The Anchor The Independent Insurance Agents of Rhode Island Magazine
113th Annual Convention pg. 18
Also in this issue: FloodSmart: Prepare Your Clients for Flood Risks as Hurricane Season Approaches pg. 14
Second Quarter 2014
Your Next Client is Looking for You.
Will They Find You? The New TrustedChoice.com
Nearly 75% of personal lines consumers now begin their search for new coverage online. Will they find you? TrustedChoice.com helps ensure they will.
With enhanced agency profiles, expanded consumer resources and comparative quoting now available, TrustedChoice.com is unlike any other insurance website. And more new prospects are discovering that difference every month.
project
cap
Best of all, basic participation is free to IIABA members and enhanced programs to help new clients find you are available for a limited time at just $39 per month. The sooner you enroll, the sooner you’ll be seen – and the more you’ll save.
Subscribe Now at ProjectCapMarketing.com Independent Insurance Agents
contents Independent Insurance Agents of Rhode Island
The Anchor
June 2014
7
From the President
Marketing Thoughts
11 12 13 17
HR Corner
25
Legislative Wrap-Up
27
E&O Corner
29
Law Case Note
31
Company Spotlight
32 35 37
EVP Perspective Corrections WC Update
Young Agents Legal Briefs
special features 14
FloodSmart: Prepare Your Clients for Flood Risks as Hurricane Season Approaches
18
113th Annual Convention
3 Second Quarter, 2014
The Anchor
The quarterly magazine of the
events
2400 Post Road, Warwick, Rhode Island 02886 TEL 401.732.2400 | FAX 401.732.1708
OFFICERS President Gregory Troy CIC, CLU, AAI President Elect Robert T. Hartnett Vice President Gary Mansfield, CIC National Director Robert Slocum, CPCU, CIC Immediate Past President Howard Thorp, AAI, CIC
BOARD OF DIRECTORS Central East Bay Southern Northern
District Vice President Andrew Palazzo Richard B. Paquin Tom Regan, AAI David White, AAI At Large District Vice Presidents John Kaull, AAI Kenneth Thompson Jr. David Woodmansee, CIC District Representatives Central Edward F. Bishop, CIC Maureen Rotondo, CIC
Young Agents Mini Golf Classic
12
2014 Annual Convention
18
advertisers
East Bay John T. Edge Jr., CIC Andrew Troy, CIC Northern Marc Nadeau, CPIA Denise Smith Southern Kimberly Raymond, CIC Stan Tabak
STAFF Marcia L. Berthiaume, AAI, ACSR, CPIA State Account Manager Helen Collins E&O & Member Coordinator Josette Cournoyer Administrative Assistant Sean R. Donaghey, CPCU Senior Vice President Mark A. Male Executive Vice President Maureen McNamara Finance & HR Manager Jean E. Nagle, AAI, ACSR, AIS Assistant Vice President Sarah Van Grootheest Membership & Administration The Anchor is published by the Independent Insurance Agents of Rhode Island (IIARI).
INDEX
Enviro-Clean, Inc.
6 38 24 26
Hospitality Mutual
back
2014 Partners Program Big “I” Flood EMC Insurance Companies
36 9 34 31 2 15 4 10 8
IIARI Professional Liability JH Communications MEMIC Partridge Snow & Hahn LLC Project CAP ServPro of Providence The IIARI Store UPC Insurance Utica National Insurance Group
Statement of fact and opinion is made based on the responsibility of the authors alone and does not imply an opinion on the part of IIARI, it’s officers, directors or members. Subscription rate for members is $15, which is included in dues. Subscription rates for non-members is $75 per year (single copies $10). Reprint requests should be referred to IIARI. Copyright © 2014, Independent Insurance Agents of Rhode Island.
5 Second Quarter, 2014
The Anchor
Thank You Sponsors
2014 PARTNERS PROGRAM
Diamond
Gold
Silver Safeco Insurance
Bronze EMC Insurance Companies MAPFRE Phenix Mutual Fire Insurance Company Quincy Mutual Group The Andover Companies
from the president The First Six Months It’s hard to believe a half of the year has already passed since I was handed the gavel from Howard Thorp so that triggers a six month review of IIARI activity. Much has happened in the first six months, from the annual meeting in October to the convention in May and most recently the bylaw amendments. At the same time we continually and consistently provide continuing education, advocacy in the legislature, engage committee meetings, newsletters and agency principal communications. Overlay on all this activity the Association consistently responds to members in areas ranging from regulatory inquiries to continuing education and licensing questions. There is not much idle time for staff given that we, as independent agents, employ in excess of 1,400 people in Rhode Island – many of them in need of some particular piece of information or direction on any particular matter. The good news: that’s why we exist as an Association. Allow me to extend my heartfelt thanks to all who took time from their schedules to travel to Newport for the annual convention. Despite Wednesday’s weather (which prompted moving the planned outdoor games and New England Bake inside)
it was educational, fun, entertaining and capped off by a delicious meal! A capacity crowd heard from four of the six candidates for governor on Thursday (we even had press attend). It was a memorable event and I hope you agree that the new tradition of having the convention in the spring is something that makes sense. Next, thank you to individuals who took the time to attend the Special Membership Meeting and to the agencies who submitted proxies, for allowing us to enact real bylaw changes. It would be difficult to deny that we are reshaping our organization which will allow us to evolve to a more sustainable and meaningful association. A smaller Board means we can be both nimble and agile in reacting to changes we face as a distribution system. While we are not alone in making these changes – many other associations and even corporations are doing the same thing – we are pushing ourselves to get ahead of the curve in rethinking how we do business. While highlighting some successes so far, I would be remiss if I neglected to note that the Young Agents Committee has been extremely active. In the fall they completed
“The good news: that’s why we exist as an Association.”
Second Quarter, 2014
Greg Troy, CIC, CLU, AAI President
CONTINUED ON PAGE 9
7
The Anchor
stronger
from
customer satisfaction
stronger
coverage
stronger
loss control
stronger defense
rhode island association of insurance agents 2400 Post Road Warwick, RI 02886 Phone: 401-732-2400 Contact: Helen Collins
the people who
know. Continuous E&O protection since 1966.
from the president their Certified Professional Insurance Agent (CPIA) program which was provided to any interested young agent at no cost to them! They have an aggressive schedule for the balance of this year and I encourage every agency principal to get your young producers and CSR’s involved. It will NOT expose your young agents to poaching, it WILL make them feel a part of the organization and position them as future leaders in our industry. What’s on the horizon? We are currently strategizing on the creation of an insurance school to train the next generation of insurance personnel. The school will take candidates from soup to nuts on working in the agency and ideally will produce licensed individuals who will possess a solid foundation
that includes insurance and knowledge of agency management systems. Candidates will come from outside sources but may also include new agency hires who need education. Keep a look out for more information as we design this school with the hope of launching sometime in 2015. In the final analysis, we are financially sound, have purpose and are focused on our future. In closing I urge anyone interested in serving on the Board to make yourself known. A call for interested individuals will be forthcoming and we hope you give consideration to volunteering in the organization that’s been working to grow the independent agency system in Rhode Island since 1900.
