sites that – in its opinion have relevant and useful information for the users.

So to become Google’s favorite you need to follow certain steps:

High Authority Links

Your websites “authority” or “Page Rank” is one factor that will help your site show up in a search result. The more other sites with high authority link to your site, the higher Google ranks your site. In other words, more weight is given to links from an authority site of high expertise than sites having a low expertise. This website “Page Rank” is what has made the Google search results better than other options.

Google will even impose a penalty for distributing bad links if low-quality links are in your content.

If you are establishing a high-quality connection throughout your content, that makes Google identify you as a high-quality site. The best way to get high-quality links is to create high-quality content that others want to include in their sites.

Appropriate Content Keywords

Content Keywords are still important but don’t carry the same weight as in the past. However, it continues to be important for you to make sure the keywords (or search terms people use to find your information) are appropriately used in your articles and other content pages. Your keywords help Google better understand the information on each page so they can list your page in a search result.

Good Heading and Description Tags

Another way Google evaluates the information on your webpage is with the help of Metadata (information contained in the actual code that makes up a web page). This information helps Google lead traffic to your page rather than falling back on related keywords. In this way, Google brings about targeted search traffic to your page and thus more visibility and hopefully business to the agency.

XML Sitemap Development

An XML Sitemap provides search engines with an easy to “read” catalog all your website pages.

Every website should have a Sitemap. You can create an XML sitemap using some available free tools. These tools can also help you notify Google to come and index your site.

A site map acts as a guide for Google to recognize what your website is all about and how those pages and links are relevant. Much time is saved depending on how the search engine ranks your page for a search result.

While Google has the majority of search traffic, the principles described here also apply to Bing, Yahoo, and other search engines.

This admittedly more technical tip is important to remember when creating a new website, updating an existing site, and when adding new content to your site. Consumers are increasingly likely to start their search or insurance help with an online search. You want to do everything possible to have your agency website show up in their search results.

Reprinted with permission. To sign up for Steve’s weekly newsletter or for more information please visit www.SteveAnderson.com.

www.iiak.org | May/June 2016 | 11

Upcoming Education Classes Affordable Care Act: Update 2015 & Beyond* - NEW 3 hours C.E. July 19 @ 10 am

Agency Management Based E&O and Ethics* - NEW 3 hours C.E. July 15 @ 10 am August 9 @ 1 pm

Annuity Basics and Where They Fit* 1 hour C.E. July 26 @ 1:30 pm August 25 @ 3 pm

Business Fraud Protection* - NEW 1 hour C.E. July 12 @ 2:30 pm August 9 @ 12 pm

Business Auto Claims That Cause Problems* - NEW 2 hours C.E. July 19 @ 1 pm

Certificates of Insurance - Emerging Issues and Other Stuff that May Scare You!* - NEW 3 hours C.E. July 15 @ 11 am August 30 @ 11 am

Commercial Lines Claims That Cause Problems* 2 hours C.E. August 4 @ 11 am

Commercial Property Endorsements That Can Make You Money!* 2 hours C.E. July 21 @ 10 am

COPE - Property Underwriting and Effective Loss Control* - NEW 2 hours C.E. July 26 @ 10 am

Data Privacy Insurance* 2 hours C.E. July 20 @ 11:30 am August 18 @ 1:30 pm

12 | www.iiak.org | May/June 2016

Directors and Officers Liability Insurance* 2 hours C.E. July 26 @ 3 pm August 16 @ 11:30 am

Double Trouble - Certificates of Insurance & Business Auto Endorsements* - NEW 2 hours C.E. July 19 @ 1 pm August 11 @ 1 pm

Dueling Additional Insured Endorsements* - NEW 1 hour C.E. July 19 @ 9 am August 17 @ 10 am

E&O Risk Management - Meeting the Challenge of Change* 6 hours C.E. July 21 @ 10 am August 2 @ 11 am August 18 @ 9 am

E&O Risk Management - Meeting the Challenge of Change - Onsite Course at IIAK Education Center 6 hours C.E. October 4 @ 9 am

Ethics and Business* - NEW 3 hours C.E. July 19 @ 9 am

Estate Planning Basics*

2 hours C.E. July 14 @ 2 pm August 11 @ 12:30 pm

Home Based Business Exposures* 2 hours C.E. August 23 @ 10 am

Hot Topics in Personal Lines* - NEW 2 hours C.E. July 28 @ 11:30 am August 26 @ 11 am

