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VOLUME 124, NUMBER 18 / October 27, 2013
A CINN Group, Inc. Publication
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Contents [COVER STORY ] 20
MEDMAD Outlook: Proﬁts Flatlining Amid Changes
October 27, 2013 | volume 124 number 18 43
Looking Back: September 17, 1988
In the News: Health Insurance Marketplace Certifcation Course
[ AD FEATURES]
Foreword: Harold Lee & Sons @ 125 Steve Acunto, Publisher
Insight: Ethics, Conﬂicts and Justice Steward Peter H. Bickford
LICONY: Disabled by Terrorism, Comforted by Insurance; A Business and a Family Life Preserved
MSO: Distracted Driving
PIA: Calendar of Events
Exposures and Coverages: Flood Insurance Gaps; More on Duty-to-Defend Case; Is Email a Written Record of Settlement Jerome Trupin, CPCU
Guest View: Are We Becoming Ethical in Spite of Ourselves? John R. DiForte, MBA, CPCU
On the Level: Reﬂections During a Difﬁcult Time N. Stephen Ruchman, CPA
In the Associations: PIANY Honors Ryan with the Hudson Valley RAP Distinguished Insurance Service Award
In the Associations: Big “I” Scores McKinsey Report as “Off Base” on Independent Agency System
On My Radar: Interpleader - When an Insurer Must Interplead Funds Barry Zalma
Courtside: DFS Announces Ban of Harbinger Capital’s Philip Falcone From Involvement in Operations of All New York Licensed Insurers, Including Fidelity New York
Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / October 27, 2013 3
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[ FORE WORD ]
Harold Lee & Sons @ 125
arold Lee & Sons is a credit in a number of ways to the Independent Agency and Brokerage system, but most of all, to the fact that this agency has survived and prospered marvelously as a uniquely ethnic agency, is testimony to the enormous opportunity this country provides. For as long as I have known Steve Boone, he has been a gentleman of the highest order; his sister Sandra and others in his family are great Americans and their agency is a great institution. May it prosper for another 125 years. Unfortunately, I had to miss the Anniversary event which was held at the Chinese Museum and attracted many professionals. We will have a full article in the next issue of the Insurance Advocate... In this issue we discuss the situation facing medical malpractice insurers. In New York State both Novus and Lewis and Clark recently STEVE BOONE, JR. closed here and moved to other states. As you know, risk retention groups are not regulated the same as insurers and can move around with great facility, leaving clients and brokers sometimes in a lurch. New York has two medical malpractice providers – i.e. real insurance companies per se – MLMIC and PRI. In each case these enterprises struggle against incredible odds provided by the trial bar, activists courts, crazy regulations, and crazy requirements – notably the funding of a pool that drains their surplus resources. We applaud MLMIC and PRI for standing tall and staying strong in the marketplace. We believe that they will survive what is seen in the Conning and Company report as a mixed outlook for medical malpractice insurers. We hope so. [IA]
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VOLUME 124, NUMBER 18 OCTOBER 27, 2013
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 email@example.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ Michael Loguercio Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 firstname.lastname@example.org SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 email@example.com PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | firstname.lastname@example.org President and CEO Steve Acunto
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[ INSIGHT ]
By Peter H. Bickford
Ethics, Conflicts and Justice Stewart
eing against ethical standards in our business is like being against apple pie or ice cream! Rooting for conflicts of interest is like a Yankee fan rooting for the Red Sox! We all have rules that must be followed
rules of conduct found in codes of conduct everywhere. Some of these rules are straightforward, common sense rules, prohibiting state employees from: • accepting other employment that could impair the employee’s inde-
Most disciplines of the insurance industry have adopted serious ethical standards or codes of responsibility for their members including, underwriters, brokers, actuaries, claims professionals and others. Our brethren across the regulatory aisle – the employees at the state insurance departments – are also subject to codes of conduct. Peter H. Bickford
in our business and professional lives. These rules are generally set forth in the laws and regulations governing our businesses. But in addition to the rules of laws that we are required to follow, we also have codes of conduct or ethical standards that our respective disciplines issue as the proper way to conduct our professional activities. Some of these codes have serious consequences for violations, usually involving loss of a professional license, such as for lawyers or accountants. Other codes are more for window dressing or exist for their PR value with nominal consequences for breaches, such as the code of conduct for used car dealers. Most disciplines of the insurance industry have adopted serious ethical standards or codes of responsibility for their members including, underwriters, brokers, actuaries, claims professionals and others. Our brethren across the regulatory aisle – the employees at the state insurance departments – are also subject to codes of conduct. The codes for state employees, with a primary emphasis on addressing public trust, are generally found carved in stone in the state laws. An example is the statutory code of ethics for employees of state agencies in New York’s Public Officers Law Section 74. It includes a laundry list of “standards” of conduct that are common
pendence of judgment in the exercise of the employee’s official duties; • disclosing confidential information acquired in the course of the employee’s official duties, or using such information to further the employee’s personal interests; or • using the employee’s official position to secure unwarranted privileges or exemptions for the employee or others. Then there are the more subjective “standards” prohibiting state employees from: • engaging in any transaction with any business entity that might “reasonably tend to conflict with the proper discharge” of the employee’s official duties; • involving in conduct that would give “reasonable basis” for the “impression” that any person can improperly influence or “unduly enjoy his favor” in the performance of an employee’s official duties; • pursuing a course of conduct that would “raise suspicion among the public that [the employee] is likely to be engaged in acts that are in violation of his trust;” or • having any financial or business interest, transaction or activity that is “in substantial conflict with the
proper discharge of his duties in the public interest.” The application of these subjective standards often depends on the viewpoint or bias of those charged with their enforcement. Like former Supreme Court Justice Potter Stewart’s famous definition of pornography (“I’ll know it when I see it”) people will have differing perspectives in determining that an action gives an “impression,” “raises suspicion,” is in “substantial conflict” with proper conduct, or (my favorite subjective test) whether any person might “unduly enjoy” the favor of a state employee. However, too often these abstract concepts are used as weapons rather than standards of conduct. Too often these rules are used by government to stifle legitimate dialogue on issues between regulated and regulator. Too often these rules are used as cover for flawed government policy rather than as codes of conduct to ensure public trust with state employees. The relationship between regulated and regulator in the insurance industry has undergone a transition from open and meaningful dialogue to a strict separation of interest. This is not a new development. It has been evolving over decades. Those of us who have been around for a while remember the days when the NAIC regularly used private sector working groups on major regulatory issues and initiatives. The NAIC leadership eliminated those working groups in the name of preventing undue industry influence over the deliberations by the regulators. Likewise, there was a time when many states, including New York, regularly used private sector expertise in its training of staff professionals such as examiners. Back in the day I had the privilege, along with other private sector industry professionals, of being a panelist for the New York Insurance Department’s associate insurance examiner oral test. There was no hint of concern for undue influence or improper association. It merely made sense to provide exposure to a broad business perspective for department professionals. continued on page 8
6 October 27, 2013 / INSURANCE ADVOCATE
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[ INSIGHT ] more insular relationship. Some would argue that this change is appropriate – that there should be no “unnecessary” interaction between them that could in any way lead to undue influence, conflict of interest or interference with the independent judgment of the regulator. While recognizing that reducing the interaction between regulators and regulated is a goal of some industry critics, this isolation comes at the cost of a healthy dialogue between insurance regulators and the industry — a lost
continued from page 6
That program, of course, fell victim to the growing dichotomy between regulator and regulated and long ago stopped using knowledgeable industry panelists, relying primarily on “experts” within the regulatory community. These are but two examples of how the interaction between regulator and regulated has evolved over the years into a much
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While recognizing that reducing the interaction between regulators and regulated is a goal of some industry critics, this isolation comes at the cost of a healthy dialogue between insurance regulators and the industry — a lost opportunity for better understanding of the issues and problems each face.
