December 21, 2015

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VOLUME 126, NUMBER 20 / December 21, 2015

A CINN Group, Inc. Publication

Serving: New York, New Jersey, Connecticut, Eastern Pennsylvania and Washington D.C.

happy

Holidays YEAR-END READING O N R E G U L AT I O N , COVERAGES, CYBERRISK, FRAUD …AND MORE.

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Contents [FEATURES] 4

Foreword: Tapping Talent Steve Acunto, Publisher

6

Insight: Hope for the New Year?

10

Exposures and Coverages: Certificate of Insurance in the Courts Again; A Reader Writes Re: Fraudulent Impersonations; D-Day and Insurance Jerome Trupin, CPCU

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The Social Notebook: Visual Content Marketing for Your Insurance Agency Chris Paradiso On the Level: Preparing for an Important Legislative Session N. Stephen Ruchman Guest Article: Brokers: You Really Need to Know About Cyber Insurance Legislative and Regulatory Update Amy Roberti Cyber Insurance: What You Should Know Robert Jones

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Face to Face: So This is Christmas Michael Loguercio

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In the Associations: LICONY 15th Annual Conference

36

In the Associations: IBANY’s Annual Holiday Breakfast

38

On the Level: Independent Insurance Agents Gone by 2020 Jamie Deapo

40

Looking Back: December, 1990

December 21, 2015 | volume 126 number 20 42

On My Radar: How to Plead a Consumer Fraud Case for Denial Barry Zalma

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Courtside: For Services Performed in New Jersey, the NJ Fee Schedule is the Prevailing Fee Lawrence N. Rogak

45

Classifieds

46

Guest Opinion: The Locker Room Controversy and the Threat to Your Child’s Health Jane M. Orient, M.D.

[ AD FEATURES] 11

MSO: Beware of Scams

15

LICONY: Life Without the Life Insurance Industry? The Fabric of the New York State Economy Would Unravel

happy

Holidays

info@insurance-advocate.com www.insurance-advocate.com INSURANCE ADVOCATE / December 21, 2015 3

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[ FORE WORD ]

Steve Acunto

Tapping Talent

S

T

he NAIC reports that 25% of the industry will retire by 2018. That’s why so many are doing double duty in the office and on the volunteer scene. … Life Insurance Council of New York’s (LICONY) Timothy A. Walsh succeeds David Walsh as Chairman of the Board of Directors for 2016. Is it a genetic thing? No, the two men are unrelated. The new Chairman is President & Chief Executive Officer of Farm Family Life Insurance Company, and serves on the Board of Directors of American National Life Insurance Company of New York headquartered in Glenmont, NY. He has been a LICONY Board Member since 2005.

LICONY is the domestic trade association representing the life insurance industry, with member companies providing the vast majority of life, disability income, longterm care insurance and annuity benefits for New Yorkers.

In 2016, LICONY’s membership will include 73 life insurance companies and 23 allied professional firms. Mr. Walsh TIMOTHY A. WALSH joined Farm Family in 1995, and prior to becoming CEO, served as Executive Vice President, Chief Financial Officer & Treasurer. He is Senior Vice President and Chief Operating Officer – Multiple Line for American National Insurance Company and is also a member of the Board of Directors of Farm Family Life Insurance Company, Farm Family Casualty Insurance Company, United Farm Family Insurance Company, American National Property and Casualty Company and American National Property and Casualty Holdings Inc. He will work with LICONY’s highly respected and seasoned President, Tom Workman, no stranger to these pages, on the Council’s substantial legislative agenda. Tom is a tireless advocate and a great friend to the industry. Meanwhile, we will keep you up to date on the next Walsh. … NYSAIFA has tapped Serio and Park Strategies Team for its relaunch.

Former New York State Superintendent of Insurance Greg Serio, for some time the insurance quarterback at Park Strategies, has set his appreciable team in motion to get NAIFA-NYS in scoring position with new members and a more attractive season (okay, I was watching the Giants as I wrote this). Greg and his Albany-based group have gotten serious, working with board chair Larry Holzberg of Wealth Advisory Group, Joe Tavernite of Principal and the other officers and board members. NAIFA-NYS is re-establishing its once prized position as the pre-eminent voice of life insurance agents and financial advisors in New York, and thus, the USA. The Association has quite a pedigree and has enjoyed the services of some of the industry’s legends, among whom Spencer McCarty, Ben Brewster, Pat Taylor, Peter GREG SERIO Browne, Bert Steinberg, Allen Press, Hal Wilshinsky, Frank Crisona, Arcadio Casillas, and at least 100 others over its century-plus-year history. Mark Yavornitski knows the whole story and has himself played a strong role in NYSAIFA, since it was NYSALU. A reinvigorated annual meeting is set for May and – here’s that cliché, sorry – a robust legislative agenda is set for the coming session. Greg is a talented and hard working man and has earned the confidence of the Association – and this observer, who has great feeling for and a long standing relationship with the life underwriters – that he will score big time for NYSAIFA. … Martin Koles past President of PIANY and a really careful insurance professional continued on page 20

4 December 21, 2015 / INSURANCE ADVOCATE

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VOLUME 126, NUMBER 20 DECEMBER 21, 2015

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Group P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing offices.

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[ INSIGHT ]

By Peter H. Bickford

Hope for the New Year?

Abandon hope, all ye who enter here. ~Dante’s Inferno

N

o matter how discouraging, frustrating or bad the year has been, the prospect of a new year always seems to evoke a sense of optimism for a better tomorrow. A new year: a new begin-

Hope springs eternal in the human breast ~Alexander Pope, An Essay on Man international bank-centric financial gurus.

Thus it was a little sad to read the Chamberlainesque statement issued by the president of NAIC after meeting in November with representatives from the

Although NAIC’s defense of state-based regulation may be statistically supportable and deserving of far greater consideration than has been given, no one is really listening anymore, and the battle has long since been lost to the national and international bank-centric financial gurus.

Peter H. Bickford

ning. This annual ritual produces expectations that are often more fanciful than achievable.

That does not stop us from declaring our goals or hopes even if the expectation is not always realistic.

The insurance regulatory world is no exception to this annual practice of projecting goals running the gamut from plausible to the proverbial snowball’s chance in that fiery place. And it often seems that the more remote the possibility of fulfillment, the stronger the expressions of optimism.

Take for instance the spunky defense of state regulation of insurance by the National Association of Insurance Commissioners (NAIC). Despite decades of Congressional snipping away at the fabric of state regulation (see, e.g., Dodd-Frank) NAIC continues to extol the value and importance of state regulation. Although NAIC’s defense of state-based regulation may be statistically supportable and deserving of far greater consideration than has been given, no one is really listening anymore, and the battle has long since been lost to the national and

Treasury Department and the United States Trade Representative (USTR) regarding their intention to initiate negotiations with the European Union of a covered agreement regarding reinsurance collateral: “We have assurances from both agencies that state regulators will have direct and meaningful participation in those discussions, and our goal will be to preserve the integrity and strength of the state-based regulatory system for the benefit of U.S. consumers and companies.”

What exactly is this covered agreement all about? For years – no, decades – nonUS reinsurers have sought a reduction in the 100% collateral requirements imposed by the states. Florida became the first state to adopt a reduced collateral regime in 2008, followed by New York, Indiana and New Jersey in 2011. Also, in 2011 NAIC amended its Model Credit for Reinsurance Law to provide for reduced collateral requirements for eligible reinsurers. While a number of states have adopted the revised Model Law, approval has not been universal, prompting the Federal Insurance Office (FIO) to con-

clude, in its December 2013 report How to Modernize and Improve the System of Insurance Regulation in The United States, that: “Given the likelihood that the Model Collateral Law would be of non-uniform application, together with the complicating effect of state-by-state inconsistency on economic matters of national interest, the circumstances warrant the pursuit of covered agreements for reinsurance collateral requirements.” FIO’s recommendation ultimately resulted in Treasury and USTRA issuing a letter to a number of Congressional Committees indicating their intent to negotiate such a covered agreement. The timing of the letters – sent during NAIC’s Fall National Meeting in DC this past November – seems to have been designed for maximum embarrassment to NAIC, even though they included the same reassurance voiced

by NAIC’s president that: “State insurance regulators will have a meaningful role during the covered agreement negotiating process.”

I do not know whether NAIC leadership actually believes that pledge or whether they are resigned to accepting it on face value and hope for the best. NAIC, of course, is not alone in feeling left out. As the financial regulatory world gets swept up in bank-centric financial standards, it becomes harder and harder for insurance to be heard as a separate and distinct discipline. Consider the plight of Roy Woodall, the sole designated “insurance expert” on the federal Financial Stability Oversight Council (FSOC). Woodall, a former insurance commissioner for Kentucky, testified before the Congressional House Financial Services Panel in December that he is being blocked

by Treasury Department officials from being a member of “Team USA,” which aims to continued on page 8

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[ INSIGHT ] continued from page 6

find a common U.S. position on international insurance regulation. Woodall complained that Treasury officials won’t let him engage “in any meaningful non-public or consultative role at the international level,” and that he cannot even be “in the room” for meetings of the International Association of Insurance Supervisors (IAIS).