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2 hours C.E. August 16 @ 10 am 2 hours C.E. August 12 @ 11 am

National Flood Insurance Program Basic Course - 2016 (includes 2015 updates)* - NEW 3 hours C.E. July 19 @ 3 pm August 4 @ 12 pm

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2 hours C.E. July 14 @ 1 pm

1 hour C.E. July 22 @ 12 pm August 25 @ 2:30 pm

Professional Ethics in the Insurance Industry*

What You Need to Know About Employment Law & Coverage* - NEW

Property & Liability Concepts* - NEW

Workers Compensation Beyond the Basics* - NEW

2 hour C.E. July 15 @ 11 am August 16 @ 2:30 pm

3 hours C.E. July 5 @ 2 pm August 2 @ 11:30 am

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www.iiak.org | May/June 2016 | 13

Nonprofit Corporations Present Risk Management & Insurance Challenges

By: Rick Pitts

This column is about NOT making money. For the few readers left after the first sentence, let me explain a bit. The topic is nonprofit organizations or corporations and some of the challenges of insuring them appropriately.

Actually, the first sentence has a bit of a misleading tone to it. Nonprofit organizations come in all shapes and sizes, and insurance producers and risk managers should not treat their nonprofit clients with any less dignity or diligence than their for-profit equivalents.

The National Center for Charitable Statistics is a wealth of information on nonprofits (specifically, charitable nonprofits, but more on that later). Here is a brief sampler of NCCS’s statistical profile of nonprofits: • In the United States, there are 1,429,801 tax-exempt organizations, including: • 966,599 public charities • 96,584 private foundations • 366,618 other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues.

• In 2010, nonprofits accounted for 9.2% of all wages and salaries paid in the United States.

• The nonprofit share of gross domestic product was 5.5% in 2012.

• In 2012, public charities reported over $1.65 trillion in total revenues and $1.57 trillion in total expenses.

• Public charities reported over $3 trillion in total assets in 2012.

• Individuals gave $228.93 billion in 2012, an increase of 3.9 percent from 2011.

At bare minimum, these statistics suggest that the nonprofit organizations in our client portfolio deserve the same respect and attention as their for-profit counterparts. While they may be “nonprofits” as a matter of law and as a matter of mission or business philosophy, our charities and associations 14 | www.iiak.org | May/June 2016

nonetheless can control significant assets and have important and frequent transactional work. With that work and asset base obviously come exposures and insurance needs.

Part of the challenge is that the term “nonprofit” encompasses a wide array of organizations.

Nonprofits are usually grouped as one of three different types: religious corps., public benefit corps., or mutual benefit corps. Religious corporations are, as the name suggests, nonprofit entities established for religious purposes, or designated that way by another law.

Public benefit corporations are typically, but not always, the type of entities that we would normally associate with charities: entities that are tax exempt under federal law, usually as 501(c)(3) organizations and a few more words about that later. One of the biggest examples of a public benefit type of corporation is, according to NCCS, the Bill and Melinda Gates Foundation.

Mutual benefit corporations, in contrast, are those that exist to benefit their own members or the interests of a group of people. Mutual benefit corporations include things such as trade associations (existing to benefit the members of an industry) or perhaps homeowners’ or condominium associations (existing to benefit the landowners).

All of this leads to the first risk management tip with regard to nonprofits. All nonprofits need a few – emphasis on “a few” – pieces of legal and accounting advice before they commence operations.

And no, that’s not an advertisement. Many legal and accounting professionals are willing to volunteer the time and energy to help nonprofits get going correctly.

The reason why “at the beginning” is important is this: forming a nonprofit corporation under Kentucky law is remarkably easy almost too easy. The paperwork that has to be filed with the Secretary of

State’s office is simple. The Articles of Incorporation of a nonprofit only have to contain the following: • The corporate name (meeting the requirements of KRS 14A.3-010) • The purpose or purposes for which the corporation is organized • The corporation’s initial registered office and initial registered agent • Mailing address • The number of the initial directors, and their names and addresses • The name and mailing address of each incorporator.

The Secretary of State’s office even has a form for Articles of Incorporation. It can be found at www.sos.ky.gov. It’s a fillable pdf form.

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The form has a very interesting caution, though. It says, “This form does not comply with 501(C) status.