opportunity for better understanding of the issues and problems each face. Often under the guise of “ethical” considerations, regulatory overlords hide limited knowledge of the business they oversee through forced separation. Some of these efforts can be quite petty, including restricting attendance at conferences, seminars, roundtables, or other traditional educational forums, or even any meaningful contact with industry representatives. These petty restrictions often seem to evidence an insecure bravado by government leadership rather than any sincere concern for improper ethical conduct. A total lack of dialogue was never the intention of the ethical standards for employees of state agencies, but more and more they are being used to restrict contact and dialogue. In the long run, this is a harmful environment for the development of meaningful regulatory schemes that will protect the public while allowing the insurance business to thrive. [IA]
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[ EXPOSURES AND COVERAGES ]
By Jerome Trupin, CPCU
Flood Insurance Gaps More on Duty-to-Defend Case Is Email a Written Record of Settlement? Is there a Leak in Your Insured’s Flood Coverage? If you’re providing that coverage for your insureds, pat yourself on the back; if you were doing it before Sandy, stand up and take a bow. If your insured requires limits higher than those available from NFIP, you’re probably using commercial insurers whose forms are often broader than NFIP’s. However, even commercial flood coverage is not as water tight as you might think. Most commercial flood coverage forms mimic NFIP’s definition of flood, which reads as follows: Flood, as used in this flood insurance policy, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: a. Overflow of inland or tidal waters; b. Unusual and rapid accumulation or runoff of surface waters from any source; c. Mudflow…(definition of mudflow shown in footnote)1 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a ﬂood as defined in A.1.a. above. It’s not an all-encompassing definition and commercial forms sometimes provide
“Specifically, because the loss arose when water from ‘under the ground’ pressed on and flowed through the building’s foundation walls into the basement, coverage is precluded under the endorsement.” even less coverage. For example, the ISO form does not include number 2 that covers lake shore erosion. The most troublesome gap is subsurface water. Note that the definition of flood links coverage to the inundation of normally dry land. Insureds will often call saying: “My basement is flooded.” It probably is, but if the flooding is due to subsurface water or even a broken water main that hasn’t caused inundation of normally dry land, it’s not a flood under wording like this. A case on point is: Harleysville Ins. Co. of N.Y. v Potamianos Properties., LLC 2 Potamianos Properties owned a commercial building in Syracuse, NY. Its building was severely damaged when an underground water supply line ruptured. The water line measured six inches in diameter. The water pressure resulting from the rupture, together with the washing away of the soil adjacent to the building, caused a large section of the foundation wall to fall, continued on page 12
1 Mudflow is defined as follows: a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows. 2 2013 NY Slip Op 05154 [108 AD3d 1110] Appellate Division, Fourth Department July 5, 2013
10 October 27, 2013 / INSURANCE ADVOCATE
Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonproﬁt and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses. Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Interest Group Newsletters, the Insurance Advocate, and other publications. He can be reached at email@example.com. Thanks to Jerry Trupin for this article and to the CPCU Society’s Risk Management Interest Group newsletter for letting us reprint it.
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[ EXPOSURES AND COVERAGES ] continued from page 10
permitting water, mud, and debris to flow into and fill the basement. The appellate court affirmed the lower court’s decision that there was no coverage. It ruled: “Specifically, because the loss arose when water from ‘under the ground’ pressed on and flowed through the building’s foundation walls into the basement, coverage is precluded under the endorsement.” There are insurers that will provide this coverage. See if you can get one for your clients. If not, tell them about the gap.
Another Flood Gap—This Time in National Flood Insurance National flood insurance issued by NFIP excludes damage from earth movement. This doesn’t sound too bad at first blush, but look at the wording of the exclusion: We do not insure for loss to property caused directly by earth movement even if the earth movement is caused by ﬂood. Sandy washed away the ground supporting many homes resulting in substantial damage to the structures. Adjusters working for NFIP/FEMA are interpreting this exclusion to eliminate coverage for the damage resulting from the loss of earth supporting the foundation when the flood is what moved the earth. To make things more difficult for insureds, FEMA is reported to have advised adjusters that it will hold them responsible for errors in adjusting losses. As a result, adjusters are strictly interpreting the policy.3 Depending on the exact wording, insureds with commercial coverage may be able to make an argument that the exclusion doesn’t apply. For example, ISO’s flood form incorporates the earth movement exclusion in the basic, broad, or special form attached to the policy. It contains the following wording: We will not pay for loss or damage caused directly or indirectly by any of the following…Earth movement…
including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include…the action of water under the ground surface That clearly knocks out coverage for underground water, discussed above, but an insured can argue that it creates an ambiguity as to whether it applies to surface water, if that’s what washed away the ground surrounding the foundations. UPDATE: Shortly after this article was written, New York Governor Andrew Cuomo announced that he will use part of the federal Superstorm Sandy aid the state received to “fully compensate” storm victims who had claims denied because of the exclusion of earth movement during a flood.4 We’ll see if New Jersey Governor Chris Christie and Connecticut Governor Dannel Malloy will follow suit. However, it won’t change the exclusion for future claims.