CONTINUED FROM PAGE 7
Providing Responsive, Stable and
Innovative Coastal Insurance Solutions Since 1999
Homeowners • Plan • Purchase • Protect Call Pete today or visit www.UPCIC.com Peter J. Hutchinson, CIC Direct Line: 413-875-5712
Your Preferred Choice for Homeowners Insurance Protection Programs
www.UPCIC.Com
executive vice president perspective A Path to Relevance? Last year I had the honor and pleasure to serve my peers as president of the Independent Agent Association Executives group. As president I had the task of selecting a venue for our annual July conference and to set its agenda. To no one’s surprise, I chose Newport as the destination for the meeting and state association executives – including those executives from the Canadian provinces – convened for the conference. The meeting went exceptionally well (if I may say so) and I’m convinced that every attendee left with a positive impression of both the intrinsic beauty of Rhode Island as well as the historical significance of Newport. The underlying theme of the conference was how to stay relevant as associations. This discussion permeated every aspect of the conference. An association management book co-authored by Harrison Coerver and Mary Byers, CAE, had a dramatic and ongoing impact on association thinking since it was first published in 2011. The book, Race for Relevance, Five Radical Changes for Associations, started an industry wide discussion on the need for associations to be relevant in order to sustain and grow as organizations. In simple terms the book sets forth the premise that associations need to take a hard look at themselves and take the initiative to make changes to its governance and overall operations, or risk governing itself out of business. I met Harrison Coerver in January 2012 at a New England Society of Association Executives (NE/SAE) meeting in Cambridge. He did a presentation at the
NE/SAE Annual Management Conference that reviewed some of the important recommendations the book outlined and encouraged all association executives to work with their governing bodies to talk about the long term organizational prospect should they fail to change their path. It was with this in mind that I introduced the concept of re-evaluating the make-up of our governance to the IIARI Executive Committee. The committee read the book which lead to a three-year exercise that culminated in the Special Membership Meeting held on June 9. It is important to note that my role as the chief staff person is to introduce ideas and latest association concepts – I do not drive IIARI policy or strategy, rather I am here to provide the necessary environment to encourage open discussion and strategic thinking. Once a decision is made, it is my job to use our resources to execute and deliver on the articulated strategy. IIARI’s decision making is ultimately left to the governing body, your Board. After much discussion and strategizing, Greg Troy appointed a special committee to study IIARI governance late last year. The committee included past presidents (Doug Mayhew, Roger Messier, Rick Rheinberger and Frank Richard) and current officers and directors (Bob Hartnett, Rick Paquin, Tom Regan, and Denise Smith). An earnest and open review of our organization and governance was conducted and ultimately a consensus was built among the group on a number
Mark A. Male Executive Vice President
CONTINUED ON PAGE 12
11 Second Quarter, 2014
The Anchor
executive vice president perspective
of key issues, which ranged from district usefulness/effectiveness to overall board make-up. Near the end of the process, the special committee introduced a host of proposed changes to the board for their review and consent. With only a couple of small modifications a most remarkable thing occurred; the board voted to take the proposed amendments to the entire membership for a vote. What’s so remarkable? Changing the make-up of this board is akin to an act of God, because it is steeped in tradition going back many years. As insurance professionals, we are conservative by nature and don’t like change. By voting on these amendments to reduce the board from 20 members to 11 (5 officers 6 directors), many of our directors were accepting the reality that our board was going to shrink forever – and those votes came from the very individuals who would
CONTINUED FROM PAGE 11
be eliminated by virtue of the reduction. They also voted to create term limits for all board members. This is the ultimate sacrifice because they are doing this for the greater good. This selfless act by dedicated volunteers who serve on our board is unparalleled in my 22 years of association management experience. That is remarkable. In closing, I hope everyone recognizes that IIARI is a living, breathing and evolving association and the board and officers are determined to work tirelessly to remain relevant to you, the members. This huge and historic change opens the door for other members to consider to serve on the board as we continue down the path into the unknown, but guided by a beacon of relevance.
5:30PM-8:30PM
August 7th 2014
BBQ ♦ GOLF TOURNAMENT ♦ PENNY SOCIAL
Free for Young Agents $10 for Non Young Agents
Join the Young Agents at Mulligan’s Island in Cranston RI for an evening of fun & friends, in order to benefit The Tomorrow Fund Corrections The Anchor always tries to publish accurate information. However, sometimes mistakes are made and when these mistakes are made we will be sure to print the corrections. The March Issue listed the 2013 PAC Honor Roll but missed the following individuals: • Ernest Shaghalian, Jr. Bronze Contributor of IIARI PAC • Matthew F. Clarke General Contributor of IIARI PAC 12 Second Quarter, 2014
The Anchor
wc update Workers’ Compensation: What is Going On? In my last column, I wrote on the Affordable Care Act and its potential effect on workers’ compensation. This column will focus on another issue that is very much in the news: opioids and workers’ compensation. Those who suffer work related injuries are entitled to three broad types of benefits. These are indemnity, specific compensation and medical benefits. Prescription drugs, including opioids, are a component of the medical benefit that every injured worker is entitled to when he or she suffers a compensable injury. In Rhode Island, the workers’ compensation statute provides specifically as follows: § 28-33-5 Medical services provided by employer. – The employer shall, subject to the choice of the employee as provided in § 28-33-8, promptly provide for an injured employee any reasonable medical, surgical,dental, optical, or other attendance or treatment, nurse and hospital service, medicines, crutches, and apparatus for such period as is necessary, in order to cure, rehabilitate or relieve the employee from the effects of his injury;... (emphasis added). The term “medicines” is clear. The real question is whether a particular medicine is “necessary in order to cure, rehabilitate or relieve the employee from the effects of his injury”. Not every medicine is necessary at all times. The law provides that this issue is to be determined “in accordance with guidelines and protocols established by the Medical Advisory Board.” The Board has promulgated, and recently amended, a “Pharmaceutical
Protocol” that is set forth fully as follows:
PHARMACEUTICAL PROTOCOL
The Medical Advisory Board establishes this protocol with the intent to: 1) Raise awareness of the risk of injured workers being addicted to opiate medication 2) Reduce the dispensing of ineffective or poorly tolerated medication 3) Establish medication/dispensing guidelines for physicians, insurers and pharmacy benefit managers. The protocol is established as follows: 1) Generic substitutes should be used as first choice. 2) If the prescribing physician is seeking the use of brand name medication after therapeutic failure of the generic equivalent, the insurer must provide a physicianphysician review process. If the prescribing physician is seeking authorization for an off-label use of a medication, the insurer must offer a specialty-specific, physician to physician review process. 3) Over-the-counter medications will not be paid for unless prescribed by the prescribing physician. 4) If additional non-opiate medications are needed after three (3) months of treatment, the prescribing physician must provide a statement to the insurer substantiating the need. 5) With the exception of opiate/narcotic medications, ninety (90) day prescriptions should be utilized if the medication will more than likely be used for extended periods (i.e. permanently injured workers). 6) Injured workers may use the pharmacy of their choice.