You should contact the Internal Revenue Service prior to filing the Articles of Incorporation.” Generally speaking, there is special language necessary to qualify for nonprofit treatment under federal and state tax law.

And here’s where the discussion of 501(C) status comes to bear. A group of people can put together a nonprofit corporation, like a band or athletic booster club, a hobby club, a user group, or a charitable foundation. By filing Articles of Incorporation as a nonprofit corporation with the Kentucky Secretary of State, that group has said, “We’re a nonprofit company,” and no one is going to disagree with them from a legal point of view.

But the Internal Revenue Service and various local authorities may not agree with the new nonprofit from a tax point of view. Obtaining favorable treatment as a matter of tax law can be expensive and time consuming, and getting it as close to right as possible the first time around is worthwhile.

So, it helps to get some professional help for a nonprofit from the tax point of view as well as the legal point of view. And while we’re at it, let’s take a look from a risk management point of view at those Articles of Incorporation. Do we have the right people serving in leadership?

How do we fill vacancies? How often does the board of directors meet? What’s the company’s fiscal year? Will we have audits? Who has check signing authority?

It’s a truism that insurance professionals serve as risk managers, but it is also a compelling maxim in the nonprofit context. Insurance professionals do well when they ask these types of questions about a nonprofit’s organizational documents. It can be one of the best risk management services a producer can provide.

This leads us to the true intersection of nonprofits and insurance, which is D&O insurance. How do we handle that? Kentucky, like a lot of states, has a statute that generally provides immunity to volunteer directors of nonprofits. Kentucky Revised Statute 411.200 says:

Coverage available in 18 states. © 2016 FCCI

www.iiak.org | May/June 2016 | 15

Any person who serves as a director, officer, volunteer or trustee of a nonprofit organization qualified as a taxexempt organization under Section 501(c) of the Internal Revenue Code of 1986, as from time to time amended, and who is not compensated for such services on a salary or prorated equivalent basis, shall be immune from civil liability for any act or omission resulting in damage or injury occurring on or after July 15, 1988, if such person was acting in good faith and within the scope of his official functions and duties, unless such damage or injury was caused by the willful or wanton misconduct of such person.

The statute is a substantial disincentive to purchasing D&O insurance. In fact, many nonprofits believe (with ample justification) they have no need for D&O insurance at all.

In fact, the need still does exist for many nonprofits, and the first way to examine the issue is to examine exactly what is being purchased and what its components truly cost.

Most nonprofits have compensated employees.

Those nonprofits therefore have an employment practices liability (EPL) exposure. Many carriers in the marketplace offer a combined EPL and D&O. The EPL exposure, and not the D&O exposure, is the driver of the premium pricing. D&O pricing is generally reflective of the favorable environment in Kentucky and many other states for nonprofit, volunteer directors.

So, the question really should not be whether a nonprofit needs D&O insurance, but really whether the nonprofit can afford to be “bare” or without the insurance protection of EPL coverage. Most nonprofit decision-makers understand and perceive the need for EPL coverage.

And let’s be sure about this: the immunity statutes may or may not work. As Stephen Foxman wrote for the American Bar Association’s Business Law Today a few years back, “Although state and federal immunity statutes may protect officers and directors, such statutes do not provide for the cost of defense, and the immunity may not be available because of statutory exceptions.”

Richard S. Pitts, IIAK’s General Counsel is also part of our newest member benefit, First Call Free Legal. Members receive up to a 30minute phone consultation on an insurance or agency-related matter once a year at no charge. Contact IIAK for more information.

16 | www.iiak.org | May/June 2016

Thank You 2016 Industry Partners (as of 5/26/16) Premier

Diamond

Platinum

Gold Acuity Bolton & Company Grange Insurance Company KEMI MAPFRE Insurance Risk Placement Services, Inc. Silver AFCO Amerisafe, Inc. Kentucky National Insurance Co Keystone Insurers Group Motorists Insurers Group Secura Insurance State Auto Insurance Company

Bronze Alexander J. Wayne & Associates Anthem Blue Cross & Blue Shield Auto-Owners Insurance Company BITCO Insurance Companies Columbia Insurance Group Countryway Insurance Company FCCI Insurance Group FFVA Mutual Insurance Company InsurBanc

J.M. Wilson KESA KY Associated General Contractors Market Finders Insurance Corporation Midwestern Insurance Alliance Prime Insurance Companies Summit Swiss Re Corporate Solutions Westfield Insurance

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Upcoming Events August 16 Owensboro

August 23 Louisville

September 21 Lexington

October 5 Northern Kentucky

120th Annual Convention & Trade Show November 9-11, 2016 The Brown Hotel • Louisville, Ky www.iiak.org | May/June 2016 | 17

How to Create a Social Media Policy By: Ron Berg An active social media presence should not be the goal in itself, but instead integrated with your agency’s traditional marketing strategies. And if you have a social presence but no social media policy in place, you could be exposing yourself to a host of privacy, E&O and security implications.