More on Duty-to-Defend Case (K2 Investments v American Guarantee) Last month I wrote about the K2 Investments v American Guarantee court of appeals decision that held an insurer could not deny coverage based on exclusions once it had wrongfully refused to defend the insured. I added an update that a rehearing had been granted after I wrote the article. The rehearing has now been put on the calendar for January, 2014 and a decision is expected in the spring. The case has attracted enormous attention because it may make it much riskier for an insurer to refuse to defend. The dominant interpretation of the decision is that a breach of its duty to defend is deprives the insurance company of the right to argue that the loss is excluded; it must defend the insured and pay any judgment. In effect, the breach of a duty to defend may create coverage. I’ve just seen a different interpretation of the decision. Charles A. Booth, Michael L. Anania and Douglas J. Steinke, leading insurance defense attorneys with Ford
Marrin Esposito Witmeyer & Gleser, contend that this decision is not the cataclysm that most insurance defense attorneys fear.5 They write, in part: “K2 is best understood simply as a routine opinion that reached the right result... [T]he court’s extraordinary action…to grant reargument of K2 confirms that the perceived dominant view of that opinion is not what the court intended…The court, in recent years, has granted less than 1 percent of reargument motions, and to do so here clearly telegraphs the court’s concern over its initial opinion and how it is being construed.” In their opinion, the question of American Guarantee’s liability for the malpractice claim was settled when the prior court entered a judgment against the attorney for legal malpractice. American could not relitigate that point. They contrast the K2 case with the leading case on breach of duty to defend, Servidone Construction Corp. v. Security Ins. Co,6 In that case, as in most duty-to-defend cases, there had been no court determination of liability. The lower courts held that the insurer could not plead exclusions to escape liability. The Court of Appeals, however ruled that “an insurer’s breach of its duty to defend does not create coverage and that ... there can be no duty to indemnify unless there is first a covered loss.” Booth, et al. point out that the Court of Appeals did not mention the Servidone case in the K2 decision. Servidone has been cited, with approval, in more than 350 cases in the 28 years since its issuance. They do not feel the Court of Appeals intended to reverse Servidone and would certainly mentioned it if that was their intent. Booth, et al. point out that there’s no need to reverse Servidone in the K2 case as the underlying facts are different. Insurance industry trade organizations are seeking court permission to file amicus briefs supporting reversal of the decision. continued on page 14
3Ken Serrano “When the Earth Moves, Insurance is Denied” Asbury Park Press August 23, 2013 http://www.app.com/article/20130822/NJNEWS/308220094/sandy-fema-insurance-earth-movement (accessed 9/18/13) 4 “Cuomo Announces Aid For Homes Damaged By Soil Movement During Irene, Lee, Sandy” NY1 News September 29, 2013 http://www.ny1.com/content/news/189600/cuomo-announces-aid-for-homes-damaged-by-soil-movement-during-irene—lee—sandy (accessed 9/29/13) 5 Charles A. Booth, Michael L. Anania and Douglas J. Steinke “Another View On K2 Investment V. American Insurance” Law370 September 10, 2013 http://fmew.com/media/law360_k2_booth.pdf (accessed 9/18/13) 6 64 N.Y.2d 419 (1985)
12 October 27, 2013 / INSURANCE ADVOCATE
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Senator John Sherman Author, Sherman Antitrust Act
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The Sherman Antitrust Act remains a landmark federal statute on competition It was enacted for the protection of competition in the marketplace “No private corporation shall be created e corporate rights granted to one are open to all.” Sen. John Sherman 21 Cong. Rec. 2456 (1890)
a political king over and sale of life.”
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[ EXPOSURES AND COVERAGES ] continued from page 12
We’ll see how this turns out. I’ll keep you posted.
An Email Strikes Again—Provides Evidence of Settlement Last month I wrote about a broker’s staff member who essentially pled guilty of malpractice in an email. In explaining why she didn’t notice that the application for insurance for the Cleveland Indians “Family Fun Day” indicated that an inflatable slide , which collapsed and killed a spectator, would be used, she emailed: “I’m so used to quoting up your events I think I hardly look at anything but the dates and the details of the event.” After that, the E&O claim against the broker was an open-and-shut case.7 This month, I came across an even stranger email story closer to home. On November 16, 2008, John Forcelli was seriously injured in three-car accident on the Saw Mill River Parkway in Westchester County. He claimed that a car driven by Steven Kuhn ran a red light and struck a car owned by Gelco, which in turn struck his car causing his injuries. On February 10, 2011, the insurers for all three parties moved for summary judgment. That same day, attorneys for Gelco met in a mediation session with the attorneys for the injured driver, John Forcelli. The
mediation attempt was unsuccessful. On April 22, 2011, Brenda Greene, claims adjuster for Gelco’s insurer, reopened negotiations with Forcelli’s attorney and offered $200,000 to settle the claim against Gelco. Negotiations continued and on May 3, 2011, Greene increased the offer to $230,000. The offer was accepted and she sent an email to Forcelli’s attorney as follows: “Per our phone conversation today, May 3, 2011, you accepted my offer of $230,000 to settle this case… “You also agreed to prepare the release…Please forward the release and dismissal for my review. Thanks Brenda Greene.” On May 4, 2011, Forcelli signed a release, notarized by his attorney. On May 10, 2011, the court granted Gelco’s motion for summary judgment, dismissing all claims against Gelco. Gelco’s attorney notified the other parties of the court’s decision on May 11, 2011. That same day, Forcelli’s attorney sent the signed and notarized release to Greene; she received it on May 16, 2011. In New York, agreements to settle are governed by law, CPLR 2104. It provides that an agreement between the parties or their attorneys, other than one made between counsel in open court, is not binding unless it is in writing.8 If the agreement to settle was binding, the summary judgment exonerating Gelco would not set it aside. The question for the court was
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whether the email satisfied the requirement that the release be in writing. In deciding in favor of Forcelli, the court wrote “On these appeals we address the question of whether an email message can satisfy the criteria of CPLR 2104 so as to constitute a binding and enforceable stipulation of settlement. Under the circumstances of this case, we conclude that the subject email settlement agreement was enforceable.” Therefore, the $230,000 release was binding even though the insurer had obtained summary judgment exonerating its insured.8 Second Thought: My first reaction to this case was: Why did the adjuster offer to settle a case where her insured had a good defense and why didn’t she wait until the declaratory judgment issue was resolved? On reflection, I see some possible reasons: 1. The insured’s defense may not be as strong as the brief description in the decision makes it appear. 2. The claimant’s injuries may have been so severe that an adverse decision would be very costly. 3. The third party may have low limits while Gelco has very substantial limits so that a joint and several award might leave Gelco’s insurer holding the bag. 4. Most summary judgment motions are denied. An adverse decision on the summary judgment motion would eliminate the negotiating leverage of a pending summary judgment case. Nevertheless, when the insurance company asks for a premium increase on renewal, citing “adverse experience,” you’ll be able to hear the insured’s screams without the need of a telephone. Learning Point: Emails equal writing. Be careful what you write and tell your staff to be careful, too. Emails can bite. Don’t feed them. [IA] 7 Cleveland Indians Baseball Co. v. N.H. Ins. Co., et al. US Court Of Appeals 6th circuit No. 12-1589 (8-23-13) 8 McKinney’s CPLR Rule 2104. Stipulations www.newyorkinjurycasesblog.com/uploads/file/ CPLR%202104.doc (accessed 9/24/13) 9 Forcelli v Gelco Corp. 2013 NY Slip Op 05437 July 24, 2013 Appellate Division, 2nd Department http://www.courts.state.ny.us /reporter/3dseries/2013/2013_05437.htm accessed 9/24/13
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[ GUEST VIEW ]
By John R . DiForte, MBA , CPCU
Are We Becoming Ethical in Spite of Ourselves?
adical shifts in technology are leading to greater transparency in our daily lives. Any time we use an electronic device, we leave a record that can be searched, cross-referenced, duplicated, and potentially shared. This knowledge of transparency often leads to
It is likely more cost-effective in the long run for the hospital to own up to the mistake and inform the family that their loved one did not die of natural causes. By doing the ethical thing, the hospital has imbued within its employees the basic values that promote trustworthiness in the
A change in the legal environment is also causing an evolution in our moral and ethical conduct. Moral decisions are moving from thoughtful calculations to natural, instinctive behaviors. Our moral code of ethics is self-correcting, based on external constraints imposed on us. John R. DiForte
increased ethical behavior. A change in the legal environment is also causing an evolution in our moral and ethical conduct. Moral decisions are moving from thoughtful calculations to natural, instinctive behaviors. Our moral code of ethics is self-correcting, based on external constraints imposed on us. Transparency increases these external constraints. I gave a seminar in New York in March. One of the case studies I presented was on medical malpractice. In the scenario, an elderly patient goes to the hospital with the mfamilies’ expectation of him dying. However, the patient does not die of natural causes but because of the hospital’s malfeasance. His family, unaware of any misconduct, quietly buries him. Following its Best Practices protocol for when a fatality occurs, the hospital determines that an overdose of medication was in fact the reason for the patient’s demise. The question for the hospital is, should it now inform the family that he died from the hospital’s actions? A lively discussion ensued at the seminar. One of the participants, a senior claim executive said, “You have no choice but to tell the truth. If more than one person knows the truth, it will surface. Even if only one person knows, his conscience will eventually demand that the truth be told.” 16 October 27, 2013 / INSURANCE ADVOCATE
or slowed down.”1 The information is out there; it is just a matter of it being found. Dennis Jay, an executive director for the Coalition Against Insurance Fraud, recently reported that the Wall Street Journal and the Center for Public Integrity filed a lawsuit under the Freedom of Information Act to lift a ban that exempted Medicare data. Jay writes, “If the ban is lifted, journalists would have access to data about physician treatments, tests ordered, and a whole host of medical services. The news media would represent another powerful entity crunching medical data and potentially uncovering fraud and abuse by medical providers.”2 Technology adds a level of discipline that compels us to be more ethical.