Michael Lynch Vice President, Legal Beacon Mutual
CONTINUED ON PAGE 16
13 Second Quarter, 2014
The Anchor
special feature
Prepare Your Clients for Flood Risks as Hurricane Season Approaches
The start of the Atlantic hurricane season is right around the corner, and your clients may not realize that they are at risk. Heavy rains, flash floods, and storm surge all increase the risk of flooding during hurricane season. Now is the time to have the flood talk with your clients to ensure that they are financially covered with flood insurance. The Colorado State University Tropical Meteorology Project recently released a “below-average” prediction for the 2014 Atlantic hurricane season. There is a 35 percent probability that a major hurricane will strike the Atlantic coast this season. Meteorologists predict that we could see nine tropical storms, three of which could intensify into a hurricane with one becoming a major hurricane. Five years ago, the last predicted “below-average” hurricane season, saw nine named storms, two of which were major hurricanes. Storms during that “below-average” season caused more than $77 million in damage. It is important to remind your clients that it only takes one storm to cause significant flood damage. The average hurricane produces more than half an inch of rain a day. In fact, precipitation during a hurricane can fill about 22 million Olympic-sized swimming pools, and that’s before factoring in water
generated from storm surge. When all of that adds up, your clients could find themselves in the middle of a serious flood. Without a flood insurance policy, they will be paying for the damage out of their own pockets. The average flood claim paid by the National Flood Insurance Program (NFIP) between 2008 and 2012 was more than $42,000. And with more than 25 percent of claims originating from outside mapped high-risk areas, it is essential to communicate the financial impact of a flood to all of your clients, regardless of their designated flood zone. Remember, there typically is a 30-day waiting period before flood insurance goes into effect. Make sure your clients are covered now before the storms begin. Visit Agents.FloodSmart.gov today to find valuable tools and resources to help you effectively communicate flood risk when having that all important flood talk with your clients and prospects. The interactive Cost of Flooding tool illustrates how much financial damage is caused by repairing a home damaged by even a small amount of water. The Flood Risk Scenarios tool helps clients visualize how floods happen. You can even embed CONTINUED ON PAGE 15
14 The Anchor Second Quarter, 2014
CONTINUED FROM PAGE 14
other tips and tools on Agents.FloodSmart. gov to help build your business and provide financial protection to your clients this year.
Did you know..? There are only 16,706 Flood Policies in Rhode Island!
special feature
the tools on your website for easier access. If you haven’t already registered for the Agent Referral Program, you’re missing out on free, qualified leads. Prospective clients who visit FloodSmart.gov can enter their address into the Agent Locator tool and be connected to an agent in their area from FloodSmart’s Agent Referral Program database. Your name will also appear on FloodSmart direct mailings and will be used by the NFIP Referral Call Center. Hurricane season is about to begin. Take advantage of these resources and
When your client 's home or business requires professional disaster restoration services, you can rely on the company that has set the standard for others to follow for over 20 years.
Learn how we can help minimize your client's exposure before a disaster by calling 401.941.5500.
• Emergency Water Extraction
• HVAC/Air Duct Cleaning
• Fire & Smoke Damage Cleaning
• Vandalism & Biohazard
• Document Drying
• Mold Mitigation & Remediation
• Drying & Dehumidification
• Board-up/Securement
• Deodorization and Odor Removal
• Reconstruction
• Contents & Structural Cleaning
• Pack Out/Inventory Storage
of Providence Like It Never Even Happened.®
401.941.5500 ServproProvidence.com
Independently owned and operated.
of W eymouth - Hingham, Quincy & Brockton
wc update
7) Prescriptions must initially be filled as written by the prescribing physician. If the insurer contests the necessity of a prescription, a 14 day supply of the original medication must be dispensed to cover the appeals process, unless the covered substitution is immediately approved by the prescribing physician. 8) If the insurer’s plan requires the use of mail-order pharmacies, the insurer must have a system in place allowing the worker to be provided with enough medication to cover them until the full prescription arrives via mail. 9) Opiate/narcotic medications, regardless of Schedule, should be prescribed for a maximum of thirty (30) days of total therapy. The physician must consider the risks of addiction and abuse regardless of the length of therapy. Much of the discussion surrounding the recent amendment had to do with the opioid issues so prevalent in society today. This is clear in the introductory statement of purpose and the thirty (30) day limit on “opiate/narcotic therapy.” While this was going on, the Board considered and worked with the Rhode Island Department of Health and its statewide initiative to educate the public on the over-prescription of narcotics and the addictions that arise therefrom. The Board then adopted a “Chronic NonInterventional, Noncancer Pain Protocol” with an eye towards the prevention of opioid addiction and suggesting new and perhaps more effective ways to treat the chronic pain suffered by injured workers. This new pain protocol merges with the rules and regulations of the Department of Health and the pharmaceutical protocol to better protect injured workers and eliminate senseless expense. At the same time, the Workers’ Compensation Court worked with the Donley Center and the Department of
CONTINUED FROM PAGE 13
Labor and Training and commenced an Interdisciplinary Chronic Pain Management Program at Donley to evaluate and assist injured workers in dealing with chronic pain and the substance issues they often engender. The goal of this program is to develop alternate methods to address injured workers pain issues so they can end their reliance upon narcotics and resume a more normal life. Entry into this program is only by order of the Court. In summary, injured workers are prescribed narcotics when necessary in Rhode Island. However, a whole series of parameters have been established to prevent and treat addiction. Once again, Rhode Island is ahead of the curve on contemporary workers’ compensation issues. I think you will conclude that this directly benefits injured workers and in the long run is in the best interest of the entire workers’ compensation system.
Special thanks to Beacon Mutual for being our Exclusive Diamond Sponsor!
16 The Anchor Second Quarter, 2014
marketing thoughts How You Can Use Video to Tell Your Agency’s Story and Better Connect With Your Customers Create a more interactive website for your customers, make your story more engaging, and increase traffic to your agency Many of you already know how video can enhance your agency’s visibility. The cashier who asks you if your husband is that insurance agent she sees on TV; your commercial client who asks how you were able to appear during a Monday Night Football game; the insurance company executive who says he sees your Trusted Choice ad on TV and remarks that it has the quality of a national looking spot; you already see the value of advertising on TV with the Trusted Choice program. But, you’re just scratching the surface on what you can do with video. If you have participated in the Trusted Choice program, you already understand that in as little as 15-minutes you can receive a very professional video segment (yes, the 15-minute comment was intentional). Why not spend 15-minutes to develop a one minute video explaining why your customers should purchase umbrella coverage from you? Or, instead of featuring a two page write-up detailing your agency’s storied history, how about show visitors a two-minute video featuring photographs, personal accounts, testimonials, and interviews – wouldn’t that also make for a nice leave behind for the next generation of the agency? This does not mean you should simply
take your TV spot and place it on your website. By simply adding a new script, voice over, and additional video footage, your TV ad is now a full length “About Us” video. Not only will your website be greatly enhanced, but video will also help your agency rank higher in an increasingly competitive online environment. YouTube is one of the world’s most trafficked websites with over 80 million unique monthly visitors, and as part of Google, it generates an estimated 3 billion searches in a single month. By uploading your videos, you can start showing up in search results, increasing your presence on the web. When placing your video on YouTube, you need to take the time to write strong keywords in the title and description fields. The title of your video is the most critical element and is the equivalent of the meta tags on your home page or the headline in your print ad. This is why video is a vital component of marketing in today’s digital era.