Deploying a social media policy clearly lays out what is and isn’t permissible when employees are presenting themselves as agency representatives online—and it’s essential for any agency active on social platforms.

To begin, assemble a team to assess areas of attention and help write the policy. You can even use the time to discuss ways to better leverage your social media outreach. Consider younger employees who are social media-savvy ‘go-getters,’ as well as those in the HR, legal and security departments. It’s critical that your agency’s legal counsel is involved in the policy’s creation at its earliest stages to avoid any adverse language or situations.

Review social web policies of organizations you respect, such as IBM, Dell and Intel, to get an idea of where to start, as well as other independent agency-specific examples available on the Agents Council for Technology website. Here are a few provisions to consider including when forming your official document: Company philosophy.

Provide a clear definition of why your agency believes the creation of a social media policy is important and consider any restricted access. You may decide to create two separate policies—one internal and one external media document—based on your needs.

18 | www.iiak.org | May/June 2016

Identification. Employees who have access should be transparent and clear about their title and role when using the agency’s social media accounts.

Employee sites and profiles. It’s easy to connect individuals to their employers online, which means it’s essential to draw the line between personal and professional lives.

Recommendations and referrals. State the importance of avoiding misconstruing any customers, employees or partners via endorsement and reference without consent.

Once the document is complete, decide who’s responsible for managing your agency’s social participation. The policy must be properly implemented and consistently monitored, managed and enforced for it to take full effect.

It’s also important to provide thorough employee training when it comes to the policy’s rationale and requirements. Your social media policy is likely to incorporate several agency-wide elements, including professional conduct, security, intellectual property and discrimination—making it a great opportunity to reinforce broader agency guidelines.

Ron Berg is executive director of the Agents Council for Technology.

Social Etiquette A social code of conduct, in addition to a social web policy, can provide guidance on social web etiquette so your agency maintains a similar voice throughout all platforms.

Here are some guidelines to consider including: • Speak in first person and be yourself.

• Be thoughtful and respectful of others.

• Add value and share knowledge.

• Listen to what others are saying.

• Build relationships instead of making the hard sell.

• Learn each social networking platform’s culture.

Doing The Right Thing Since 1964

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CPCU, ASLI, President

Our people will earn your trust.

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THANKS A

BILLION! You’ve helped West Bend reach $1 billion in annual premium volume. And you’ve helped make us one of the leading property and casualty insurers in the Midwest. We hope you’re as proud to offer our products and services as we are to have you represent us.

20 | www.iiak.org | May/June 2016

Five tech pet peeves that can dog your firm By: Mele Fuller, AAI, AIM, ACE, AIS, AIT, ARA, ARM, FIDM, FLMI Do you realize that every one of the individuals whose personal data was accessed on the Anthem site will have to spend the rest of their lives watching their backs? With name, address, date of birth and Social Security number, anyone can have access to your birth certificate and thereby steal your identity.

OK, the address may change over the years, but current addresses can be found on hundreds of websites. The only thing that can’t be duplicated is a Social Security card. Hopefully yours is in a safe deposit box.

This just drives me to the more general “things that bug me” about careless use of industry technology.

Let’s look at my top five.

1. The ACORD AL3 standards(used for policy download) still include fields for credit card name, number, expiration date and the security verification code as well as all the customer and bank information to set up Electronic Funds Transfer (EFT). With the security issues that we are dealing with today, there is no reason to send this data in download. No carrier should be doing this. Why don’t we delete the fields from download? By the way, the same can be said for Social Security numbers.

2. Along the same line, why does an agency want to store a customer’s Social Security number? I’m sorry—if you remarket a product, ask the customer for the information again. You can improve customer relations by saying you don’t store sensitive personal data. Going a step further, how are you protecting your insured’s name, address, driver’s license? If someone gets that information, they can go to the department of motor vehicles and get a license in that name and be your “customer” in many ways.