Freezing out state regulators from an active role in establishing the rules for the

industry on both a national and international level, however, is a reflection of the feds' migration toward a bank-centric regulatory scheme favored by international regulators. This is done under the guise of seeking one voice for insurance regulation on the international scene. In this way – speaking with one voice – the US believes it can be a relevant voice on the international stage. So far this has not worked, but even if it did, speaking with one voice does not mean listening with only one ear, and

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The feds’ frustration can be exemplified by two international developments: the EU’s long anticipated, often delayed Solvency II regime, which becomes effective January 1st; and by IAIS’s ongoing efforts to develop new international financial standards for global insurance operations.

It will probably be years before any judgment can be made whether Solvency II will result in any significant improvement in financial monitoring of insurance operations in the EU and internationally. Some effects are already clear, however: Solvency II has ramped up the cost of compliance to the industry; may very well result in greater capital requirements and increase the cost of insurance to consumers; and the EU’s failure to provide the US regulatory framework with “equivalency” has only increased the anxiety of US companies doing business in the EU. Likewise, the US was late to the table for the IAIS efforts to develop a framework and a risk-based group-wide global insurance capital standard to be applied to internationally active insurance groups. These efforts started in 2009 after the Great Recession, but without any coordinated US effort until FIO became a full member in 2012.

All these ongoing efforts are without any meaningful input or contribution by the regulators in the trenches – the state insurance departments. I cheer every time a state regulator makes a strong criticism of the feds' handling of things like covered agreements, designation of SIFIs, or freezing out insurance expertise from the conversation. But it is like cheering your team’s touchdown knowing you are still down by three scores with a minute to play.[IA] Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experience as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.

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[ EXPOSURES AND COVERAGES ] Certificates of Insurance in the Courts Again; A Reader Writes Re: Fraudulent Impersonation; D-Day and Insurance

W

ill no one rid me of these troublesome Certificate of Insurance issues? The latest case to stir the pot involves a dispute over coverage on a wrap-up project. An electrician employed sub-contractor Urban Power & Lighting, alleged that he was injured and, as usually happens, sued everyone in sight. Among those sued were the owner, Flushing Town Center III, L.P. and the construction managers Muss Development Corp. and Tishman Construction Corp. of New York.

Urban, as is often the case with electricians, was not insured by the wrap-up issued by Illinois National. Urban had its own insurance with Nationwide. Flushing, Muss and Tishman were covered by the Illinois National wrap-up and Illinois undertook the defense of the three.

However, it argued that it was excess to the Nationwide policy and that Nationwide should make all payments to defend all three as additional insureds until its policy was exhausted.

Nationwide said that it was only obligated to defend Muss because Flushing and Tishman had no direct contractual relationship with Urban, a policy requirement to obtain additional insured status.

What interests us is a part of the decision in which the court writes that Nationwide may be prevented (estopped in legalese) from denying coverage to Flushing.

The court speculated that Flushing might be entitled to coverage even though it had no direct contract with Urban based on the theory that the insurance broker who issued the certificate of insurance to Flushing was acting on the authority of Nationwide. If so, Flushing would be entitled to coverage, its lack of a contract notwithstanding. The court did not decide the issue and returned the matter to the lower court for further adjudication.1

What interests us is a part of the decision in which the court writes that Nationwide may be prevented (estopped in legalese) from denying coverage to Flushing.

There were many other issues in the lawsuit – this was clearly an AttorneysFull-Employment-Law case. But the possibility that Flushing could be entitled to coverage as an additional insured despite not meeting the clear policy requirement called for by a written contract between the parties is the most important one to producers. Should that view be upheld, it will upend the ordered world insurers thought they were creating with the “blanket” additional insured endorsement.

In addition, this may create a dangerous trap for the producer. If the insurer feels that acts or omissions of the producer led to the estoppel ruling, it may sue the producer for acting without authority.

Once again, check your E&O limits.

Fraudulent Impersonation: A Reader Writes Shortly after my article on Fraudulent Impersonation coverage (also referred to as Social Engineering Fraud) appeared in the 10/12/15 issue of the Advocate, I received an email from Gordon B. Coyle, CPCU, a Rockland County agent. I found it so interesting that I think it’s worth reprinting practically verbatim: Jerry – So funny that you should write on the continued on page 12

1 Muss Development, LLC v. Nationwide Ins. Co., No. 13 CV 4848 (RJD) (MDG) (E.D.N.Y. Oct. 20, 2015)

10 December 21, 2015 / INSURANCE ADVOCATE

By Jerome Trupin, CPCU

Jerome Trupin

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 Society publication, the Insurance Advocate®, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.

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ADVERTORIAL

Beware of Scams FRAUD AND SCAMS are on the rise, and everyone is a potential target. Criminals are becoming more and more creative in their attempts to part people from their money and property. While many insurers offer the option for identity protection coverage in their policies, voluntarily parting with property is excluded under most insurance policies.

Helping clients understand their exposures to fraud loss and how to avoid becoming victims of scams is another valueadded service of a professional insurance agent.

Senior citizens are especially vulnerable to scams – amounting to $36.48 billion per year. Of this about $16.99 billion is from exploitation scams, where the victim is conned into such things as hidden shipping charges or magazine subscriptions, quack dietary or weight loss products, or faulty investments. Con artist scams, such as fake lottery or sweepstake winnings, and sweetheart scams (pretending to be in love to get money), cost victims $9.85 billion per year (www.truelinkfinancial.com).

Some reasons seniors are targeted include the fact that they are seen as having retirement savings, are used to shopping over the phone, or, as people age, they may become more forgetful. Scammers call them pretending to be someone they have done business with previously, or claiming they are owed money, and threatening legal action. A particularly nasty scam is someone calling and posing as a grandchild, and asking for money to help them out of a jam. Money is to be wired. And, oh, please don’t tell my parents, grandma/grandpa. Investment scams are also common – who can forget Bernie Madoff and his $50 billion fraud?

Every U.S. citizen over the age of 65 is eligible for Medicare, and fraud in that system is rampant. For example, the scammer provides “free” or discounted equipment or services and then insurers are billed for unnecessary services or equipment. Another concern is that an individual’s Medicare number is only a slight variation from their social security number. Since the Medicare card is carried and accessed by various medical personnel, the opportunity for identity theft is increased.

Windshield or auto repair is another type of scam. Some scammers go door to door, pointing out cracks or damage in windshields/vehicles and offering to replace the windshield for “free,” or repair the damage at a discount. Fraudulent repairs and windshield replacement are not “free” – they increase insurance costs for everyone. In addition, the replacement may be substandard, putting auto operators and their passengers at risk.

In any case, once the scammer has insurance information, they may continue to bill the insurance company for medical equipment or services or duplicate windshield replacements.

Telephone fraud comes in various forms, including spoofing, sweepstakes winnings, free vacations or great investment opportunities. Spoofing is when a scammer hijacks someone’s phone number and it shows up on the caller ID of the intended victim, leading them to believe they are talking to someone they know, or a trusted source, such as a financial

institution. Email addresses can also be spoofed.

Offers of “free” vacations or discounted services abound.

Often, the caller insists that this is a limited time offer, and a decision must be made right away. Never provide personal information to anyone who calls you. This includes social security, bank account or credit card numbers, or any passwords or PINs. The federal “Do Not Call” list blocks most but not all unsolicited calls. Scammers will often ignore the law and contact numbers on the list. Such callers should be reported to www.donotcall.gov. There are also services available that can block calls from robots (robocallers) or known scammers.

If you decide to make a charitable donation, or a purchase, ask the caller to send you something in writing. Ask how the charity uses the money they receive. A good resource is Charity Navigators (www.charitynavigators.org), that offers ratings on over 8000 charities. A recent AARP survey revealed that about 70% of donors never asked what percentage of their donation went to the charity versus the fundraiser (www.aarp.org).

Anyone who suspects they are a victim of fraud or attempted fraud, should report the incident to the Federal Trade Commission (FTC) (www.ftccomplaintassistant.gov).

One of the stated goals of the FTC is “Protect Consumers: Prevent fraud, deception, and unfair business practices in the marketplace” (www.ftc.gov). Another resource for fraud prevention is the Financial Fraud Enforcement Taskforce (www.stopfraud. gov/protect-yourself.html).

Remember, if the offer is too good to be true, it usually is.

Helping clients understand the potential risks of scams, and how to reduce their exposure, is another sign of the true insurance professional.