17 Second Quarter, 2014
John Houle JH Communications
The Anchor
special feature 18 The Anchor
First Quarter, 2014
special feature
19 Second Quarter, 2014
The Anchor
Ken Block Republican
Allan Fung
special feature
Republican
20 The Anchor Second Quarter, 2014
Todd Giroux Democrat
Clay Pell Democrat
special feature
21 Second Quarter, 2014
The Anchor
special feature
Special thanks sponsors for their tremendous financial support of our Annual Convention!
PREMIER SPONSORS The Beacon Mutual Insurance Co. HIGH PROFILE SPONSORS Progressive Selective Insurance Company UPC Insurance Company GENERAL SPONSORS Arbella Insurance Group EMC Insurance Companies Enterprise Rent-A-Car InsurBanc JH Communications MAPFRE Insurance MEMIC Ohio Mutual Insurance Group Phenix Mutual Fire Insurance Co. Providence Mutual Quincy Mutual Fire Insurance Co. Safeco Insurance Swiss RE Corporate Solutions The Andover Companies GAME SPONSORS Allclean, Inc./Rui Construction Connecticut Underwriters Inc. DeCotis Insurance Associates, Inc. Markel FirstComp Insurance UPC Insurance Company US Premium Finance
TEE SPONSORS
Arbella Insurance Group DeCotis Insurance Associates, Inc. EMC Insurance Companies Enterprise Rent-A-Car Foremost Insurance Group Greater New York Insurance Co. Harleysville Worcester Insurance Co. Heartland Ovation Payroll NLC Insurance Companies Philadelphia Insurance Companies Providence Fire Restoration Servpro of Washington County; Newport & Bristol Counties Vermont Mutual Insurance Group Vincent Pellegrino Adjusters HOLE IN ONE SPONSORS Enviro-Clean, Inc.
Caribbean Cruise Prize
TENTS Allclean, Inc./Rui Construction Single Source Disaster Recovery Specialists
22 The Anchor Second Quarter, 2014
special feature
special feature
We recognize our exhibitors for their support of our Annual Convention!
Allclean, Inc./Rui Construction Alliance Security American European Insurance Group, Inc. American Institute for CPCU Applied Systems, Inc. Clean Rite Cleaning & Restoration Connecticut Underwriters Inc. DeCotis Insurance Associates, Inc. E.A. Kelley Company, RI, Inc. Enterprise Rent-A-Car Enviro-Clean, Inc. Heartland Ovation Payroll Hospitality Insurance Companies Insurance Center Special Risks, Ltd. Markel FirstComp Insurance Meadowbrook TPA Associates New England Excess Exchange, Ltd. Political Action Committee
Providence Fire Restoration PuroClean Disaster Restoration Services Safelite Auto Glass ServiceMaster Restore Servpro of Providence Servpro of Washington County; Newport & Bristol Counties Shred-It Single Source Disaster Recovery Specialists Swiss RE Corporate Solutions Telamon Insurance & Financial Network The Beacon Mutual Insurance Co. The Standard Publishing Corp. Travelers Insurance Company UPC Insurance Company US Premium Finance Young Agents
Acquisition Strategy #5 Businessowners Program
“we’re big on BoP.” riley Tonkin, omaha Branch marketing representative
emC’s Businessowners Program (BoP) is bigger than ever. with more classes. more value added loss control services. more online resources to make writing BoP easier for you. give your smallto medium-sized businesses a big value with emC’s Businessowners Program, it’s just one of the many reasons why agents Count on EMC®.
Providence Branch: 800.556.7010
|
Home office: Des moines, ia
www.emcins.com © Copyright employers mutual Casualty Company 2014. all rights reserved.
hr corner Do You Have A Quality Hiring Process? This is a continuing article in the series of human resource articles for the “Independent Agent.” My goal is to bring value to your organization in accomplishment of the Essentials of Human Resources. In past articles, we dealt with a variety of topics from hiring to termination. Hopefully, your organization has an effective hiring process when you need to recruit for your workforce. For this article, we want to discuss or review the importance of avoiding critical hiring mistakes. Consider developing and maintaining a quality hiring process; it all starts with the right hire. Insure, you invest the right time. Number One...Failing to clarify what you are looking for. Everyone’s in a hurry to fill a vacant position. But filling a job fast will never make up for hiring the wrong person. What’s a few weeks compared to a mismatch between person and the position? That’s going to result in poor productivity, low morale (not just for the person but the co-worker as well), a termination, and often a lawsuit. Number Two…Failure to cast a wide net. It seems simple to hire today… hit number one of the big job boards and go at it. But most experts recommend using more than one source for candidates. It will improve the candidate pool and support diversity initiatives. Number Three…Interviewing carelessly, poorly, inconsistently, or illegally. Carelessly. Careless interviewing, that is, being unprepared or casual or both, results in not gathering enough
information to make a reasonable hiring decision. In addition, that lack of interest will leave the best candidates unimpressed. Poorly. Poor interviewing techniques again lead to not getting the information you need to make a good selection. For example, asking yes/ no questions, fails to probe deeper than the first (often prepared) answer the candidate gives. Inconsistently. It’s best to conduct similar interviews and evaluations with all the candidates. Naturally, they won’t be the same word for word, but you should cover the same ground. If you cover past accomplishments with one candidate, future vision with another, and local sports with a third, how will you make a rational choice? Illegally. All interviewers need to be trained to avoid questions or comments that can appear to be discriminatory, for example, questions about gender, race, national origin, religion and age. The courts will assume that you have asked the questions because you needed that information to make your decision. That leaves you wide open for a discrimination lawsuit based on asking the question. Number Four…the need for a good process and necessary documentation.
“The courts will assume that you have asked the questions...”
Dave Nichols Quality Transitions, Inc.
CONTINUED ON PAGE 26
25 Second Quarter, 2014
The Anchor
hr corner
CONTINUED FROM PAGE 25
Do you have all of the necessary tools to do a good job. Do you have compliant job descriptions for the position you want to fill? Do you have an employment application for each candidate to complete prior to the interview? Do you have a background release form for the candidate to complete prior to the interview? Do you use an interview evaluation form? Do you conduct background checks? Hopefully, upon this review of these several items, you are in good shape. If
not, look at this as an opportunity for continuous improvement in your organization. Focus, performance and high energy is the name of the game in making the right hire.
Dave Nichols is the principal of a human resource management business, Quality Transition, Inc. located in Charlestown RI. He has 25 years of experience in the field and also retired from the US Army as a Lieutenant Colonel. If you are interested in learning more, please visit his website at www.qualitytransitions.net.