The Other Shoe institution. In this era of transparency, serious errors are always exposed. Cover-ups, once revealed, are infinitely more expensive than restitution.
Transparency While traveling into Manhattan, I used my E-Z Pass to cross the bridge and go through the tunnel. At my destination’s garage, the attendant scanned me in. I then used my metro-card that is linked to my credit card to enter the subway. I used my debit card to pay for sundries at Walgreens and took some cash back. My mobile phone pinpoints my whereabouts to anyone who wants to know where I am. Not a moment of my day am I offb the grid. My life is transparent. Technology has radically changed our lives and our expectation of privacy. We are approaching the age of perfect information. Voluminous amounts of data (Big Data) are now being generated by expert systems. More importantly, the algorithms developed to process this data into usable form grant us no quarter and give us no place to hide. Don Peppers and Martha Rogers in Extreme Trust: Honesty as a Competitive Advantage explain, “Transparency will increase because of technological progress, and progress is inevitable. It cannot be avoided, averred,
Over the last several years, whistleblowing statues and employee accountability have caused a major paradigm shift away from keeping secrets within an organization. Janet Morrissey reports in Time magazine, “In what could give new meaning to the phrase—‘If you see something, say something’—a clause within the financial reform legislation is offering big cash rewards to whistleblowers who report fraud and other wrongdoing at U.S.-listed companies and Wall Street banks.”3 Tips leading to recovery will result in $100,000 minimum payouts under current law. As a result, corporate culture has changed, and that which heretofore was acceptable, is no longer. A compelling force, both moral and financial, is causing employees to become more ethical.
The Great Recession, Crime and Insurance Fraud Historically, during difficult economic times, we can predict a spike in crime and insurance fraud. If we examine workers compensation losses over the recession period of 2008 to 2011, we would expect to find a significant increase in claims activity. However, this was proven not to be true. Similarly, in other lines of business, although there were some increases in continued on page 18
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fraudulent claims activity, there were not the expected spikes. Frank Scafidi, director of public affairs, National Insurance Crime Bureau says, “… There were dire predictions of rampant crime in general from the recession, and the opposite occurred—crime rates and criminal activity decreased through those years.” Among the reasons why crime is down is that crime is paying less because ethical behavior is paying more.
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Conclusion An evolutionary shift in the legal environment coupled with perfect information has caused people to consciously make decisions that result in an ethical conclusion. Before the days of transparency, people would weigh the variables of a situation to determine their actions. In the age of transparency, all the information is out there, and we are now compelled to make the ethical choice. As the legal environment becomes more vigorous and the information becomes more perfect, doing the ethical or “right” thing will change from weighing the consequences to engaging in instinctive behavior. [IA] Endnotes 1. Don Peppers and Martha Rogers, Extreme Trust: Honesty as a Competitive Advantage (New York: Portfolio/Penguin, 2012). 2. Dennis Jay, “Court to Rule on Medical Data Transparency,” Insurance Fraud Blog, January 24, 2013, www.insurancefraud.org/ blog/?p=2048 (accessed April 4, 2013). 3. Janet Morrissey, “SEC Now Offering Big Payoffs to Whistle-Blowers,” Time, August 19, 2010, www.time.com/time/business/ article/0,8599,2012066,00.html (accessed April 4, 2013).
John R. DiForte is an independent insurance agent and president of The DiForte Agency Inc., which is located in Staten Island, New York. He is a past president of the CPCU Society New York Chapter, a member of the Ethics Committee, and a director of the CPCU Society Europe Chapter, as well as a published author who has lectured on insurance topics for many years. DiForte completed his CPCU in 1979 and earned a master’s of business administration degree in risk management from The College of Insurance.
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[ COVER ]
20 October 27, 2013 / INSURANCE ADVOCATE
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[ COVER ] Conning and Companyâ€™s work provides the insurance industry with some of the most valuable research and observations available. In the report below we present their outlook on Medical Malpractice for the coming years. The original report was entitled Medical Professional Liability - Looming Threats to Solid Performance 2013 from which we extract a summary and present it here for our readersâ€™ benefit. The situation in New York is a difficult one. As publishers for years of New York Doctor Magazine we reported the affliction visited on doctors by the trial bar, by activist courts, by often absurd regulation, and by the simple requirement on their insurers for use of funds to sustain a pool and other like mechanisms that crowded the system. These need to be radically revisited in New York for our malpractice insurers to thrive. When I say insurers, I mean literally that: there are many risk retention groups and other forms of insuring that of course are not insurance companies. I am mistrustful of these kinds of entities unless they pass some kind of regulatory evaluation or muster. We offer this review with an eye to those who would help implement positive change in the Medical Malpractice marketplace. SA
1. Introduction Over the past several years, medical professional liability insurers have prospered. Underwriting profits have been at historically strong levels, with combined ratios well below 100%. Tort reforms, improvements in risk management, and successful defense of claims have brought down losses. Although insurers are still writing profitable business, the future does not look quite so bright. Conning forecasts profits in this line to deteriorate in the next three years, due primarily to four emerging threats. One threat is the cyclical nature of the market, which alternates between rapid increases and decreases in pricing and premiums. Some of this is driven by competitive forces, and some by volatility and slow recognition of changes in losses. Another threat is the regulatory and judicial environment, most notably the evolving nature of tort reform and, more recently, the Affordable Care Act. These changes could drive up loss frequency and severity for insurers. A third threat is the movement of doctors from private practice into hospitals and other large institutions, many of which self-insure their liability exposures. Insurers that are concentrated in single
states could be especially vulnerable to losing business. Finally, medical professional liability insurers face lower investment returns, bringing down profits. The first part of this study takes an indepth look at the major segments of the medical professional liability insurance market in the context of the coming changes. The major segments include specialists, multiline insurers, and risk retention groups. Each of these segments has different strategies, obtains and uses capital in different ways, and has found various responses to changes in the market. The next several chapters in the study explore the four emerging threats in detail, including the forces that drive them and their expected impact on medical professional liability insurers. How long will insurers be able to write profitable business, especially if rates continue their downward trend? How severely will
changes in legislation, including the Affordable Care Act, affect loss costs; will companies need to contend with larger or more frequent judicial awards? How are insurers adapting to the increasing trend of physicians being employed by hospitals? And to what extent will companies be able to rely on investment income in the near future as a supplement to or replacement for declining underwriting performance? The final chapter explores ways in which the four emerging threats will affect these different segments. How will insurers respond if profit margins decline as Conning has forecast? If market conditions deteriorate to the point where peak losses occur, which segments will see companies withdraw from the market, and which segments will see companies sustain and perhaps ultimately raise rates and lead the industry into a hard market? Conning has published a series of Strategic Studies focused on medical professional liability.