3. How many agencies operating with in-house automation (versus a cloud-based system) have not encrypted their databases? These systems include enough information to steal identities. An encrypted database is a major part of breach regulations, and it helps protect an agency against lawsuits if their

system and/or data is hacked. Did any of these agencies read the comment a couple years ago that when a small business’s data is compromised 40 percent of those businesses fail within a year? That’s scary.

4. How many agencies have put a paper shredder at every desk in the office? Everything with a name, address or any personal information should be shredded. One central shredder is too easy to forget as you leave work in a hurry. Trash cans at desks should be very small. Anything to encourage the destruction of paper. And there are reasonably priced shredders available today.

5. Maybe what is most frightening are the number of agencies that use one password for their systems and/or their carriers’ sites because it’s too much work to maintain more than one. This is the old story of the staff member who leaves the agency in less than the best of circumstances and uses that password to steal or damage the agency’s data. I heard an agency say, in the last couple months, that individual passwords www.iiak.org | May/June 2016 | 21

Even if only 10 percent are careless, it reflects on all independent agents, and it can hurt a lot of people. A breach can potentially put an agency out of business. are too much trouble. And why aren’t we using twolevel security? Particularly if you have off-site workers, shouldn’t you be certain it is the right person logging into your system? Whether you ask a “secret question,” return a second security code or recognize incoming IP addresses, do something to protect your agency and your customer’s data.

While I think most agencies are very conscious of the need to protect their customers’ data and many have security procedures, there are quite a few that don’t. Even if only 10 percent are careless, it reflects on all independent agents, and it can hurt a lot of people.

A breach can potentially put an agency out of business. For those who still have no security procedures, get a copy of ACT’s “The Independent

22 | www.iiak.org | May/June 2016

Agent’s Guide to Systems Security.” That’s a start.

Who knows—you may find yourself motivated to take cyber security to the next level, and that’s an important step up for all of us.

Mele Fuller heads MLF Data Services and is a consultant to ACT.

For more information or to get your cyber liability policy Contact Kristie Weyer at kweyer@iiak.org or call 502-245-5432

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Autonomous cars are poised to hit the highways and (soon after) byways, causing a bumpy road for the insurance industry as liability shifts away from drivers and toward manufacturers. How well insurance carriers prepare and respond to the new terrain will determine their relevance in the years ahead.

Ready or not, here they come. Fully autonomous cars will arrive in 2019, according to a recent Business Insider Intelligence report. Forbes’ prediction is along the same lines: “Many experts agree that self-driving cars could be used in controlled environments like highways by 2020.” And by 2035, Boston Consulting Group projects that fully autonomous cars will account for one in four auto sales globally. With tech companies (the ubiquitous Google), auto manufacturers (Audi was second only behind Google to receive an autonomous-car test license), and even ridesharing giants (Uber and Lyft) moving the technology along, the fast-paced projections seem likely.

“The technology is really advancing faster than we had originally anticipated,” shared Steve Hill, of the 24 | www.iiak.org | May/June 2016

Nevada governor’s office of economic development, with the National Conference of State Legislatures.

Nevada was the first state to legislate an allowance for the testing of driverless cars. California, Florida, Michigan and Washington, D.C. quickly followed suit.

Just as state regulators are gaining comfort with the technology, the general public is coming around as well. Sure, completely self-driving cars have yet to hit the streets, but “smarter” cars – equip with self-parking, automatic emergency braking and lane-keeping technologies – are here and are easing drivers into the idea. The University of Michigan Transportation Research Institute’s recent, international survey of public opinions on autonomous cars found: “As much as [drivers] have

concerns, there’s an interest there. It’s a matter of... slowly proving what these vehicles can do, slowly introducing them to the public.” But “slowly,” it appears, may be relative.

PERSONAL LINES REPERCUSSIONS It has been well documented that self-driving technology will upend public safety – and, in turn, the personal auto insurance market – as we know it. The Atlantic recently asserted that “automation on the roads could be the great public-health achievement of the 21st century,” suggesting that fully autonomous cars could save 10 million lives per decade globally. And McKinsey & Company estimates that, by 2050, autonomous cars and other advanced driver-assistance systems will save $190 billion per year in U.S. health care expenses.

While auto manufacturers slowly ease “smart” technology into their products, the impact on safety is already becoming evident. The Highway Loss Data Institute studied the impact on insurance claims data from the 2013 Honda Accord safe-driving technology – an alert beeps when the car gets too close to traffic in front of it or leaves its lane without signaling. The results? Bodily injury losses decreased 40 percent, and medical payments dropped by 27 percent.