Expect the unexpected. When your customer needs help in a hurry, it’s your time to shine. Make the right call and look like a hero. Make problems disappear for your customers. And for you.
FIRE • WATER • WIND • MOLD • BIOHAZARDS
Who’s on your speed dial? Toll-free
Quick Response. Quality Results.
(888) 231-3130
w w w. e n v i r o c l e a n i n c . n e t
legislative wrap-up Personal Auto Insurance Know the Rules and Regulations For many agencies, personal auto insurance is a predominate line of business. Familiarity of the rules and regulations governing personal lines is an essential to providing quality customer service. Two regulations are the basis for personal auto regulatory guidelines and safeguards. They are: Regulation 25 – Automobile Insurance Rating; and, Regulation 16 - Automobile Insurance Policies: Cancellation and Renewal Provisions. These regulations govern surcharges, cancellations and non-renewals of personal auto insurance. Insurance Regulation 16 Automobile Insurance Policies: Cancellation and Renewal Provisions It is not uncommon for the terms “cancellation” and “non-renewal” to be used interchangeably - but there is a big difference in regards to how state regulations restrict insurers ability to terminate coverage. Section 4 - Cancellation of Policy Any policy in effect for more than 60 days is subject to restriction for mid-term cancellation and for one or more of the reasons below. 1. Non-payment of premium, or 2. Suspension of license of named insured or any other operator who either resides in the same household or customarily operates an insured vehicle, or 3. Policy was obtain by fraud or
misrepresentation, or 4. There has been a violation of any terms or conditions of the policy, or 5. The named insured or any other operator of the vehicle either resident in the same household or customary driver is subject to epilepsy or heart attacks, or 6. The named insured or resident/ non-resident operator has been convicted within a period of eighteen (18) months of (3) three or more speeding violations or other motor vehicle laws of any state, or 7. The named insured or resident/ nonresident operator has been convicted during the thirty six (36) months immediately preceding the effective date of the policy or during the policy term for; a. felony, or b. homicide, assault arising out of the operation of a motor vehicle or criminal negligence in the operation of a motor vehicle resulting in death, or c. DWI/drugs, or d. leaving the scene of an accident, or e. theft of a motor vehicle, or f. making false statements in an application for a driver’s license.
Ernest Shaghalian, Jr., CPCU, AAI Government Affairs Committee Chairman
Section 6 – Notice of Nonrenewal Except for the reasons stated CONTINUED ON PAGE 28
27 Second Quarter, 2014
The Anchor
legislative wrap-up above, cancelling a policy mid-term is also restricted. Policy non-renewals are not as restrictive but safeguards are built into the regulation to prohibit non-renewals for certain reasons. For a policy to be properly non-renewed a notice must be sent thirty (30) days prior to the annual policy expiration and must state the reason for the non-renewal. A company that uses a six month policy can only non-renew prior to the annual anniversary as if they had written a one year policy originally. A policy may not be non-renewed for the following reasons; • for a loss occurrence only unless it is a chargeable accident ($1,500 property damage payment and more than 50% at fault) during the last three years. • for non-chargeable loss occurrences unless there are more than two within the annual policy year. • because a driver has reached sixty-five (65) years or older. Other than these exceptions, it is easier for insurers to non-renew than cancel a policy based on underwriting guidelines (but must be done without unfair discrimination). For instance, one chargeable accident during the last three years can be grounds for non-renewal, two moving violations or even one speeding violation at very high rate of speed during the last three years could be grounds for non-renewal but would not be grounds for a mid-term cancellation. Regulation 25 Automobile Insurance Rating This regulation deals with discounts and surcharges and provides the following:
CONTINUED FROM PAGE 27
Section 6 – Reductive Amounts for Policy Credits Insurers shall develop and have approved a reductive amount for credits to individuals a result of their lack of Chargeable Accidents and/ or Moving Violations without regard to age, sex, garaging territory. These reductive amounts must be clearly shown as a flat dollar amount or a percentage of premium. Insurers may provide non-driving related discounts that are not related to any accident or moving violation. Section 7 - Premium Surcharges Insurers may not establish a surcharge or penalty, remove a discount, decline an award of credits, tier or retier or otherwise alter premium for any losses other than a chargeable accident or moving violation that occurred during the last three years from the inception date. • Premiums may not be increased because an insured reaching age 65 or older. • Surcharges may only be added at the renewal of a policy. As in Regulation 16, a renewal is defined as if a one year policy were written. Thus an insured that buys a six month policy in January and has a chargeable accident in February can not be charged a surcharge until the following January renewal, not at the July six month renewal date. Section 8 - Chargeable Accident In some cases there are exceptions for chargeable accidents that are not allowed a surcharge such as; • property damage claim payment less than $1,500, CONTINUED ON PAGE 34
28 The Anchor Second Quarter, 2014
e&o corner Out of Sight: A Brief Review of Three Common Coverage Exclusions When we talk to insurance agents and brokers in Rhode Island and in other states, we see that the great majority of agents and brokers are diligent about reminding their customers to review their coverage and to notify the agent/broker promptly if they have any questions or concerns. This is the right practice, of course, but what may not be understood is that such an instruction only goes so far to insulate you from liability in the event that a dispute or a lawsuit arises. The “duty to read” insurance policies is an argument that insurers make all the time against insureds— an insurance policy is a contract, and so the insured will be held to the terms of that contract, whether he or she actually read the policy or not. But, an insurance agent or broker has a much harder time making that kind of argument. In many of the cases we see, the insured customer makes an argument along the lines of: “I know that I’m stuck with the policy that I have—but it’s my agent’s fault that I’m stuck with it in the first place!” In most of these cases, the insured who brings a lawsuit argues that either the policy limits were not set high enough or that the policy excludes certain items or activities that it should not have excluded. Therefore, it is crucial for agents and brokers not just to be able to talk to their customers about the need to review their declarations pages and their policies, but also to be
knowledgeable of some of the most common exclusions that we see cropping up again and again in litigation. This way, when you’re discussing your customers’ insurance needs, you can be sure that they’re aware of these exclusions, and that they’re also aware that if they need to add coverage, it’s going to cost more in premiums. This way, you can have an open and informed discussion with your customers about what kind of coverage they want—and what it’s worth to them. The following is a list of some of the common exclusions that generate a significant amount of litigation. “Your Work” Exclusion This is an exclusion that comes up litigation surrounding commercial general liability (“CGL”) policies. Typically, a “your work” exclusion will exclude any damages to an item or piece of equipment that were caused because an insured’s work was improperly or negligently performed on it. In essence, while a CGL policy covers damages that result from the activities of the insured and his or her workers, the typical CGL policy does not cover damages to the thing that the insured was working on. This is a particularly important exclusion to be mindful of, because many insureds are under the impression that the whole point of a CGL policy is to cover the mistakes
James C. Keidel, Esq. Partner Keidel, Weldon & Cunningham, LLP
Christopher B. Weldon, Esq. Partner Keidel, Weldon & Cunningham, LLP
CONTINUED ON PAGE 30
29 Second Quarter, 2014
The Anchor
e&o corner that they may make with their work, particularly contractors. In many cases, that is true—for example, if an insured contractor is working on a wall, causes that wall to collapse, and the collapse damages other parts of the building, those damages to the other parts of the building most likely would be covered under a CGL Policy. However, if the insured’s job is to fix an expensive piece of equipment, and due to his negligence he damages the very equipment he was working on, that most likely would not be covered under a typical CGL policy because of the “your work” exclusion. As you can imagine, this can be an important distinction. This is particularly important for agents and brokers, because of a Rhode Island case, Employers Mutual Casualty Company v. Pires, 723 A.2d 295 (R.I. 1999), in which the Supreme Court stated that “your work” exclusions are generally enforceable—meaning that the insurer will be allowed to exclude coverage and escape the payment of any defense or indemnity costs. With the insurer out of the picture, plaintiffs typically focus their efforts on the insurance agent or broker who helped procure the policy. And, in the Pires case, the Supreme Court specifically mentioned how, for many unsophisticated insureds, it is reasonable for them to believe that these kinds of damages would be covered. Once the insurer is off the hook, that kind of language can provide support for a judge who is sympathetic to the insured and doesn’t want to leave him or her empty-handed, allowing the insured to maintain a claim against an insurance agent or broker.