2. Executive Summary The Medical Professional Liability Insurance Market In Conningâ€™s outlook for the medical continued on page 22
INSURANCE ADVOCATE / October 27, 2013 21
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[ COVER ] continued from page 21
professional liability segment of the property-casualty insurance industry, we see a picture of declining profitability, which we believe will lead to returns on capital falling below the average for the overall industry by 2015. This is on the heels of remarkably profitable results over the past six years and represents a continuation of an underwriting cycle that has moved from extreme losses to extreme profitability and back again over the past three decades. The decline in profitability comes from three trends: continued decreases in premium that began in 2007, escalating losses over the past several years that may accelerate in the next several years for a variety of reasons, and continued declines in investment returns that supplement underwriting results and are particularly important in the medical professional liability line. Add to this a historical buildup in capital that has taken place over the past six years, which contributes to the decline in return on capital, which also will influence market dynamics in different ways. If we want to examine how the insurance industry will respond to these emerging challenges in the medical professional liability marketplace, we first must distinguish among at least three major groups of insurers addressing the marketplace: • Specialists make up 70% of the traditional market, write predominantly medical professional liability, and are mutuals, stock companies, or reciprocal exchanges, writing in one or more states. About half of the specialists are single-state companies. • Multiline companies make up 22% of the market and write medical professional liability as a line of insurance or reinsurance, along with other lines of insurance. Most of the multilines write in half the states or more. • Risk retention groups make up 8% of the market, are formed by hospitals or physician groups under the Risk Retention Act of 1986, and report as insurance entities under that Act. Geographic concentration of RRGs is similar to specialists. Alternative risk retention, made up of 22 October 27, 2013 / INSURANCE ADVOCATE
The top ten specialists represent about $5 billion in surplus, with premium-to-surplus leverage just under 0.5:1 and reserves-to-surplus about 1.4:1. Smaller specialists are even less leveraged, but make greater use of reinsurance.
captives and self-insurance, may represent as much as two-thirds of potential market exposures, according to an earlier Conning study. Data are limited for these structures and they are not considered as part of the insurance industry marketplace focus of this study. The top ten specialists grew by about 50% between 2001 and 2006, before falling back 20% through 2012. They make up about 70% of the specialist segment. Some of this growth was through M&A. The top ten specialists represent about $5 billion in surplus, with premium-to-surplus leverage just under 0.5:1 and reserves-to-surplus about 1.4:1. Smaller specialists are even less leveraged, but make greater use of reinsurance. The top ten multiline insurers make up 87% of that segment and consist mainly of admitted companies, excess and surplus lines, and reinsurers. Growth patterns for the top ten multilines are similar to the specialists, although they represent about 20% of the premium volume as the specialists. However, the top ten multilines together represent about $85 billion in surplus. Their surplus applies to other lines of business as well. When surplus is allocated across lines of business, the multilines appear modestly more leveraged than the specialists as a group. Multilines use relatively little reinsurance.
The top five RRGs showed considerable growth, but cumulatively represent premiums and surplus less than $180 million. Leverage ratios of premium-to-surplus and reserves-to-surplus are about equal to midsized specialists, though RRGs may accumulate more loss reserves as they mature. To provide added insight, we list some of the specific characteristics of each of the top ten specialists, top ten multilines, and top five risk retention groups. Each of these segments has performed well in the past five years in terms of loss ratio and combined ratio. However, each will be challenged by changing conditions over the next three years: different market behavior in a continued softening underwriting cycle; changing regulatory and tort environments; a declining and consolidating physician and provider marketplace; and a declining investment environment.
The Threat of the Market Cycle One danger that the medical professional liability insurance industry has faced throughout history is the cyclical nature of profits and losses. These cycles last for several years and consist of four different stages: peak losses, hard market, peak profits, and soft markets. A close examination of the parts of the cycle shows the effect of delayed recognition of changes in loss patterns and the competitive factors of strong profits and strong returns attracting new entrants and aggressive expansion. Cycles can be observed in the volatility of the combined ratio, with the latest peak combined ratio (industry losses) occurring in 2001 and the latest low point (peak industry profitability) occurring in 2006. The combined ratio cycle is made up of two other separate cycles: a cycle of changes in losses (claims)—in turn made up of volatility in claim frequency and severity and also changes in reserves for still open claims—and a cycle of premiums that responds to both a changing claims environment and a changing competitive environment. continued on page 24
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[ COVER ] continued from page 22
Peak loss periods, like the one that the industry faced in 2001, tend to happen when rate changes lag rising loss costs. Loss reserves then need to be strengthened, thus reducing profitability even further. Surplus decreases substantially due to heavy loss activity, and some insurers pull out of the market, as The St. Paul Companies did in 2001. The reduced capacity in 2001 brought on a hard market, with double-digit rate increases very common among policyholders. Higher premium rates, combined with a reversal of loss trends marked by lower frequency and moderate severity growth, led to improvements in cash flows and combined ratios. The hard market led to peak profitability among insurers, with very favorable underwriting results due in part to reserve releases. Industry capital increased substantially between 2005 and 2008, due to the attractiveness of this line of business and the surge in RRGs. Heavy competition and abundant capital drove the softening of the market. Rates have been decreasing for the past several years, despite growth in incurred losses since 2010. Competition extends to the various states, with more companies competing in new markets as they seek to deploy capital and diversify exposure. Rising combined ratios and reduced cash flows in recent years are symptoms of market softening. Recent spikes in accident-year loss ratios and an uptick in incurred claim development also suggest that further loss deterioration is likely.
The Threat of the Legal Environment In the wake of rapidly increasing frequency and severity of medical professional liability lawsuits, particularly since the late 1990s, medical providers and legislators have instituted reforms. Medical providers responded by changing the risk management model to focus on the patient. Patient safety officers encouraged greater transparency among health care professionals and, when errors did occur, many hospitals opted for full disclosure. 24 October 27, 2013 / INSURANCE ADVOCATE
The hard market led to peak profitability among insurers, with very favorable underwriting results due in part to reserve releases. Industry capital increased substantially between 2005 and 2008, due to the attractiveness of this line of business and the surge in RRGs.