These safety findings and projections are painting an increasingly clear picture for the future of the personal auto insurance market. The revered Warren Buffett summed it up: “If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful. But we would not be holding a party at our insurance company.” The impact of self-driving technology on insurance claim frequency could prompt a 60 percent decrease in premiums within 15 years, according to research firm Celent. “You have to be prepared to see that part of your business shrink, probably considerably,” said Celent’s Donald Light to property and casualty insurers.

Remaining risks Will auto accidents completely diminish and the personal auto insurance market dissolve? It’s unlikely – at least while some cars on the road still have human drivers. And turning over a countrywide fleet of vehicles would take decades.

It has been well documented that selfdriving technology will upend public safety – and, in turn, the personal auto insurance market – as we know it.

Another study by the University of Michigan Transportation Research Institute found that, while driverless vehicles have accident rates twice as high as their human-driven counterparts, the autonomous cars never have been at fault. Nearly all of the accidents were caused when human drivers ran into the driverless car in front of them. At issue: People are not used to sharing the road with cars that follow all of the rules.

Spiking severity While the frequency of accidents is expected to make a drastic drop in the decades ahead, the severity of claims – to fix cars filled with cameras, radars and sensors – is expected to rise. Attorney Hilary Rowen, who is well versed in the legal and insurance repercussions of driverless cars, explained the outlook to Insurance Journal: As the [country’s auto] fleet increasingly moves toward more autonomous features … bodily injury rates will go down – both the frequency of accidents and the severity of accidents. In all likelihood the frequency of property damage claims will also go down. [However,] it is likely that the severity, the cost per claim on property damage, will go up because cars will now have very expensive sensors hung in or arrayed in, very vulnerable locations.

Bottom line: The personal auto insurance market is poised for drastic change, yet the change won’t occur overnight. A countrywide fleet of vehicles will take time to turn over, so the likely result will be an evolution – steadily declining frequency and severity of bodily injury claims and gradually increasing www.iiak.org | May/June 2016 | 25

Gradual adoption of in-car automation is expected to create a period of complicated part-car, part-human insurance issues and, in time, a complete shift from personal to product liability. severity of property damage claims. What remains to be seen is how insurance carriers will respond, when they will adjust pricing and what that means for market share.

COMMERCIAL LINES CONSIDERATIONS Beyond the implications for the personal auto insurance market are those for commercial lines.

Gradual adoption of in-car automation is expected to create a period of complicated part-car, parthuman insurance issues and, in time, a complete shift from personal to product liability.

Realigned responsibility Driverless cars, as machines (and complex ones at that), are subject to malfunction. Strict product liability is the theory most often used by plaintiffs in suits against manufacturers involving the design of automobiles. As such, it likely will play a central role in litigation over the responsibility for crashes associated with autonomous vehicles – and prompt manufacturers to purchase additional insurance coverage.

Just how much litigation will occur – and at what cost, literally and figuratively – is in question. Some legal and technology experts wonder if the threat of lawsuits could slow manufacturers’ development of self-driving technology. Others take it a step further and question if an influx of litigation will necessitate legislation to create a type of no-fault auto insurance system.

Cyber concerns Beyond product liability, autonomous vehicles are accelerating another emerging risk for the car industry (not to mention car manufacturers’ suppliers): cyber liability. Driverless cars – and even their increasingly “smart” predecessors – rely on radars, cameras and GPS … all of which can be hacked.

Arguably the most notable demonstration of the emerging need for cyber liability insurance on “smart” cars came in July 2015. Two security 26 | www.iiak.org | May/June 2016

researchers remotely took control of a Jeep Cherokee as a Wired magazine writer drove it on a St. Louis interstate. They hacked into the Jeep’s Internetenabled entertainment system and went as far as to disengage the transmission. After the story broke, Fiat Chrysler issued a voluntary safety recall of 1.4 million U.S. vehicles.

A change in the liability structure and an expansion of the cyber liability insurance market could be around the corner. Dave Wasson, with brokerage Hays Cos. in Chicago, explained to Risk & Insurance: Right now, you have a pull market, with small [original equipment manufacturers (OEMs)] seeking [cyber] coverage because the first-tier OEMs and carmakers demand that they be indemnified. But that is not sustainable. A client might demand a $15 million cover from a small supplier, but that cover could cost the supplier $50,000 when he only grosses $100,000 on the contract.