CONTINUED FROM PAGE 29
“Owned But Not Insured” Exclusion
Another exclusion that is sometimes at the center of litigation is the so-called “owned but not insured” exclusion, which affects uninsured/underinsured (“UM/ UIM”) motorist coverage in both commercial and personal auto policies. The exclusion generally states that UM/UIM coverage is not provided for injuries sustained “by an insured while occupying, or when struck by, any motor vehicle owned by that insured which is not insured for this coverage under this policy.” This exclusion can come up in litigation where an insured owns a vehicle, such as a motorcycle, that they mistakenly believe will be covered by their auto policy. Or, a dispute could arise after an insured neglects to mention a car that they own but don’t use very often, and they incorrectly assume that the auto insurance (including UM/UIM coverage) will cover any damages or injuries no matter what car they’re driving. It’s important, therefore, to let your customers know that it is essential that they tell you every vehicle they own—no matter how many wheels it has or how often they use it. Flood Policy Exclusions Agents and brokers who sell flood insurance know how heavily regulated it is by the federal government, through the Federal Emergency Management Agency (“FEMA”). Even though virtually all insurance carriers who offer flood insurance do so through FEMA’s Standard Flood Insurance form coverage, it is important to note CONTINUED ON PAGE 36
30 The Anchor Second Quarter, 2014
CASE LAW NOTE
“Corrosion” and “Sudden and Accidental” in Context of Pollution-Exclusion Clause under Rhode Island Law
Wilfredo Nunez, et al. v. Merrimack Mutual Fire Insurance Co., Supreme Court of Rhode Island, No. 2013-129-A (66 A.3d 477 (April 17, 2014)
In Nunez v. Merrimack Mutual Fire Insurance Co., (No. 2013-129-Appeal), the Rhode Island Supreme Court looked at the terms “corrosion” and “sudden and accidental” in the context of an oil leak on an insured’s premises. The Court ruled the leak occurred due to “corrosion” and, therefore, the policy excluded coverage. The Court further ruled that even if “sudden and accidental” is measured from an insured’s perspective, the loss must also arise from “tearing apart, cracking, burning or bulging”. Because corrosion rather than “tearing apart, cracking, burning or bulging” caused the loss, the mere fact that the loss might have been “sudden and accidental” is not enough to trigger coverage. As background, the insured purchased a home, but conditioned the sale on the seller replacing the oil tank and boiler. Although the seller replaced the oil tank and boiler, the original underground oil line feeding the boiler remained. A couple of years after the sale, a technician servicing the boiler
noticed leaking oil. An investigation revealed the leak resulted from the oil feed line corroding over a number of years. The insured claimed entitlement to coverage under Section I Perils Insured Against because the pollution release was caused by a Peril Insured Against under Coverage C. Coverage C, Section 13 provides coverage if the release was caused by the “Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system . . . .” The insurer, on the other hand, countered by noting coverage was excluded under Section I (“We do not insure, however, for loss... caused by...corrosion.”). The Court ruled the loss arose from corrosion and, therefore, the plain language of the policy excluded coverage. Moreover, even if “sudden and accidental” is measured by the insured’s expectation, those terms are only relevant if the loss also occurred from the “tearing apart, cracking, burning or bulging of a steam or hot water heating system.” Because corrosion is not “tearing apart, cracking, burning or bulging”, the second half of the requirement was not met and coverage was excluded.
This feature of The Anchor reviews recent case law involving the insurance industry. Please contact the author for more information: Drew W. Colby, Co-Chair of the Construction Group, Partridge Snow & Hahn LLP, 401-861-8200, www.psh.com.
Insurance law is: more about creating versus resolving. A good insurance lawyer knows how to resolve disputes and protect your interests. A great one also sees the law as an opportunity to create value and build your business. With Jenn Cervenka’s knowledge and skills on your side, you’ll be free to focus on the future — confident that you’re moving forward within the boundaries of the law.
Jennifer Cervenka Insurance, Chair
CLOSER TO THE ISSUES www.psh.com • 401-861-8200
31 The Anchor Second Quarter, 2014
company spotlight Shred-It Securing your information Think you’re saving money and keeping your confidential information safe by shredding your own documents? You may be shocked to find out how much you’re risking…and what it could actually cost you. And if you’re simply recycling them, that’s even less secure. Here’s why: The cost of not having a secure document disposal solution in place is extremely risky. It could cost you not only your customers and associated revenue, but also your good business reputation. Check out these facts: • In 2010, the average data breach cost $7.2 million in lost revenue and fees.* • On average, organizations have experienced 2.7 breaches in the past two years.** • Of those that experienced breaches, 53% say the impact was moderated, while 21% said the impact was significant.*** • On average, it takes 11.8 months to restore an organization’s reputation after a data breach.**** It’s not just the equipment you may be using. Think of everything else that shredding your own documents involves: • Strip shredding isn’t secure because those documents can be pieced back together. • Using your own employees to do your shredding is time consuming and equals lost productivity for your core business operations. • You’re leaving it up to your employees to decide what is and isn’t confidential information. • Surprisingly, 41% of security breaches are caused by simple human error.*****
Recycling your confidential documents is even riskier If you recycle your confidential information, or simply throw documents into the garbage, you’re making a very risky choice. Consider that: *2010 Annual Study: Global Cost of a Data Breach, Ponemon Institute, LLC 2010 **http://www.cioinsifht. com/c/a/Securiity/How-DataBreaches-Can-Affect-Brand-andReputation-888678 ***How Data Breaches Can Affect Brand and Reputation, Bob Violino, 2011 ****How Data Breaches Can Affect Brand and Reputation, Bob Violino, 2011 *****2011 Shred-it Security Tracker, powered by Ipsos Reid. ******Javelin Strategy and Research, 2009
• Entire documents full of private information are leaving your premises. • The content in your documents or eMedia is completely visible or accessible for anyone to handle and steal • In fact, malicious attacks are behind 31% of all information breaches.******
Choosing the Paper Shredding Service That Suits Your Needs One of the most reliable information security strategies today is to completely destroy private information when it is no longer needed – and that means having it professionally shredded.