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[ EXPOSURES AND COVERAGES ] continued from page 10

topic of social engineering (fraudulent impersonation) for the Insurance Advocate®…I was…thinking (about this) after hearing a story from a new client just last week: This client is an importer/distributor of metal fasteners. Most of the products are manufactured in the Far East and shipped here to the U.S.... My client received an email from one of his manufacturers in Taiwan, from the person they do business with regularly; at least that’s what they thought.

Their supposed contact person emailed them with new banking information on where to wire their August invoice of $69,000. Upon receipt of payment they would ship the order to the freight consolidator for shipment to the U.S. as they normally did every other month. The client wired the full amount of the invoice to the new bank and two days later checked the status of their order, and was surprised to find it still sitting on the manufacturer’s dock. They emailed their contact at the manufacturer to inquire why it hadn’t been released and the manufacturer said: “As soon as they we receive your payment, we will release the order as we always do.”

My client responds with “we wired the money to your new bank you instructed us to wire to, two days ago, please check your records again.” The contact in Taiwan did check his banking records and responds with: “We haven’t changed banks, and the wire is not in our account; please advise.”

By now you can imagine the dreadful sinking feeling my client has that he’s been duped out of almost $70,000! He quickly calls his bank and explains the situation; the branch manager explains that it’s gone, there’s nothing they can do, but suggests that they (will) contact the FBI. The FBI suggests to the client’s banker to call the bank in Taiwan and see if the funds have been distributed. They do so and luckily find out that in just the past week the bank has instituted a new procedure for all incoming foreign wires that places them on hold for 10 days prior to being distributed to their account holders so the money is still in pos-

Insurance companies became so confident that insurance was not subject to Federal anti-trust laws that they created both single-state and multi-state organizations that set rates and agent commissions in their territories.

session of the Taiwanese bank. My client breathes a sigh of relief and with the assistance of his bank and the FBI he recovers the funds.

A very close call! Upon closer inspection my client sees that the emails he received were not from his contact in Taiwan, but from an email address that is very, very similar – only one letter was transposed in the URL domain. What they have figured out was that the manufacturer in Taiwan was hacked, their records were infiltrated and the hacker diligently went about emailing the U.S. customers a change of bank and wiring instructions with the correct balances due! If the Taiwanese bank had not changed their procedure for incoming wires in the prior week, that money would have been gone.

As you can imagine, when we took over the account selling them broadened crime coverage including social engineering (fraudulent impersonation) wasn’t too difficult! (Your article was) very timely indeed!

Clearly any firm that does business internationally needs this coverage. But, as I wrote in October, just about any business is a potential victim. Variations on the scheme can trap anyone. Who knows what evil lurks in the hearts of men? The Shadow isn’t around to protect us any longer, but insurance will.

Insurance Made NY Times Front Page on D-DAY! Moving is an ordeal. An insurance professor (Yes, Virginia, there are such things.) once remarked, apropos of nothing in particular, that three moves equal one fire. But

there are compensations when you move.

One is coming across old saved articles that you’ve long forgotten. The insurance one that surprised me was a NY Times front page reprint from June 6, 1944. That was D-Day – the day Allied armies landed on the French coast. D-Day warranted an 8-column, 3-line, large type headline.

There were twelve stories on the front page that day. All were war-related but one.

The one that wasn’t concerned the insurance industry. It reported that the US Supreme Court ruled that insurance was a form of interstate commerce and therefore subject to federal law, including antitrust legislation. The decision reversed 75 years of precedent. Its effects are still being felt today.

In 1869 this Court held that a Virginia statute regulating foreign insurance companies did not violate the interstate commerce clause because issuing a policy of insurance was not a transaction of commerce.

The court reasoned that insurance policies are simply contracts to indemnify the insured against loss by fire or other perils, entered into between corporations and insureds for a consideration (the premium). The court felt that they are not articles of commerce. They are not subjects of trade and barter offered in the market as something having an independent existence and value. They are not commodities to be shipped or forwarded from one state to another and put up for sale. They are like other personal contracts between parties which are completed by their signatures and the payments of the consideration. Such contracts are not interstate transactions, though the parties may be domiciled in different states. They are local transactions, and are governed by the local law.3 The ruling was upheld numerous times in later cases. Insurance companies became so confident that insurance was not subject to Federal anti-trust laws that they created both single-state and multistate organizations that set rates and agent commissions in their territories. One multi-state rating organization, the Southcontinued on page 16

2 See: Rivkin-Radler New York Insurance Law Update-November 2015 Alan Eagle, editor “Certificate Of Insurance Issued By Agent Might Estop Insurer From Denying Additional Insured Coverage, Eastern District Holds” 3 Paul v. Virginia, 8 Wall. 168, 183, 19 L.Ed. 357

12 December 21, 2015 / INSURANCE ADVOCATE

12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 13

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12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 14

[ THE SOCI AL NOTEBOOK ]

LIC

By Chris Paradiso

Visual Content Marketing for Your Insurance Agency

W

e live in an age where “traditional” marketing methods alone are not enough to leverage your agency’s brand. As I’ve mentioned before, marketing is going digital, and in fact, I believe that in 2016, digital marketing will be considered the next era of traditional marketing.

Mastering this should be one of your top priorities and if your content isn’t visually appealing, you’re going to be missing out.

Why Visual Content?

The million-dollar question is this, why does content need to be visual?

The simple answer: visuals get a whopping 94% more engagement because they give the same content a new perspective, a stronger focus, and a more successful delivery if done correctly. Suppose that you had crafted a beautiful marketing strategy, but simply left visual content out of it; what will happen is you’ve now mastered social media and SEO and you’ve made yourself easy to find, but once customers, clients, or prospects make it to your content, they won’t be engaged.

Instead of delivering your message or having your customers keep your brand in mind, they may bounce away from your web page in a small amount of time (which can hurt your bounce rate) or simply never read your content to begin with. Visual content will get you more engagement from your audience. The stats don’t lie: • Tweets with images receive 18% more clicks, 89% more favorites and 150% more retweets.

• Socialbakers.com looked at the top 10% of posts made by more than 30,000 Facebook brand pages and found that posts with photos saw the most engagement—accounting for a whopping 87% of total interactions.

• Images and photos are the most important tactic in optimizing social media posts.

• 70% of marketers plan to increase their use of original visual assets in 2015.

• 95% of B2B buyers agreed that they

Chris Paradiso

14 December 21, 2015 / INSURANCE ADVOCATE

preferred shorter content formats.

• Social Media Examiner recently asked marketers which forms of content they most want to learn about in 2015.

Creating original visual assets took first place.

Stats provided by HubSpot

Your Brand While crafting your visual content marketing plan, it’s important to keep your brand in mind. At Paradiso Insurance, we have a set of branding guidelines that were crafted by a professional graphic designer who we outsource work to. Once our branding guidelines were complete, we passed them onto our in-house marketing specialists, who now follow these guidelines while crafting any visuals and other content to help us get more engagement as well as keep our brand fluent and clear for our audience to understand.

There are several components included in our branding guidelines. First we have our logo, which we keep uniform in all of our visuals, only differentiating between a detailed logo, and a simplified logo. Next, we have our color schemes to use in our branded elements within in our visuals. We also have photography guidelines, which tell us to use pictures of our staff as a top priority, and only use uncopyrighted stock images when appropriate to delivering a specific message. Our photography guidelines also state that we should use authentic pictures that include an American flag in the footage as part of capturing our branding theme, the American Dream. Our guidelines even mention which fonts we should use, and provide us with a specific set of shapes we can use on our visuals.

I highly suggest you consider hiring a professional and getting your branding guidelines straightened out, so you can stay consistent with your brand while delivering a powerful message through engaging visual content.

Your Visual Content Strategy So you’re ready to go visual on your content marketing… excellent, let’s get you started! First, as I tell many agencies, it is critical that you hire an in-house full-time marketing specialist for your agency to take

care of producing content and managing your online presence, both your website as well as your social media networks. At our agency, we have our marketing specialists controlling our visual marketing process because our job as agents is to focus on making sure our customers are properly protected, and visual content takes time.

You’ll want to get your marketing specialists started with crafting visuals. There are both paid and free online services that you can use to make visuals, of which I would suggest trying out PicMonkey or Piktochart. Both of these services are free to use, and are great for beginners, and will even set you up with tutorials during your first time using each service after you sign up. When your marketers are ready for advanced visual crafting, and your agency is ready to follow a specific set of branding guidelines like how we recently implemented, then I would suggest getting your marketers set up with the Adobe Creative Cloud suite, this way they can use Adobe Photoshop to craft professional level visuals for your marketing efforts, and it may help to get them a course online if need be to learn the software proficiently.