Evidence has shown that such a policy was effective in reducing both frequency and severity of claims. Widespread tort reform also played a key role in reducing loss costs. Changes such as the limitation of economic damages, the use of alternative dispute resolution, and prescreening trials contributed to improvements in incurred losses. While tort reform efforts are continuing, they are coming under challenge in a number of states. At the same time, some evidence of increases in severity, and also of potential increases in frequency, is beginning to emerge. Although claim frequency has continued its downward trend, the concern is the 1% of claims that exceed $2 million. In 2012, the 14 largest jury awards totaled more than $1 billion. These “headline” cases have the potential to open the door for future lawsuits as attorneys look for significantly large payments and medical providers look to settle rather than risk possible financial ruin from a catastrophic claim. Adding to the fear of higher jury awards is the likelihood of greater claim frequency resulting from the implementation of the Patient Protection and Affordable Care Act. Physicians and hospitals will have to adapt to the influx of new patients expected when the individual
mandate takes effect in 2014. The impending increase in physician shortages may lead to longer waits for patients to book appointments, thus increasing the chances of complications. Much of the increased patient load will be handled by physician extenders such as nurse practitioners and physician assistants. These professionals have had a growing presence in the medical field in recent years. Not only have they played a greater role in doctors’ offices and hospitals, but also they are commonly used in retail clinics, which are proliferating across the country. One concern is that the public may not be clear about the functions of physician extenders. The lack of understanding about their role could increase risk for medical professional liability insurers. Besides the individual mandate, the PPACA introduces other changes that could affect claim frequency. The implementation of electronic health records could lead to a greater incidence of adverse events, as medical staffs adjust to new systems and experience technical problems. Cost savings by accountable care organizations will make it more difficult for doctors to practice defensive medicine, thus increasing the potential for missed diagnoses. By the end of 2013, almost 25% of all physicians are expected to belong to ACOs. The implementation of a new system could result in additional lawsuits if the service provided by these organizations does not meet patients’ expectations.
The Shifting Health Care Provider Base The expenses and administrative burdens of the PPACA have accelerated another recent trend in health care: the consolidation of doctors into hospitals and other large medical facilities. The movement of physicians from private practices into hospitals and other larger entities has accelerated in recent years due to higher expenses, growing administrative burdens, and a desire for doctors to live a more stable lifestyle. Hospitals, which have greater control over both doctors and continued on page 26
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[ COVER ]
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While some insurers have made efforts to reduce credit quality and invest more money in equities, they continue to allocate much of their portfolio to highquality bonds and do not often diversify into nontraditional asset classes.
physician extenders, have been motivating physicians to focus more of their time on high-risk cases, thus increasing the possibility of medical errors as physician extenders assume more responsibility for routine cases. The consolidation process presents growth challenges for many insurers that focus most of their business on physician coverage. Physicians who leave their private practices for hospitals usually give up their coverage and become insured by the hospitals. Most hospitals self-insure their liability exposures, thus reducing the potential for organic growth among insurers. While some companies have responded by introducing products that combine physician and hospital coverages, many insurers have found consolidation necessary to compete in this shrinking market. As Chapter 3 indicates, there has been a steady number of mergers and acquisitions among medical professional liability insurers in recent years. In the previous chapters, we discussed two forces that could threaten medical professional liability insurers: the market cycle and legal trends. The movement of physicians into hospitals exacerbates both of these threats. Heavier competition for a shrinking client base brings down rates, thus prolonging the soft market. As hospitals grow, the additional assets create greater incentives for lawyers to seek higher awards, thus increasing the potential for higher claim severity.
Declining Investment Income Adds to Profit Pressures Treasury rates have been declining over the past three decades, with the rate of decline accelerating since 2008. For insurers whose portfolios consist mainly of bonds, book yields have been falling, resulting in lower investment income. Continued decreases in investment income are expected as insurers reinvest their securities at lower rates. The drop in investment income puts more pressure on medical professional liability insurers to write profitable business. In previous years, insurers had an easier 26 October 27, 2013 / INSURANCE ADVOCATE
time writing business at an operating profit, despite high combined ratios. With lower investment income relative to earned premium, insurers have a higher probability of writing business at an operating loss, as they did back in 2001. Different groups of insurers implement various strategies for investments. Multiline insurers have higher durations and lower credit quality relative to specialists and RRGs, which is consistent with generally larger pools of assets to invest and a greater diversification of liabilities. Specialist companies have implemented more conservative investment strategies and, as a result, have had consistently lower investment yields relative to multiline companies. Investment strategies for smaller specialists have been extremely conservative, with many companies not even investing in equities. RRGs have had a slightly more aggressive investment policy, with relatively large allocations of equities in their portfolios and average credit quality that is comparable to that of larger specialists. Despite the drop in yields, it does not appear that medical professional liability insurers are making an aggressive attempt to increase investment income. While some insurers have made efforts to reduce credit quality and invest more money in equities, they continue to allocate much of
their portfolio to high-quality bonds and do not often diversify into nontraditional asset classes. Because of this conservative investment strategy, insurers should not expect increasing investment income to provide much of a solution to falling profitability over the next couple of years. However, there is a range of investment performance among even specialist companies that suggests some companies are more aggressive within categories in seeking added yield. Given the leverage of assets to premiums, a 100 bps (1 percentage point) overall increase in yield can be the equivalent of more than 6 points improvement when comparing the combined ratio to the operating ratio. With combined ratios and margins projected to fall in the current soft cycle, that level of improvement may become an important differentiator. Considerations of asset allocation to include equities and alternative investment classes also may provide a path to improved returns at similar or slightly more aggressive risk levels. Many medical professional liability insurers are very strongly capitalized in the current environment and may be positioned to take additional risk in light of softening underwriting markets.
Two Possible Roads Ahead Conningâ€™s forecast is based on a range of assumptions regarding rate changes, loss trends, exposure drivers, and investment income. The outlook for medical professional liability is for rising combined ratios and operating ratios and declining premium. The forecast is influenced by the four emerging threats previously discussed. The softening market likely will continue to bring down premiums through 2014, with just a small increase in 2015 in response to shrinking profit margins. Growing frequency and severity resulting from the ACA and larger jury awards likely will bring up losses, though continued reserve releases are expected to mitigate these losses. The movement of physicians to hospitals is projected to be offset by growth in continued on page 28
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Disabled by Terrorism, Comforted by Insurance
arry Waizer’s life changed forever on September. 11, 2001. He boarded Metro North in Scarsdale to arrive at his office at One World Trade Center at 8:40 a.m. When the building was hit at 8:46, Harry was in an elevator on his way to his office at Cantor Fitzgerald on the 104th floor. Despite third-degree burns over much of his body from blazing jet fuel, Harry walked down 78 floors to the lobby where he was rushed to a burn center. For the next two months, Harry fought for his life. He spent time in a coma, and staved off numerous infections and pneumonia. He spent three months in a burn center undergoing therapy. When he returned home to his wife and three children, one thing he didn't have to worry about was his financial situation. When disaster struck, Harry was financially prepared. Within 30 days, he was collecting benefits from several long-term disability policies that helped to replace his entire working income. Harry also owned several whole life insurance policies, as well as a term life policy that was converted to a whole life
“Having the insurance gave me an ease and confort I would not have otherwise had.”