Wasson predicts that auto manufacturers eventually will need to step up and use their assets, resources and connections to negotiate proper, primary cyber liability coverage with insurance brokers. After all, if the supplier goes bankrupt, the car manufacturer is going to be next in line for a lawsuit.

PREPARATIONS AND PROJECTIONS Self-driving technology that once seemed farfetched now appears just years away from widespread implementation. As such, the insurance industry is poised for significant changes. But all is not lost.

What’s ahead appears to be a gradual shift in liability, with some traditional markets withering while new ones flourish. How quickly individual insurance carriers prepare and respond could be indicative of their future market share and even longevity. And how well educated and nimble insurance producers are could impact their livelihood.

Karen Robison is public relations director for IA&B.

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I will not accept policy changes from a third party.

I will not accept policy changes from a third party.

I will not accept policy changes from a third party.

AT THE BIG “I” PROFESSIONAL LIABILITY PROGRAM,

WE TAKE CLAIMS PREVENTION VERY SERIOUSLY .

You carry professional liability insurance to protect you in the event of a claim. But is your carrier helping you to prevent a claim in the first place?

The Big I has dedicated significant resources to bringing the best claims prevention information and strategies to your agency.

And while we won t really make you write it out on a chalkboard, we believe that the best way to protect your business is to help you protect yourself.

VISIT INDEPENDENTAGENT.COM/EOCONTACT TODAY. 28 | www.iiak.org | May/June 2016

Slips, Trips and Falls, Oh MY! Slips and trips on the same level are the second leading cause for workplace injuries resulting in workers’ compensation claims. Falling from a different level is in the top ten.

As the workers’ compensation self-insured fund for The Kentucky Retail Federation, KFRSIF is familiar with and understands the potential dangers associated with slips, trips and falls. We offer our members on-site loss control evaluations, training and other prevention services for FREE!!

Our Members are Fully Supported Kentucky Retail Federation Self Insurers fund (KRFSIF) is specifically designed for Kentucky retailers, by Kentucky retailers.

4 Third party administrator, CCMSI, is SAS 70 accredited in both Type 1 and Type 2 categories.

4 CCMSI services 60+ funds across the U.S. (www.ccmsi.com).

4 We have extensive experience in servicing grocery stores, convenience stores, restaurants, auto body shops and physicians’ offices.

4 With KFRSIF there are no hidden surprises – IBNR reserves are developed for those claims that have not yet been reported and for claims with unforeseen development.

It’s All About Stability

| Traditional insurance companies come and go – We are here to stay! We have over 20 years of servicing your clients workers’ compensation needs. | Get the best of both worlds: the benefits management services provided by CCMSI, the country’s largest independent TPA while enjoying personalized local claims management services. | Our claims adjusters and loss control consultant are Kentucky based and dedicated to servicing our members. | KFRSIF is governed by a Board that is elected by our members, not appointed – ensuring that decision-making is to the best benefit of our members. | Our members receive the benefits associated with membership in the Kentucky Retail Federation. Log onto www.kyretail.com for more information.

To join KRF visit www.krfsif.org or email krfsif@ccmsi.com.

These reserves meet all state and actuarial requirements for future loss development.

New Partnership

KFRSIF has partnered with the Kentucky Grocers Association.

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Call us at 502-394-3018

Classifieds Acquisitions

Established Louisville agency interested in acquiring insurance agencies in Jefferson and surrounding counties. If you are interested in selling, merging, or need assistance with perpetuation, we would like to talk with you in confidence. Call R. Alex Rankin, CPCU or Steve B. Thompson, CPCU, at Sterling G. Thompson, Co. at 502585-3277

Looking for Producers

Independent with top best markets looking to expand presence in Jefferson, Oldham or Shelby counties.

Wanting Personal lines, Producer or book of business to move or purchase.

All arrangements possible, in strict confidence. Please send inquiries to Turner Insurance Agency, 2460 Shelbyville Road, Shelbyville, KY 40065 or call Kurt Turner, CPCU at 502-633-6060.

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For classified ads or to advertise in the Kentucky IA, contact: Nikki Robins, Communications Director at 502-245-5432 or nrobins@iiak.org 30 | www.iiak.org | May/June 2016

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Having trouble writing vacant homes?

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