Now, where to put it online. A good rule of thumb is that wherever you can put visual content, take advantage, but there a few key places where visuals will come in handy. Always be sure to include visuals with your blogging or online articles if it’s appropriate. You’ll also need visuals for your company’s home page on your website, as well as blog covers to attract more attention to your agency’s blog. As for social media, you’ll want to posts visuals to Facebook, Twitter, Pinterest, Google+, and Instagram.

While posting to Google+ (specifically from mobile devices), Instagram, and Pinterest, you can use location services to tag your agency, and any posts that get engagement will include your agency’s phone number, website, and address in front of a wide audience. While posting to Facebook, you’ll be allowed to include large amounts of text with your visuals in case you need to get a strong message across. With Twitter, remember, your tweets only live a short life, continued on page 16

12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 15

LICONY

ADVERTOR IAL

LICONY

Life Without the Life Insurance Industry?

The Fabric of the New York State Economy Would Unravel

By Thomas E. Workman, President & CEO, Life Insurance Council of New York, Inc.

A

s I complete my year-long review of life without the life insurance industry, I am struck by how the industry is truly intertwined into the fabric of the New York State economy. Over the year, I have addressed how devastating the financial impact would be to families, small businesses and the greater New York State community when critical life insurance products are not in place. Products such as life insurance, key person insurance, disability insurance, long-term care insurance and retirement planning solutions. For this column, I will go further to demonstrate how the New York State economy would unravel if the life insurance industry no longer existed.

Jobs Lost The absence of the life insurance industry would make jobs in and out of the industry disappear. The industry supports approximately 160,000 jobs in New York, or 1.4 percent of statewide employment in 2012, according to LICONY-sponsored research. Included in that total are approximately 75,000 people at life insurance carriers and agencies, including independent licensed life insurance agents.

The remaining jobs are the non-insurance positions. The life insurance industry generates thousands of additional jobs (11 jobs in other industries for every 10 jobs in the life insurance industry) by the goods and services it purchases or leases from other businesses in the state. The industry also works with law firms, as well as accounting, actuarial and consulting firms throughout the state.

An important and often overlooked aspect of the employment picture is the role

What the life insurance industry needs is public policy that ensures fair and encouraging business conditions for the continued existence and growth of the life insurance industry. small and medium-sized life insurers play in the communities where they are located.

In some upstate and western New York communities, an insurer with a few hundred employees is a major economic driver for that locality. These jobs support local schools and government, local businesses and trades people, and so much more.

Investments Not Made Without the life insurance industry, sizeable investments would not be made.

According to the American Council of Life Insurers (ACLI), the life insurance industry has invested approximately $409 billion of its assets in New York’s economy. About $335 billion of this investment are in stocks and bonds that help finance state and municipal infrastructure, utilities, public and private construction – all of which generate thousands of jobs and innumerable services in New York.

The industry has also provided $31 billion in mortgage loans on farm, residential and commercial properties, and owns $1 billion in real estate. In addition, life insurers directly or indirectly supported approximately $22.5 billion in state GDP (1.8 percent of New York’s economy) in 2012,

according to LICONY research. Furthermore, total economic activity by the life insurance industry generated an estimated $2.5 billion in New York State and local taxes in 2012, including an estimated $1.8 billion tax contribution directly from life insurers and their employees.

Stronger Together Without the life insurance industry, the fabric of the New York State economy would unravel. But with the industry securely in place, we can create quite a tapestry for years to come. The industry has the financial strength to continue investing in our great state, to continue as a significant employer, and, most importantly, to continue to secure even more families and businesses.

What the life insurance industry needs is public policy that ensures fair and encouraging business conditions for the continued existence and growth of the life insurance industry.

Have a wonderful and safe 2016![IA] Thomas E. Workman is the President and Chief Executive Officer of the Life Insurance Council of New York, Inc. LICONY is the voice of the life insurance industry in New York. LICONY works to create and maintain a legislative, regulatory, and judicial environment that encourages its members to conduct and grow their life insurance businesses here in New York State. For stories about New Yorkers who have benefitted greatly from purchasing the products of life insurers, go to www.licony. org, click on “Published Articles” in the NEWSROOM box on the homepage.

O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org INSURANCE ADVOCATE / December 21, 2015 15

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[ THE SOCIAL NOTEBOOK ]

[ EXPOSURES AND COVERAGES ]

continued from page 14

continued from page 12

sometimes seconds. Be sure to make sure your Twitter visuals are concise and to the point, and are aesthetic to the eye so you can capture the lower attention span of this social network’s audience. Also be sure to use thoughtful and relevant hashtags on your visual posts to get more engagement, but try to limit your hashtags to three per post, or you may push prospects away by appearing desperate for their attention.

Eastern Underwriters Association, led to the downfall of the system. In addition to controlling rates and commissions, SEUA members wrote more than 90% of fire and allied lines (what we now call property insurance) in six states: Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia. SEUA members engaged in coercion and boycotts to force recalcitrant insurers to comply with its regulations.

This would seem to be patently anticompetitive practices banned by the Sherman Anti-Trust law. But the key issue for the court was whether insurance was interstate commerce. The Supreme Court held that insurance companies that conduct significant portions of their business across state lines, were in fact engaging in interstate commerce. The world had changed since the original decision in 1869. Nevertheless the vote to reverse the Paul v. Virginia decision was by a one-vote margin, 4-3 (two justices disqualified themselves).4 The insurance community was in a state of shock. They wanted state regulation in preference to Federal regulation and lobbied hard to have a law enacted to do that. The following year, 1945, Congress passed the McCarran-Ferguson Act exempting insurance from Federal regulation if state regulation applied. However, any Federal law that specifically applied to insurance remained in force and insurers could not engage in boycott, coercion or intimidation.

While there have been occasional flurries of attempts to expand federal regulation, for the most part the states remain the regulators of insurance. However, state regulatory oversight has expanded in a large measure due to the SEUA case and McCarran-Ferguson.

Additional Resources If you’re new to visual content marketing, then I’ve equipped you with everything you need to get started right away. But, for those of us who are a bit more advanced and would like to take their visual content marketing to the next level, I’d like to leave you with a few advanced strategies that may help you ramp up your game. First, take a look at the Content Marketing Institute’s article, Use Visual Content to Engage Your Audience: 9 Tips and 25 Examples, and keep in mind that their strategies will also work for your brand if you put your own spin on things. After that, you could also take a look at their article, 27+ Handy Tools for Better Visual Content Marketing, to help make your process smoother and tighten up any loose ends. Lastly, I would advise you also take a look at Social Media Examiner’s article on How to Take Your Visual Content to the Next Level, to help you get an extra edge on your competition.

And as always, Happy Marketing!

Christopher Paradiso, CPIA, is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community.

Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center.

In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world.

Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.

16 December 21, 2015 / INSURANCE ADVOCATE

This year NARAB II was enacted as part of the Terrorism Risk Insurance Program Reauthorization Act of 2015. It requires the establishment of a national clearinghouse to streamline market access for nonresident insurance producers. NARAB 1 was not a great success. We’ll see how NARAB II works.

One of the few areas where Federal action has been taken concerns producer licensing. Given the country-wide or even world-wide nature of business today, the system of state licensing has become a burden for even medium-sized brokers and agents. To bring some order to the process, the National Association of Registered Agents and Brokers (NARAB) was created.

This year NARAB II was enacted as part of the Terrorism Risk Insurance Program Reauthorization Act of 2015. It requires the establishment of a national clearinghouse to streamline market access for nonresident insurance producers. NARAB 1 was not a great success. We’ll see how NARAB II works.5[IA]

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com

4 A personal reminiscence: The New York Fire Insurance Exchange had control over fire insurance in New York similar to SEUA’s. The New York Exchange controlled rates and commissions, and even decreed that all premiums must be paid to the insurance company or its agent by the 20th day of the second month following policy inception or cancelled for non-payment. Since most of my father’s family worked in the insurance agency field, growing up I quickly learned that the “20th” was a monthly time of tension for my father and his siblings. By the time I entered the insurance business at the beginning of the 1950s, the Exchange’s power to enforce its rules was pretty much a thing of the past due to the SEUA decision and McCarran-Ferguson; nevertheless auditors from the Exchange still called at our office and demanded to see our records. It had become a perfunctory examination and they no longer raised any issues. In a few years even that charade of enforcement was a thing of the past.

5 “Producer Licensing and NARAB II” National Association of Insurance Commissions and The Center for Insurance Policy and Research. http://www.naic.org/cipr_topics/topic_producer_licensing_narab_II.htm.