policy once the disability occurred. Each carried a disability waiver of premium provision, which meant that his insurance company paid all of Harry’s premiums, assuring him of continued coverage while saving $25,000 a year to pay for retirement and his kids' college educations. “Having this insurance gave me an ease and comfort I would not have otherwise had,” Harry says.■
ner had the foresight to purchase disability insurance. The policy replaced a portion of Jerry’s lost income, and a buy-sell provision guaranteed that Jerry’s partner could buy out his share of the business at a fair price. Indeed, insurance has allowed Jerry and his family to maintain the lifestyle they enjoyed before his disability struck. Jerry and his wife, Barbara, still live in their same Webster, New York, home, and two of their three children attend college. When Jerry and his partner took out the disability policy it was one of hundreds of business decisions they made, but one he still vividly remembers. “It has just been a – I want to say, a gift, but I can’t
A Business and a Family Life Preserved
ife insurance companies paid $24 billion in many types of benefits to New York State residents in 2010. Some of it went to folks like Jerry Sullivan, who was diagnosed with a tumor on his optic nerve at age 46. Surgery revealed an aneurysm and set off a chain of complications that ended Jerry's working life and left him feeling as if he were in a dream, unable to wake up. He had to relearn ordinary activities that most people take for granted, such as shaving and feeding himself. Though he appears healthy and is able to maintain his 20-mile-a-week jogging regimen, simple tasks may take him hours to accomplish. Doctors say Jerry will never return to his old business of selling electronic components. Fortunately, Jerry and his former part-
The policy replaced a portion of Jerry’s lost income, and a buy-sell provision guaranteed that Jerry’s partner could buy out his share of the business at a fair price. thank myself enough,” he says. “I’ll never forget signing that thing and how phenomenal it has been.”■
These articles are based on realLIFEstories from the LIFE Foundation.
O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org
INSURANCE ADVOCATE / October 27, 2013 27
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[ COVER ] continued from page 26
physician extenders and retail clinics, while lower investment income is expected to drive down ROEs. Because of these market drivers, the medical professional liability insurance industry as a whole will not be expected to make an underwriting profit in 2015. Multiline insurers may pull back some capital because ROEs for other major commercial lines are expected to be higher. However, most companies will still be expected to make a profit due to investment gains; no significant market movement is expected. Nevertheless, a number of factors could bring down profitability further than expected. Rates could decrease even further, the trend of physicians moving to hospitals could continue at its current pace, large jury awards could continue their growth, claim frequency could rise more than expected, and medical inflation could outpace expectations. The convergence of these forces could drive up loss ratios rapidly. Upon seeing this sudden change in trends, insurers may be less willing to release reserves, thus compounding growth in incurred losses. In this scenario, insurers would be writing business at both an underwriting and an operating loss. The above scenario would have a significant impact on medical professional liability insurers. Multiline companies likely would reduce business even further, with some companies withdrawing from the market completely. Others would respond by opportunistically increasing pricing in excess-of-loss insurance and reinsurance. A number of RRGs and other captive insurers could shut down, thus reducing capital even further. Companies and providers that seek to navigate this scenario successfully would first need to have mechanisms in place to monitor trends in losses (frequency, severity, and source of losses) in a rapidly changing health care marketplace. This will be difficult in a long-tailed line undergoing inflection points and change and will require monitoring not only claims experience, but also claims notices, tort trends, geographic differences, and provider trends. As part of this, companies would 28 October 27, 2013 / INSURANCE ADVOCATE
Rates could decrease even further, the trend of physicians moving to hospitals could continue at its current pace, large jury awards could continue their growth, claim frequency could rise more than expected, and medical inflation could outpace expectations.
need to look for ways to improve loss experience by improving their risk management services to clients, educating medical providers on patient safety, and lobbying for tort reform. Competitive information will be important not only to monitor needed pricing responses, but also to defend against the potential for aggressive competitor moves looking for market share. Relating to this, product development skills will be important in bringing effective products to new providers and provider structures. This includes focus on the needs of existing insureds to emphasize retention. Finally, companies will need to look closely at investment strategies in the context of operating trends. With continued declines in core investment yields and a declining underwriting margin environment, companies will need to look at opportunities to use their investment risk capacity to help support capital preservation and growth. Capital preservation will be important for positioning companies through the cycle and to take advantage of opportunities as they emerge. [IA] This publication has been prepared for and distributed exclusively to specific clients of Conning. Further distribution, sale, or reproduction, in whole or in part, and by
any means, is prohibited. Statements and information in this report were compiled from sources that we consider to be reliable or are expressions of our opinion. The report is not intended to be complete, and we do not guarantee its accuracy. It does not constitute and must not be considered investment advice. About Conning Conning (www.conning.com) is a leading investment management company for the global insurance industry, Cathay Conning Asset Management, and its Goodwin Capital Advisers subsidiary. The Companyâ€™s unique combination of asset management, risk and capital management solutions, and insurance research helps clients achieve their financial goals through customized business and investment strategies. The company is headquartered in Hartford, Connecticut, with additional offices in Purchase, London, Cologne, and Hong Kong. Insurance Research Conning publishes a number of insurance industry research services, including its Insurance Segment Reports semiannual line-of-business reviews; its Forecast & Analysis service, which offers a forward look at the industry; and its well-known Strategic Study series of executive reports on key products and trends and issues of critical industry importance. All are available in print and online through our webbased research portal Conning Library (www.conninglibrary.com).
Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com
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Distracted Driving DISTRACTED DRIVING is a hazard to everyone. National Highway Transportation Association (NHTSA) statistics show that, in 2011, distracted driving was the cause of more than 3,300 deaths and 387,000 injuries in the United States. (www.nhtsa.gov ) Distracted driving can lead to serious consequences. Educating your clients about these dangers is another value-added service of the professional insurance agent. What is distracted driving? Any time drivers take their eyes off the road, hands off the wheel, or engage in any non driving activity, they are distracted. Although a lot of attention has been paid off driving). Texting According to the to the dangers of talkrequires visual, maning on the phone or ual and mental parNational Highway texting while driving, ticipation, so it is Traffic Safety distracted driving probably the most also includes activities dangerous of all disAdministration’s such as eating, tractions. Sending a grooming, reading, text takes the driver’s (NHTSA) National talking to other occueyes off the road for pants of the vehicle, Occupant Protection about 4.6 seconds, or adjusting the radio, or Use Survey (NOPUS), the same amount of driving while drowsy. time it takes to travel at any given According to the the length of a footNational Highway ball field at 55 miles daylight moment, Traffic Safety Adminper hour. Many states approximately istration’s (NHTSA) have speed limits far National Occupant in excess of 55 mph, 660,000 drivers Protection Use Surso in 4.6 seconds, devey (NOPUS), at any pending upon the ac(or about 5% given daylight motual driving speed, of total drivers) ment, approximately that football field dis660,000 drivers (or are using cell phones tance could easily about 5% of total double or more. or manipulating drivers) are using cell Most states have phones or manipulatlaws about the use of electronic devices. cell phones while ing electronic devices. 7% of drivers driving. For example, age 16-24 admitted to using such deNew York bans the use of handheld devices while driving. Only 1% of drivers vices and texting while driving. Conover 70 years of age use electronic devictions for texting while driving or cell vices while driving. phone use will result in five driver vioThere are three classes of distraction: lation points against the driver’s record. visual (taking your eyes off the road); For drivers with probationary licenses manual (taking your hands off the or learners’ permits, such as teenagers, wheel) and cognitive (taking your mind a conviction means loss of license or
permit for 60 days. (www.safeny.ny.gov) New Jersey and Connecticut ban texting for all drivers. They also prohibit cellphone use (handheld and hands-free) for bus drivers and novice drivers. On a federal level, the Federal Motor Carrier Safety Administration prohibits texting while driving by commercial vehicle operators. Federal employees are not allowed to text while driving on business or using government equipment. Distracted driving is a significant hazard to everyone on the road, and it can injure or kill innocent people. Using a hands-free device is only slightly less dangerous than a handheld, so the best way to avoid distracted driving from a cell phone is to turn it off when the ignition is turned on. Educating your clients to the true dangers and potential consequences of distracted driving from the use of electronic devices and other activities, is another sign of the true insurance professional.