One-time clean out or ongoing services are two common options available.
A one-time shredding service is often used by companies that need to dispose of large volumes of unwanted or unneeded paper documents – due to a move, major clean-up, plant closure, etc. Confidential materials are collected and securely transferred to our mobile shredding truck on-site and destroyed.
32 The Anchor Second Quarter, 2014
company spotlight Companies that need protection of sensitive documents on a more routine basis arrange for regularly scheduled paper shredding services. Professional shredding companies help determine the frequency of shredding and when the service will best fit into your schedule. The company installs locked consoles in the workplace for storing documents that are no longer needed. Then, on a pre-arranged schedule, documents are removed from the consoles and securely shredded on site.
Regardless of the service you choose, it’s important to partner with a professional shredding company that provides: • Uniformed, security-screened service personnel • A secure chain-of custody • Shredding service performed on site at your location • Cross-cut shredder technology and multiple shred sizes • Recycling of shredded materials • Certificate of Destruction after every shred • AAA NAID Certification Shredding Services Tailored to Meet Your Needs With the average security breach costing business $7.2 million in fees and lost revenue, you can’t afford to take the chance your documents will end up in the wrong hands. Shred-it has a range of shredding services to meet your daily or occasional need to safely dispose of unwanted or outdated information. Regularly Scheduled Service: Ideal for Day to day protection of all your sensitive documents Service Includes:
Call Shred-it Today at 401.383.8866 and let our Certified Information Security Professionals know you are a member of IIARI and receive your Free Risk Assessment and our preferred IIARI rates on all our services.
• Secure, locked consoles in your office • Regularly scheduled pick-ups by uniformed, security-screened personnel • On site cross-cut shredding in our locked trucks • Multiple shred sizes • Secure Chain-of-Custody • Certificate of Destruction One-Time Service: Ideal for Large volumes or periodic clean outs Service Includes: • Collection and shredding at your office by uniformed, security-screened personnel • Flexible on site shredding schedule to suit your needs • Drop-off options for residential clients with smaller volumes • Secure Chain-of-Custody • Certificate of Destruction Shred-it’s proprietary cross-cut shredding technology turns your sensitive paperwork into confettisized pieces ranging from less than an inch to as small as an eighth of an inch giving you peace of mind knowing your confidential documents can’t be reproduced or recreated. With 25 years of experience, we have the expertise, technology, policies and processes you need to ensure secure disposal of your confidential information, in complete compliance with privacy regulations ... now that’s peace of mind.
33 Second Quarter, 2014
The Anchor
legislative wrap-up
• insured is 50% or less at fault, • the loss or incident involved a law enforcement officer in the course of their employment, • a bus driver, RIPTA or school bus, • commercial vehicle driver of a vehicle with a gross weight of 10,000 pounds, • driver of a public livery vehicle. Section 11 - Use of Insurance Score in Rating or Underwriting Rhode Island laws allow credit scoring in the pricing of auto insurance. Insurers must, at the request of an insured, obtain an updated score once every two years unless the insured is already in the most favoribly priced tier or no credit score was used when the policy was initially written. Insurers must provide a decreased premium to the insured at renewal if the updated score indicates the insured is entitled to a decrease. If the updated score indicates that the insured may be charged an increased premium the insurer may only increase the premium at renewal due to the score provided it was due to bankruptcy, tax lien, garnishment,
CONTINUED FROM PAGE 28
foreclosure or judgment or a subsequent score undertaken no sooner than six months later confirms the worsening in the score. It’s often helpful to know the safeguards built into these regulations. Often one of those four letter word consumer reports will indicate a driver had an at fault accident and a surcharge levied. Sometimes these charges can be avoided if you know the rules and dig a little deeper. This article contains excerpts from the relevant Insurance Regulations, it is an abbreviated summary of some of the important rules and is only the opinion of the author not intended as an interpretation. You can contact IIARI at 401.732.2400 to secure links for these specific regulations.
Discover all the reasons why more agents and employers in the Eastern US are
choosingmemic for workers’ compensation insurance at memic.com/thechoice.
34 The Anchor Second Quarter, 2014
young agents Opportunity: A Set of Circumstances That Makes It Possible to Do Something Opportunity is what we are offering with the Rhode Island Young Agents. The opportunity to meet and get to know others in your field, to learn from each other and make connections, to get involved with your Independent Insurance Agents of Rhode Island Association, earn sponsored continuing education credits, meet and connect with Professionals from other fields, and in some cases, to just let loose and have a little fun. Since last year we have been laying groundwork to reinvent and revitalize the Young Agents group here in Rhode Island. It’s been a long hard process, where we have tried to find a balance of value and fun, proper communication and offered mentorship and education. Our primary focus over last year was to add professional value to our members. We started with our Association night to introduce Young Agents to the Association as a whole, including the different committees, what they do and how to get involved. We held a flood insurance round table event at a beach location providing information on the ever changing face of flood insurance and then we followed with a whopping 21 Continuing Education credits resulting in the CPIA designation, a level of education sponsored by the Young
Agents for the Young Agents not seen before. While we spent the majority of the last years focus on those items, we had a clear focus that we wanted to be more. We want to offer change both personally and professionally. We are looking into various volunteer opportunities, we have organized a networking event with The Rhode Island Young CPAs, and the Young Attorneys, and we’ve set up fun events like the Paw Sox game night with fireworks. We have continuing education credits scheduled for the fall that will provide you with a full day of CE credits while also satisfying the updated need for your newly acquired CPIA designations. There’s just one thing we still need: You! We encourage you to take the opportunity to join us. If you’re a Young Agent, consider attending an event to see what we’re all about, if you’re an Agency Principal encourage your Young Agents to participate. We look forward to seeing you at an event soon!
Kelly Townsend Young Agents Chair
issed ity is m n u t r o p se “Op le becau p o e p t s ralls by mo d in ove e s s e r d k.” it is like wor s k o lo d an n as Ediso - Thom
35 The Anchor Second Quarter, 2014
e&o corner
CONTINUED FROM PAGE 30
that some items may be excluded by FEMA’s coverage. In particular, potentially expensive items, such as elevator equipment and electronics, are excluded from coverage if they were installed after September 30, 1987. It may be prohibitively expensive, or even impossible in your market, to find an insurer willing to fill in those coverage gaps. Nonetheless, you should be aware of what is, and what is not, covered so you and your customer know what to expect. These are simply a few of the numerous exclusions that we’ve come across in defending Errors and Omissions claims. Of course, there are strong defenses available to insurance agents and brokers in many of these cases, and we’ve had a lot of success even where the insurer has successfully denied coverage.