12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 17

e c a e J o P & y 6 1 0 2

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12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 18

[ ON TH E LEVEL ]

By N. Stephen Ruchman, CPIA

Preparing for an Important Legislative Session

T

he holidays crept up on many of us this year, but not on PIANY: The association surveyed its members and held focus groups by way of Advisory Councils in October to pinpoint the issues members want their association to focus on—issues that impact our businesses every day. And, once those were identified, PIA volunteers took up the cause and visited their representatives in their local district offices, before the New Year and the 2016 legislative session. The District Office Visit program is a great opportunity for any PIANY member to particN. Stephen Ruchman ipate and visit their state legislators and members of Congress between November and January in their local area.

Though the legislature is not in session during the holidays, 2016 (a major election year) is going to be an extremely important legislative session. Some of the issues PIA is attacking include addressing the unfair competitive advantages of the New York State Insurance Fund (including eliminating the 30-day notice of withdrawal rule and requiring the fund to be licensed); bringing workers’ compensation under the same cancellation and nonrenewal protections for policyholders; reform to the state’s continuing education rules to eliminate conflict that comes with holding multiple licenses; standardizing hurricane deductible triggers; tort reform and making sure that ride hailing operations (and those using them) have adequate coverages.

I had the opportunity to take part in the District Office Visit program again, and met New York Assemblyman Todd Kaminsky, D-20 in November. The meeting went great: I was well prepared with materials and information from PIA on each of the items we talked about and the assemblyman was grateful to have an informed constituent help him understand why these priorities are so important to businesses in his district.

And I wasn’t the only one meeting with my representatives. At the time this article 18 December 21, 2015 / INSURANCE ADVOCATE

PIANY PAST PRESIDENT N. STEPHEN RUCHMAN (L) WITH NY YORK ASSEMBLYMAN TODD KAMINSKY, D-20

goes to production, several visits have taken place and more are scheduled. The photos included demonstrate the active participation of PIANY Vice President Fred Holender. Out of the gate, he and PIANY Past Presidents Lynn Frank and Anthony Kubera have met with the majority of lawmakers in Western New York. The New York Young Insurance Professionals also are participating: fellow Long Islander and NY-YIP President Jason Bartow meet with Sen. John Flanagan recently.

My friend and colleague, Jeff Greenfield likes to say, “PIA stands for Passion in Action.” He’s right. PIANY facilitates these crucial outreach meetings with legislators across the state for any member interested in participating. If you are interested in taking part in the District Office Visits that take place every fall or the Advisory Councils, which also occur in your area twice a year, call PIA at (800) 424-4244. If you don’t have time to give, PIA and its volunteers will do the work for you, but you still can contribute. As I mentioned at the top of this article, 2016 will be an important election year and the association needs PAC contributions. As I write this in December, I can put this on my holiday wish list, along with all of the priorities mentioned above.

I wish you and yours a prosperous and healthy new year.[IA] N. Stephen Ruchman, CPIA, is a retired independent agent and founder of Ruchman Associates, Inc. the agency he started in 1961. A past president of the Professional Insurance Agents of New York State, Inc., he is an active supporter of PIANY, and he has sat on or chaired nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee.

He can be reached via email at: nsruchman@gmail.com.

PIANY VICE PRESIDENT FRED HOLENDER, CLU, CPCU, CHFC, MSFS; PIANY PAST PRESIDENT LYNNE R. FRANK, CPCU; AND PIANY PAST PRESIDENT ANTHONY A. KUBERA, CIC, MEET WITH ASSEMBLYMAN RAYMOND WALTER, R-146

12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 19

THURSDAY, JAN. 28, 2016 SCHEDULE 8-10 a.m.

Education session: Cutting Edge Insurance Issues Stevve Lyon, CPCU, CIC, CRM, AAI, ARM, AIS, CRIS Submitted itted for 2 NYCE crreedits.

Appprroved for 2 NJCE crreedits. (88897187-GEN) (88897187

9-10:30 a.m.

Continental breakfast

9 a.m.-12:30 p.m. Trrade show open - Cash door prize drawings - Exhibitor and major door-prize drawings 1-2:30 p.m.

NEW !

LOCATION

Keynote/A ote/A Aw wards Luncheon - Keeynote eyn speaker ward presentations - Aw - Bernard I. Koz o el and Arthur I. Moll Memorial scholarship presentations

2:45-5:45 p.m. Education session: Cutting Edge E&O Exposur x es Stevve Lyon, CPCU, CIC, CRM, AAI, ARM, AIS, CRIS Appprroveed for 3 NYCE crreedits. Applicable p to alll licenses.

(NYCR-251888) Appr p roved for 3 NJCE crreedits. (88897186-GEN) (88897186 We ednesday y, Jan. 27, 27 6:30-8:30 p.m.

M MetroRAP etro RA P WELCO WELCOME RECEPTION M E RECE PT ION Connolly’’s s/Times Square 121 W. 45th St. New Yo ork, N.Y Y. 10036 Hosted b y by As a kick-off to MetroRAP AP P, join the New Yoorrk Yooung Insurance Professionals for an evening of fun, food, networking and more! Devvelop e agency/company relationships to strengthen your industry knowledge, business finesse and professional fessional networrk. For more details and to register for the reception, go to nyyip.org or email us at yip@pia.org.

Sponsor p red e by: y

@P PIIAE EducC d Coonf nf | #M MeetrroRAP o For registration inf information, ormation, contact …

PIANY ’s Education and Conference Department.

(800) 424-4244 t t pia.org

112727 1115

EC10191

12-21-15_INA 12-21-15 12/16/15 10:46 AM Page 20

[ ON THE LEVEL ]

PIANY-YIP PRESIDENT JASON BARTOW MET WITH SEN. JOHN FLANAGAN, R-2, DURING A RECENT DISTRICT OFFICE VISIT TO DISCUSS PIANY'S LEGISLATIVE PRIORITIES FOR THE 2016 LEGISLATIVE SESSION

[ FORE WORD ] continued from page 4

(he started his career as an engineer, by the way) wrote to us. His favorable view means a lot here. “Dear Steve: The Insurance Advocate of Nov 16th cover story - spot on! My compliments. Thanks. Marty.”

Thank you, Marty and thanks to Peter Bickford who has set a new standard for thought provoking ideas and for introducing really bright view points in these pages. … The International Insurance Society (IIS) has announced the candidates for the 2016 Insurance Hall of Fame: Jozef De Mey, Chairman of the Board, Ageas, Belgium; Georges Dionne, Professor, Finance Department, HEC Montreal; and Donald Kramer, Chairman and CEO, ILS Capital Management, USA – on our cover just last issue for the IFNY Award.

The 2016 Laureate will be announced in December and the award will be presented before an expected audience of 500+ insurance leaders at the June 13th gala dinner in conjunction with the IIS Global Insurance Forum at the ShangriLa Hotel Singapore June 12th – 15th. …

NY Assembly Members have created an OP ED campaign to reflect their interest in “cleaning house.” Here are excerpts from the one we received from M of A Kearns: 20 December 21, 2015 / INSURANCE ADVOCATE

ASSEMBLYMAN DAVID DIPIETRO, R-147 AND PIANY VICE PRESIDENT FRED HOLENDER, CLU, CPCU, CHFC, MSFS

ASSEMBLYMAN STEPHEN HAWLEY, R-139, AND PIANY VICE PRESIDENT FRED HOLENDER, CLU, CPCU, CHFC, MSFS

“When the leader of a ‘respected body’ is convicted on seven felony counts of corruption and fraud, it is time for the people to question the premise that it is a ‘respected body.’ The New York State Assembly is sick and in need of healing. … At times like these, elected officials end up ringing their collective hands asking ‘if only something could be done to prevent this in the future.’

The proverbial time for hand wringing and talk is over, the time for common sense reform is now. … The problem is an old one, how do we curb and redirect the potential for overly ambitious leadership when ambition is hard wired into the notion of politics. … When power is concentrated in a single person or office corruption becomes an unavoidable corollary. The solution to the puzzle can be found in sharing, balancing and dispersing concentrated power in the form of checks and balances. The New York State Assembly’s dysfunction originates in its internal rules from which the Speaker of the Assembly has the power to: grant pay raises through Committee Chairmanships, control who becomes staff or rank and file workers of what should be independent committees, and control calling a bill out of committee and onto the full Assembly floor for a vote. If a Committee Chair disagrees with the Speaker the Chair can find him or herself stripped of their committee and the

accompanying pay increase or have staff stripped by the Speaker. With the power to control staff and committee appointments, the Speaker controls what is researched in Committee and what comes out of Committee for a vote on the floor of the Assembly. Corruption and criminal behavior has followed from this concentration of power and ability to control members and their votes. Seceding this power to the committees is long overdue. It is unconscionable that Sheldon Silver’s legal fees for defending his criminal conduct will be paid by his campaign donors. He will also be receiving a state pension courtesy of New York State taxpayers. There has been $4 million in self-dealing which we know about and no financial cost to the perpetrator of the fraud. This is the product of the rules and laws which the Speaker’s Office controls. The need for common sense laws, rules and ethics reform preventing such abuse is manifest. I will again advocate for the adoption of the Brennan Center Rules Reform, Ethics Reform and the passage of bill A.7704 by Assemblyman Buchwald, which will deny a state pension to politicians convicted of felonies. New Yorkers’ voices in support of such measures is medicine for this ailing legislative body.”