139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com INSURANCE ADVOCATE / October 27, 2013 29
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COMMERCIAL LINES SPECIALTY PRODUCTS Outstanding Products, Easy Quoting, Great Service New Ventures Eligible Financial Strength Rating
CONCESSIONAIRES & VENDORS Street vendors, flea market operations, kiosks, seasonal lots & tents acceptable
BEAUTY * BARBER * NAIL SALONS Incidental tanning beds & massage services acceptable
VACANT LAND & BUILDINGS Partially vacant acceptable, vacant acceptable
FAST FOOD Up to 30% alcohol sales acceptable, up to $5M in annual sales
FITNESS CENTERS Health Clubs, Gyms, Yoga & Pilates Studios; incidental massage or child sitting services acceptable
JANITORIAL Up to 50% floor waxing acceptable; up to 25% of annual sales from landscaping, carpet cleaning & window cleaning acceptable
CHILD CARE: COMMERCIAL & RESIDENTIAL Drop in centers acceptable; abuse & molestation limits available
LAUNDROMATS 24 hr operations with or without attendants and drive in operations acceptable
COMMERCIAL UMBRELLA & EXCESS GENERAL LIABILITY Primary AM Best B++ or better acceptable; limits up to $5M
Quick & Easy Phone Quoting: 888-845-6076 Access General Agency Doug Flindt, Commercial Underwriter 516-622-4674 email@example.com www.accessgen.com
Committed to the Success of our Agents!
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PERSONAL LINES SPECIALTY PRODUCTS Outstanding Products, Easy Quoting, Great Service Financial Strength Rating
PERSONAL UMBRELLA Broad risk appetite Primary umbrella limits & excess umbrella limits up to $10,000,000 Direct bill option No self insured retention
HOME BASED BUSINESS More competitive rates & broader coverage than available under a homeownerâ€™s policy Over 150 eligible classes of business Liability coverage up to $1,000,000
VACANT PROPERTY Renovation, for sale, and boarded-up are eligible Vacant tenant & condo spaces Business personal property in a vacant building Inspection costs paid by USLI
COMPREHENSIVE PERSONAL LIABILITY Coverage offered for owner occupied or tenant occupied 1, 2, 3, & 4 family dwellings Coverage offered for condo unit owners, mobile home owners, tenants of multiple unit buildings, & secondary/seasonal residences
Quick & Easy Phone Quoting: 888-845-6076 Access General Agency Amy Levy, Marketing Manager 516-622-4620 firstname.lastname@example.org www.accessgen.com
Committed to the Success of our Agents!
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[ ON TH E LEVEL ]
By N. Stephen Ruchman, CPA
Reflections During a Difficult Time
am writing this article at the end of a difficult week for me. I attended the wake and services for my long-time friend and assistant, Roberta. It’s difficult to describe the depth and importance of the relationship Roberta and I shared. I was lucky enough to hire my Roberta 45 years ago. At that time, she was a collections
I’ll do my thing.” Roberta knew she was an indispensable part of our business: While my strength, like most agents, is my ability to sell, hers was to make sure I could focus on doing so. We often hear the adage: “Nobody does anything ‘till somebody sells something.” It’s important to remember, that while the adage
They tell me it’s difficult to find qualified people who could use the work and do a good job. But in the long the run, I think investing in finding the right people is worth it. Like Roberta, great employees save agencies time and money and they keep our reputations (our livelihood) intact. person for TransAmerica, and when she came to me for a job, she was looking to switch to part time. The part-time job she filled at my office turned into a full-time position very quickly. And with her, my business grew successful. I always had confidence that my bills were paid, that my employee records were up-to-date, and if I had a problem and I needed a second opinion, I knew I could always rely on Roberta to be an honest advisor. I considered her my private consultant and counselor. In February of this year, Roberta was stricken with sickness and on Oct. 1, she passed away. In the days preceding her passing, I was privileged to talk to her and thank her for her support and loyalty and for all the work she gave to me and my organization. But I saw she was in pain and it was time to leave. My words seemed insufficient, and I wish I could have told her more. Remembering Roberta, there are a few things that surface immediately to my mind. She was resistant to change and I wouldn’t say she embraced technology quickly. But, when I made the decision to upgrade equipment or change processes, she was the one who made sure it was implemented in the office. I relied on her. She was savvy and she knew how to get things done without requiring oversight. In fact, she preferred not to be overseen. “Let me do my thing,” she told me. “You get out of the office and
N. Stephen Ruchman
32 October 27, 2013 / INSURANCE ADVOCATE
is true, nobody can run an agency alone. The reason I’m writing this is that all agents have their own Roberta. Agents are go-getters and great sales people, but most of us need someone who can keep us organized and on track; to take care of problems when we aren’t in the office or available when situations arise with clients. I would submit that almost every successful agent has a person in the office who they can fall back on; who they rely on most and whom they trust; a long-term employee who really is a partner in their success. Roberta helped me interview potential employees. She was the office leader, cheerleader and project manager. Other staff at my agency had confidence that they could talk to her. She was direct and always honest with me. She was the most honest individual I’ve ever met – one of her greatest traits. She never would intentionally hurt a fly; she was always sympathetic to our clients, who loved her and in return, stayed with my agency. One would call her simply a “good person.” And this became my office culture. Now, I know as agents we are always seeking new, innovative ways to make our offices run efficiently and at the same time save on our expenses. In the midst of Roberta’s passing, I experienced an example of how important client sympathy is in developing loyalty. My AOL account was somehow attacked by an unknown party overseas and thousands and thousands of
emails were disseminated over my name. AOL notified me of the situation and closed down my account until the problem could be resolved. I hired a great group of techies to clear the problem up. We thought the problem was resolved and my account was opened and within 24 hours my email was shut down again because of the same problem. Every time I had to call AOL, we were sent to their support center, which was obviously oversees. We spoke with the support center more than 10 times—and each time, we heard exactly the same script, verbatim. While I had adept technical support, I missed Roberta, who I knew would have dealt with this with more grace than I could. Obviously, the support people at AOL were unequipped to work with me and solve the problem. So I opened a new gmail account. I’ve heard several agents discuss saving labor costs by having certain processes taken care of overseas. They could send information that needs to be processed overnight and the next day, the outsourced work would be completed and on their computers in their office. Sometimes I wonder if this is a good idea: The savings may not be worth it; you may not be able to control what you’ve done; and you certainly can lose the two biggest assets your agency has: 1) your unique and local connection with your clients and 2) the relationship and professionalism your staff brings to your business. I’ve spoken with fellow agents who also are conflicted about outsourcing. While sending work out may result in an initial cost savings, they struggle with their desire to keep work here in the US. They tell me it’s difficult to find qualified people who could use the work and do a good job. But in the long the run, I think investing in finding the right people is worth it. Like Roberta, great employees save agencies time and money and they keep our reputations (our livelihood) intact. It’s true that investing in your staff is difficult. When I hired Roberta, our part time agreement reflected my struggle starting out. When she increased her hours to full time, I paid Roberta more than I continued on page 36
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