The point isn’t to try to be an expert on each and every possible exclusion contained in a policy—even insurance company personnel don’t always know the intricacies of their policies and whether courts will enforce a particular policy exclusion. But, by being more aware of the common exclusions that are contained in the policies, you can have a more open dialogue with your prospective customers about their needs and exposures, and you can be alerted to situations where they may wish to buy back those exclusions if possible. You can’t always trust that your customers will actually read their policies, but you can help to make sure that the policy they get is the one that will suit their needs, as they have described them to you, and avoid any unpleasant surprises down the road.
Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of agents’ and brokers’ errors and omissions litigation and insurance coverage litigation Kindly direct comments to Christopher B. Weldon or James C. Keidel at Keidel, Weldon & Cunningham, LLP, at 925 Westchester Ave., Suite 400, White Plains, New York 10604.
Copyright© 2014, Keidel, Weldon & Cunningham, LLP. All rights reserved
34 The Anchor Second Quarter, 2014
legal briefs Federal Flood Insurance Reform Update For the last quarter of 2013, we reported on flood insurance reform as mandated by the 2012 BiggertWaters Flood Insurance Reform and Modernization Act (“Biggert-Waters Act”). The provisions of that federal law were designed to eliminate flood insurance subsidies and nonactuarial based rates for properties insured under the Federal Emergency Management Agency’s (“FEMA’s”) National Flood Insurance Program (“NFIP”), a program plagued with a $24 billion deficit. For some Rhode Island coastal communities with heavily subsidized policies, the impact of the law was both immediate and dramatic. Second homes and commercial properties in special flood hazard areas were hit first. Primary residences were tagged with new rates when transferred to a new owner, a new policy was written, or an existing policy lapsed. Owners experienced their premiums spike and in some cases become unaffordable, and potential buyers walked away from properties quoted under the new rates. While the law softened some of the financial impact by spreading the rate increases in 25% increments over a period of years and carving out certain grandfathered rates until new Flood Insurance Rate Maps (“FIRM”) were drawn and adopted in affected communities, demands for change began as soon as the law started to take effect. Relief Under 2014 Law Relief from the harsh impact of
flood insurance reform came earlier this year when President Obama signed into law the Homeowner Flood Insurance Affordability Act of 2014 (“Affordability Act”). The new law repeals and modifies the Biggert-Waters Act mostly in favor of the policyholder. While the end game of the Affordability Act is and still has to be reform of the NFIP, the shifting of the financial burden away from the federal government to the individual policyholder has been decelerated. Agents should be aware of the following areas of relief under the new law for their existing and potential flood insurance customers: Availability of Refunds The Affordability Act rolls back some of the rate increases already implemented pursuant to the Biggert-Waters Act. Specifically, refunds will be paid to policyholders with properties in high-risk areas who paid their full-risk rates when purchasing new flood insurance policies after July 6, 2012. Other policyholders who renewed policies after enactment of the Affordability Act on March 21, 2014 and paid more than an 18% increase in premiums may be entitled to refunds. Refunds, however, will not be afforded to policyholders paying the 25% percent annual rate increases implemented by the Biggert-Waters Act for pre-FIRM subsidized second homes, commercial properties, and
Jennifer R. Cervenka, Esq. Partner Partridge Snow & Hahn LLP
CONTINUED ON PAGE 39
37 Second Quarter, 2014
The Anchor
Just a guppy
when it comes to selling flood?
www.iiaba.net/Flood
Don’t be shy - Big “I” Flood is here to help. There’s a lot to understand when it comes to flood insurance. We admit it! From changing flood zones to determining the best level of protection for our client, there is a lot to navigate. So even though you’re a big fish when it comes to selling other coverages, flood can make you feel like a guppy! But don’t let this prevent you from offering flood coverage to your clients. We’re here to help you understand and sell flood. Big “I” Flood provides: ACCESS - In, Above & Outside of the NFIP! EDUCATION - Classroom CE or the new Flood Learning Center on VU ADVOCACY - Representation on Capitol Hill & NFIP advisory committees Learn more at www.iiaba.net/Flood, or contact Big “I” Flood Program Manager Linda Mackey at linda.mackey@iiaba.net or (800) 221-7917. Let us explain how we operate in, above, and outside the NFIP!
CONTINUED FROM PAGE 37
properties with repetitive losses or substantially damaged or improved buildings. Policies Subject to More Gradual Rates Increases The Affordability Act ditches the immediate increases to full-risk rates dictated by the Biggert-Waters Act, i.e. as in the case of the transfer of property, in favor of gradual rate increases in all cases. The range of authorized rate increase is a minimum of 5% annually and, with some exception, a maximum of 18% annually until the full risk rate is reached. A 25% annual increase to full-risk rate will continue to be imposed for the pre-FIRM subsidized properties listed above for which no refunds will be made. Importantly, until new guidelines are developed by FEMA, new purchasers of properties with preFIRM rates will be able to retain, rather than lose, those rates. Similarly, rates for lapsed policies will be reinstated with the pre-FIRM rates. Newly Mapped Properties Receive Preferred Risk Rate For properties that find themselves in flood hazard areas for the first time under new FIRMs, first year premiums will be set at the same rate of properties located outside the Special Flood Hazard Area. Flood Insurance Advocate FEMA must designate a “Flood Insurance Advocate” to advocate for the fair treatment of NFIP policyholders. Among its many charges, the Advocate will be responsible for educating policyholders on flood risks, flood mitigation, FIRM
legal briefs amendments, and changes in the law. It will also assist potential policyholders with obtaining accurate rate information when purchasing or renewing policies. Long-Term Affordability Considerations Under the new law, FEMA must prepare a draft affordability framework to submit to Congress which must include, among other things, a proposal and regulations for assuring flood insurance affordability among low income populations. Continued Reform Under the 2014 Law Although the Affordability Act generally lessens the near term financial impact on and installs new safeguards to protect policyholders, the new law continues to focus on improving the financial condition of the debt-ridden NFIP. Regardless of the pace, rates will continue to increase to reflect actuarially-based risk, and subsidies will be phased out. On top of that, a new surcharge will be imposed on all new flood insurance policies to offset continued subsidies until their eventual elimination. For primary residences, the amount is $25 per policy and $250 for all other policies. In light of this, agents should consider and discuss with their customers the long-term effect federal reform will have on their desire and ability to pay flood insurance. For those customers who deem it worthwhile, the agent can help formulate an appropriate plan to keep rates as low as possible, including flood mitigation measures, higher deductibles, FIRM review and appeal, and financial assistance where and if available.
“It will also assist potential policyholders with obtaining accurate rate information...”
Jennifer R. Cervenka (jrc@psh.com) is a partner at Partridge Snow & Hahn LLP, a Providence based business and litigation law firm. Ms. Cervenka is the Chair of the firm’s Environmental and Land Use Group. 39 Second Quarter, 2014
The Anchor
The Anchor
IIARI 2400 Post Road Warwick, RI 02886
PRSRT STD U.S. Postage PAID Providence, R.I. Permit No. 1398