May you and yours have a blessed Christmas and an abundant New Year. [IA]

S

s g n i t er e

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G s ’ n o as

e S

Warmest wishes for a wonderful holiday season and Happy New Year.

American Transit Insurance Company 212.857.8200 One MetroTech Center | Brooklyn, N.Y. 11201

www.american-transit.com

12-21-15_INA 12-21-15 12/16/15 10:47 AM Page 22

[ GUEST ARTICLE ]

Brokers: You Really Need to Know About Cyber Insurance Legislative and Regulatory Update

By Amy Roberti - Council of Insurance Agents and Brokers Reprinted with permission, Edelman for Symantec. Edited for the Insurance Advocate®.

W

here there’s smoke there’s fire— and where there’s a crisis, there are state and federal lawmakers and regulators trying to be helpful. Major data breaches are in the news every day in both the private and public sectors. Experts are telling us we could experience a massive cyber terrorist event that could cause major market disruptions, and even physical damage to property and critical infrastructure.

The general public is at the mercy of villainous cyber criminals who could cripple society with one malicious click of a mouse.

So it makes sense that Congress and state and local governments would take a look at this risk and explore ways to help prevent cyber crime. They’ve even been looking at the burgeoning cyber insurance market and how cyber insurance could—as insurance has done throughout history with every type of coverage—encourage better, safer cyber behavior. To add to the frenzy, jurisdiction over cyber issues is broad. While legislation with the greatest chances of success has come out of the House and Senate Intelligence and Homeland Security Committees, approximately 15 committees in Congress have claimed at least some jurisdiction over cybersecurity issues. These include House Energy & Commerce and Senate Commerce; House Financial Services and Senate Banking; Science, Agriculture, Armed Services; and others… not to mention the Administration and the States. Here’s a little taste of what they’ve been up to.

Congress Since January 2015, the 114th Congress has seen a flood of data and cybersecurity bills introduced; however, most have failed to gain traction. The bills that are currently in play with the most potential to move forward are the cybersecurity information sharing bills—two have been passed by the 22 December 21, 2015 / INSURANCE ADVOCATE

House and one is under consideration in the Senate. In late April, the House voted on and passed two information sharing bills: HR 1560, the Protecting Cyber Networks Act, sponsored by Rep. Devin Nunes (R-CA), chair of the Intelligence Committee, and HR 1731, the National Cybersecurity Protection Advancement Act, sponsored by Rep. Mike McCaul (R-TX), chair of the Homeland Security Committee1. The goal of information sharing legislation is to help the public and private sectors, through a reciprocal process of sharing cyber threat indicators, improve their cyber defenses.

Progress on information sharing legislation has been slower in the Senate. The legislation with the greatest chance of success is S. 754, the Cybersecurity Information Sharing Act (CISA), which passed the Senate Intelligence Committee in April.

CISA is sponsored by Intelligence Committee Chairman Richard Burr (R-NC) and has bipartisan support. This legislation would establish a process for reciprocal sharing of cyber threat indicators between the public and private sectors through the Department of Homeland Security.

This legislation would provide liability protections for private entities that share and/or receive such cyber threat indicators through this process and exempts that data from Freedom of Information Act (FOIA) requests.2 CISA faces opposition from privacy advocates who fear that this is essentially a surveillance bill that allows the federal government to collect even more sensitive personal information on individuals.3 In June, Senate Republican leadership tried to add CISA to the National Defense Authorization Act (NDAA). That move was blocked, however, when the Senate voted 5640 in favor of opening debate on CISA as an amendment to the NDAA, four votes short

of the 60 needed to invoke cloture.4 In a final attempt to vote on CISA before the August recess, Senate Majority Leader McConnell filed cloture on CISA on August 3. Ultimately, Republican and Democratic leadership were unable to agree on a finite number of amendments, the clock ran out, and CISA was pushed to September or later.

Legislation creating one uniform, national standard for data breach notification would be a likely next candidate for action once information sharing is addressed.5 Lawmakers could also attempt to attach a data security bill to a larger cybersecurity bill. There is considerablesupport from the business community to create such a standard, because the 47 disparate state reporting laws and regulations can make compliance burdensome and confusing for companies that have experienced a breach that affects consumers across multiple states. The House Energy and Commerce Committee passed a data breach bill, HR 1770, the Data Security and Breach Notification Act, which provides rules for how companies must protect personal data and notify customers if it is stolen.

Republicans are still fine-tuning the measure, trying to win Democratic support.

Notably, the bill passed out of committee on a party line vote, without the support of its only Democratic cosponsor. Any legislation that pre-empts state law, however, always faces a steep uphill battle in Congress and we are not likely to see action on such legislation this Congress.6 Hearings on cyber threats and the state of data security in the United States in various sectors, including two hearings on the breach at the Office of Personnel Management that exposed personnel records of tens of millions of federal employees, have continued throughout the continued on page 24

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[ GUEST ARTICLE ] continued from page 22

year. Over two dozen cyber and data security-related bills have been introduced. We can expect to see many more cyber-related bills and hearings, as the issue straddles an astounding 15 committees in the House and Senate.

White House The White House has been active on the cyber front as well. On January 13, 2015, President Obama sent three cybersecurity and data breach legislative proposals to Congress. Those included Enabling PublicPrivate Sector Information Sharing; Modernizing Law Enforcement Authorities to Combat Cyber Crime; and Creating a National Standard for Data Breach Notification. 7 In early February, the President announced the creation of the Cyber Threat Intelligence Integration Center (CTIIC)—based out of the Office of the Director of National Intelligence— which will “be a national intelligence center focused on ‘connecting the dots’ regarding malicious foreign cyber threats to the nation and cyber incidents affecting U.S. national interests, and on providing all-source analysis of threats to U.S. policymakers.”8 On February 13, President Obama also convened a summit on “Cybersecurity and Consumer Protection” at Stanford University where he signed an Executive Order (EO). The EO, Promoting Private Sector Cybersecurity Information Sharing, encourages the development of Information Sharing and Analysis Organizations (ISAOs); develops a common set of voluntary standards for information sharing organizations; clarifies the Department of Homeland Security’s authority to enter into agreements with information sharing organizations; streamlines private sector companies’ ability to access classified cybersecurity threat information; and “ensures that information sharing enabled by this new framework will include strong protections for privacy and civil liberties.”9

Department of Homeland Security For the past several years, the Department of Homeland Security (DHS) has been bringing together insurance carriers, brokers, consumers, Chief Information Security Officers, and critical 24 December 21, 2015 / INSURANCE ADVOCATE

infrastructure to talk about cyber threats and how cyber insurance can and should play a role in both mitigation and recovery.

During the first four workshops, there was talk about creating a cyber incident repository to meet the industry’s need for data on cyber risk. Despite the interest, DHS has no intention of establishing such a repository and instead hopes that by facilitating discussion among the private sector, some sort of private sector repository (or several repositories) may emerge.

In February of this year, the National Protection and Programs Directorate (NPPD) at DHS established a Cyber Incident Data and Analysis Working Group (CIDAWG), comprised of CISOs and CSOs from various critical infrastructure sectors, insurers, and other cybersecurity professionals, to deliberate and develop key findings and conclusions about: 1. The value proposition for a cyber incident data repository; 2. The cyber incident data points that should be shared into a repository to support needed analysis; 3. Methods to incentivize such sharing on a voluntary basis; and 4. A potential repository’s structure and functions.

In July, the NPPD circulated a white paper entitled “The Value Proposition for a Cyber Incident Data Repository.” The white paper is the culmination of the first charge. The CIDAWG will explore and report on the other three topics next.10

Treasury Department The Treasury Department and the Federal Insurance Office (FIO) convened a meeting in November 2014 of mid-market carriers and brokers to talk about cyber insurance. FIO Director Michael McRaith proposed two ideas: (1) FIO wants to develop underwriting "principles" for cyber insurance policies; and (2) FIO wants to get more involved in risk mitigation. Director McRaith has stated that the federal government fully supports the insurance industry as they try to better protect themselves and quickly adapt to the ever-changing cyber threat landscape. Another Treasury official also indicated that Treasury is concerned there are no underwriting standards for cyber insurance. Given this concern, Treasury and FIO have been paying close attention to the burgeoning cyber insurance

market.11 Cyber is a regular topic of discussion at the Federal Advisory Committee on Insurance.

State Insurance Commissioners The National Association of Insurance Commissioners (NAIC) formed a new Cybersecurity Task Force at their November 2014 meeting. This was the first foray into cybersecurity for the state regulators as a whole. The NAIC has been mainly focused on three areas: 1. Protecting their own data 2. Making sure that the entities they regulate are adequately protecting their own data 3. Monitoring the development of the cyber insurance market The Cybersecurity Task Force, chaired

by North Dakota insurance commissioner Adam Hamm, drafted a “Cybersecurity Bill of Rights” which outlines consumer “rights” regarding their personal, private information, how it should be handled, and what they are entitled to in the event that information is compromised.12 The Task Force anticipates that the Bill of Rights will be distributed to consumers by their state insurance commissioners, but many companies and trades in the insurance industry have concerns that it could create consumer confusion by outlining so-called “rights” that are not codified in every (or any) state laws or regulations. The NAIC also intends to use portions of the Bill of Rights to update their model laws on privacy.

On April 16, the Cybersecurity Task Force adopted the “Principles for Effective Cybersecurity Insurance Regulatory Guidance.” These twelve principles outline the types of safeguards regulators expect insurers and producers to have in place to protect consumer information from cybersecurity breaches.13 States Forty-seven states, plus the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, have established “data breach notification” laws to better inform consumers when their personal information has potentially been stolen or compromised.

While each statute varies, the laws generally require entities that own, license, or process personal information to notify affected parties when personal information is, or is

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[ GUEST ARTICLE ] believed to be, acquired without authorization. Many states make exceptions to notification requirements if the breach is not believed to have caused the affected party harm. State data breach notification laws establish standards on who gives and receives the notice, what information is considered personal or private information under the law, methods and timing for conveying the notice, content requirements that must be contained in the notice, and provides penalties for non-compliance of the law. California was the first state to implement a state data breach notification law, and many states have utilized its model to implement their own law. Below, we have highlighted three states as an example of the variance found in the individual state data breach notification laws.

California Covered entities under California’s state data breach notification law are any person or business that conducts business in California, and that owns or licenses computerized data that includes personal information. California defines a “breach of the security of the system” as the “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” The law does not contain a specific risk of harm analysis whereby an entity would not have to give notice should no harm be done to the person whose information was compromised. A notice of breach must be made in the most expedient time possible and without unreasonable delay. Notice may be provided via written, electronic, or a substitute notice. Substitute notices can be utilized if the breached company can demonstrate that the cost of providing breach notices exceeds $250,000 or more than 500,000 individuals were impacted.

Substitute notices require the breached entity to send email notices to any individual for whom they have an email address, post on its website, and notify major statewide media. California allows a private right of action for affected individuals to recover damages.14 New York Covered entities under New York’s state data breach notification law are any person or business which conducts business in New

York state, and that owns or licenses computerized data that includes private information. Service providers are also covered.

Any resident of New York state whose private information was, or is reasonably believed to have been, acquired by a person without valid authorization is required to be notified. The law does not contain a specific risk of harm analysis, although the definition of “breach” may incorporate risks.

A notice of breach must be provided “in the most expedient time possible and without unreasonable delay.” Further, the notice can be provided to the affected person via written, electronic (if consent is given), or telephone notice. A “substitute notice” is allowed if the cost to provide notice exceeds $250,000 or over 500,000 individuals are involved in the breach. New York does not allow a private right of action for affected individuals.15 Florida In Florida, covered entities include any sole proprietorship, partnership, corporation, trust, estate, cooperative, association, or other commercial entity that acquires, maintains, stores, or uses personal information. In the event of a breach at a third-party service provider (i.e., credit card processing company), the third-party is required to notify the covered entity within ten days.

The covered entity is then required to provide breach notifications to the affected individuals. Florida does not require breach notifications “if, after an appropriate investigation and consultation with relevant federal, state, or local law enforcement agencies, the covered entity reasonably determines that the breach has not and will not likely result in identity theft or any other financial harm to the individuals whose personal information has been accessed.”

Notices must be made “as expeditiously as practicable and without unreasonable delay, taking into account the time necessary to allow the covered entity to determine the scope of the breach of security, to identify individuals affected by the breach, and to restore the reasonable integrity of the data system that was breached, but no later than 30 days after the determination of a breach or reason to believe a breach occurred.” A notice to an affected individual can be sent via written notice or via email. Florida allows substitute notices similar to California and New York. Florida’s statute

allows state enforcement for violations of the breach notification law but does not allow private rights of action.16 These are just three examples out of more than 47. Unless and until there is a single, uniform national standard for data breach notification, the variances in each state law make it absolutely essential that an entity that has experienced a breach of consumer data consult with legal counsel and law enforcement to ensure they are complying with the law in every state in which there are affected consumers.

Abroad Although many cyber insurance policies are written out of Lloyd’s of London, the majority of UK businesses lack proper cyber insurance protection. According to a report by The Corporate Executive Programme, only 13% of large and midsized businesses in the UK have cyber insurance, compared to 40% in the United States.17 Additionally, a joint report by Marsh and the government found that only 2% of all businesses in the UK had cyber insurance, although 81% of companies reported that they have suffered a breach in the past 12 months.18 In the United Kingdom, the government, in partnership with the insurance sector, launched a Cyber Essentials Scheme intended to make the UK the global leader in cyber insurance while also encouraging better cybersecurity practices among businesses. A pillar of the Cyber Essentials scheme would see brokers adopt Cyber Essentials (CE) accreditation while performing risk assessments for small and midsized businesses. Similar to the NIST Cybersecurity Framework in the US, Cyber Essentials is a foundation for basic cyber hygiene best practices for all types of organizations to adopt and build upon.19 Take up rates among UK businesses have remained low even while the average cost associated with a data breach for large companies has doubled since 2014, from $2.2 million to $4.7 million The average cost associated with a data breach for large according to a June Pricewaterhouse Coopers report.20 Increased costs have led a number of companies has doubled since 2014, from $2.2 million to $4.7 industry experts to call for a government backstop continued on page 26

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[ GUEST ARTICLE ] continued from page 25

for the sector. In July, Tom Bolt of Lloyd’s outlined the need for a backstop to limit the threat to insurer’s solvency if multiple businesses across multiple industries were to suffer a cyberattack at once.21 Bolt’s statements were further substantiated by an August report from Long Finance, which argued that a public/private reinsurance scheme should be implemented to manage growing cyber threats.22 The European Union (EU) has been working on a data breach protection law, which would require organizations to notify those affected by a breach within 72 hours.

Additionally, the proposed legislation would make it possible for organizations to be fined if it is concluded that negligence was the cause of the data breach.23 [IA] Amy Roberti is Vice President of Industry Affairs at the Council of Insurance Agents and Brokers. She is responsible for analyzing commercial property/casualty and group health insurance market conditions, macro and micro events, and issues and trends impacting insurance brokers. Prior to joining the Council, Roberti spent 10 years in Liberty Mutual’s Office of Federal Affairs, working as one of their top lobbyists in Washington, DC. She has worked on an extensive portfolio of federal and international issues including international regulation and trade, terrorism risk insurance, flood insurance, workers’ compensation, health care and employer- sponsored benefits plans, surety bonding and cybersecurity. A graduate of Penn State University, Roberti holds a MBA from Georgetown University and earned the Chartered Property Casualty Underwriter (CPCU) designation in 2011.

About the Council of Insurance Agents & Brokers The Council of Insurance Agents & Brokers is the premier association for the top regional, national and international commercial insurance and employee benefits intermediaries worldwide. Council members are market leaders who annually place 85 percent of U.S. commercial property/ casualty insurance premiums and 26 December 21, 2015 / INSURANCE ADVOCATE

administer billions of dollars in employee benefits accounts. With expansive international reach, The Council fosters industry wide relationships around the globe by engaging lawmakers, regulators and stakeholders to promote the interests of its members and the valuable role they play in the mitigation of risk for their clients. Founded in 1913, The Council is based in Washington, DC. 1- Eric A. Fischer and Stephanie M. Logan, Cybersecurity and Information Sharing: Comparison of H.R. 1560 and H.R. 1731 as Passed by the House (CRS Report No. R43996) (Washington, DC: Congressional Research Service, 2015), 1-29, http://fas.org/sgp/crs/misc/R43996.pdf.

2- Cybersecurity Information Sharing Act of 2015, S.754, 114th Congress, 1st Sess. (2015).

3- Nadia Kayyali, “Stop CISA: Join EFF in a Week of Action Opposing Broad "Cybersecurity" Surveillance Legislation,” Electronic Frontier Foundation, July 27, 2015, accessed September 1, 2015, https://www.eff.org/deeplinks/2015/07/stopcisa-join-eff-week-action-opposing-cyberspying-0.

4- Cory Bennett, “Senate Democrats block cyber amendment,” The Hill, June 11, 2015, accessed June 11, 2015, http://thehill.com/business-alobbying/244723-senate-moves-to-enddebate-on-cyber- amendment.

5- Amy F. Davenport and Norma M. Krayem, “Data Breach Legislation Continues To Be A Congressional Priority,” The National Law Review, May 11, 2015, accessed September 1, 2015, http://www.natlawreview.com/article/databreach-legislation-continues-to-becongressional-priority.

6- National Association of Attorneys General to the Congressional Leadership, July 7, 2015, http://www.naag.org/assets/redesign/files/signon-letter/ Final%20NAAG%20Data%20Breach%20Notifica tion%20Letter.pdf.

7- “Securing Cyberspace - President Obama Announces New Cybersecurity Legislative Proposal and Other Cybersecurity Efforts,” The White House, accessed January 20, 2015, https://www.whitehouse.gov/the-pressoffice/2015/01/13/securing-cyberspacepresident-obama-announces-newcybersecurity-legislat.

8- The White House, Fact Sheet: Cyber Threat Intelligence Integration Center, February 25, 2015, https://www.whitehouse.gov/the-pressoffice/2015/02/25/fact-sheet-cyber-threatintelligence-integration- center.

9- The White House, Executive Order -- Promoting Private Sector Cybersecurity Information Sharing, February 13, 2015, https://www.whitehouse.gov/the-pressoffice/2015/02/13/executive-order-promotingprivate-sector-cybersecurity-information-shari.

10- Department of Homeland Security, The Value Proposition for a Cyber Incident Data Repository: Enhancing Resilience Through

Cyber Incident Data Sharing and Analysis, June 2015, http://www.dhs.gov/sites/default/files/publica tions/dhs-value-proposition-white-paper2015.pdf.

11- Mark Hollmer, “Feds Support Insurers Seeking Protection From Cyber Attacks,” Claims Journal, April 9, 2015, accessed April 14, 2015, http://www.claimsjournal.com/news/national /2015/04/09/262735.htm.

12- “Cybersecurity Bill of Rights,” The National Association of Insurance Commissioners, http://www.naic.org/documents/committees_ ex_cybersecurity_tf_exposure_draft_cybersecu rity_bill.pdf.

13- Caitlin Bronson, “Regulators issue cyber security guidelines for insurers and producers,” Insurance Business America, April 21, 2015, accessed April 22, 2015, http://www.ibamag.com/news/regulatorsissue-cyber-security-guidelines-for-insurersand-producers-22176.aspx.

14- Cal. Civ. Code §§ 1798.29, 1798.80 et seq.

15- N.Y. Gen. Bus. Law § 899-aa 16- Fla. Stat. Ann. §501.171 17- Warwick Ashford, “UK lags US in cyber insurance, study shows,” Computer Weekly, February 9, 2015, accessed February 17, 2015, http://www.computerweekly.com/news/2240 239989/UK-lags-US-in-cyber- insurancestudy-shows.

18- HM Government and Marsh Ltd, UK Cyber Security: The Role of Insurance in Managing and Mitigating the Risk, March, 2015, https://www.gov.uk/government/uploads/syst em/uploads/attachment_data/file/415354/UK_ Cyber_Security_Report_Final.pdf.

19- HM Government, Cyber Essentials Scheme (London: Crown Copyright, 2014), https://www.gov.uk/government/uploads/syst em/uploads/attachment_data/file/317480/Cy ber_Essentials_Summary.pdf.

20- HM Government, PwC and InfoSecurity Europe, 2015 Information Security Breaches Survey (London: Crown Copyright, 2015), http://www.pwc.co.uk/assets/pdf/2015-isbsexecutive-summary-02.pdf.

21- “Government cyber backstops needed: Lloyd’s,” Reactions, July 13, 2015, accessed July 16, 2015, http://www.reactionsnet.com/Article/347052 4/Government-cyber-backstops-neededLloyds.html?ArticleID=3470524.

22- “Public, private cyber catastrophe reinsurance scheme would add clarity to U.K.'s cyber insurance market, encourage take-up: report,” Canadian Underwriter, July 31, 2015, accessed August 5, 2015, http://www.canadianunderwriter.ca/news/pu blic-private-cyber-catastrophe-reinsurancescheme-would-add-clarity-to-u-k-s-cyberinsurance/1003742884/?&er=NA. 23- Sarah Veysey, “European Union gets serious about data protection,” Business Insurance, August 2, 2015, accessed August 5, 2015, http://www.businessinsurance.com/article/20 150802/NEWS06/308029995/upcomingeuropean-union-data-protection-lawtightens-cyber-breach?tags=|75|83|302.

Continued on page 28

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IN THE MATTER OF THE ANCILLARY RECEIVERSHIP OF AMERICAN MOTORISTS INSURANCE COMPANY Supreme Court, County of New York Index No.: 400532/2013 NOTICE On June 19, 2013, American Motorists Insurance +*)('&%$ #"AMICO! $ ' $ ( ' $ & *$ '& ' %$ receivership and, the Superintendent of Financial Services of the State of New York and her successors in * $ ' $ & $ ' $ '& ' %$ $ #" & ' %$ ! $ * $ AMICO and as administrator #" ) & ' * ! $ * $ $ $ * $ *( % +' ' %$ & '& $ %$ & $ #" %$ & ! $ &$ connection with the ancillary receivership proceeding of AMCIO. The Ancillary Receiver has, pursuant to New York Insurance Law Article 74, appointed Scott D. Fischer, Special Deputy Su( & & & $#" ( ' $ ( %! $' $her agent to liquidate the business of AMICO. The Special Deputy carries out his duties through the New York Liquidation Bureau, 110 William Street, New York, New York 10038. The Ancillary Receiver has submitted an application to the Court for an order: # $ '(( * & $ '$ ( * $ * $ ' $ $ * $ $ ) & ' * $ *&$ * $ any claim(s) under AMICO policies that are presented for payment from the Security Fund in this proceeding; and (ii) granting the Ancillary Receiver such other and further relief as this Court may deem just and proper.

A hearing on the application is scheduled for the 20th day of January 2016 $#" &$ ' ! $' $9:30 a.m., before the Court at the Courthouse, IAS Part 13, 71 Thomas Street, Room 210, New York, New York. If you wish to object to the relief sought, you or your counsel must serve a written statement setting forth %* $* *& $'& $' $ ((* & $ * ) & ' *&$#" & & $ '( ! $ (*&$ $ & ' %$ at least seven (7) days prior to the Return Date and file the Answering Papers, together with an affidavit of service, with the Court on or before the Return Date. Service on the Superintendent shall be made at the following address: Acting Superintendent of Financial Services of the State of New York as Ancillary Receiver of American Motorists Insurance Company, 110 William Street, 15th Floor, New York, New York 10038, Attention: General Counsel. $ & ' %$ $'(( ' *&$ $' ' ' $ * $ & ( *&$'t http://www.nylb.org. In the event of any discrepancy between this notice and the documents submitted to Court, the documents control.

Requests for further information should be directed to the New York Liquidation Bureau, Creditor and Ancillary Operations Division, at (212) 341-6809.

Dated: December 9, 2015. SHIRIN EMAMI, Acting Superintendent of Financial Services of the State of New York as Ancillary Receiver of American Motorists Insurance Company.

INSURANCE ADVOCATE / December 21, 2015 27

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[ GUEST ARTICLE ]

Cyber Insurance: What You Should Know By: Robert Jones - AIG Reprinted with permission, Edelman for Symantec. Edited for the Insurance Advocate®.

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o matter how strong or sophisticated an organization’s IT defenses are, how thorough the vetting of an organization’s vendors may be, or how well an organization trains or plans in preparation to respond to a data breach or other incident, there will still be network security and privacy failures. Relying on IT defenses alone can provide a false sense of security. Recognizing that some risks cannot be eliminated, organizations have increasingly turned to cyber insurance as a method of mitigating and transferring the risk of exposure to cyber events.

Cyber insurance is particularly effective when the cost of additional information security controls do not reduce the risk enough to make the investment in such controls practical. Cyber insurance itself is not a defense; without a rudimentary information security management system, cyber insurance can be prohibitively expensive, and represents an unsustainable solution (for both insurers and companies). It is the application of cyber insurance as another layer—complementing the efforts IT and other information security oriented functions—where its greatest value is realized.

Cyber Insurance Coverage— A Brief History The first iterations of today’s “cyber” policies appeared in the late 1990s, as the insurance industry began to develop errors and omissions policies to respond to exposures arising out of emerging technologies: the internet and e-commerce. These “internet insurance” policies reflected their E&O roots in that they: i) were limited to responding only to security failures of an insured’s computer system, and ii) did not provide coverage for first-party costs of mitigating a data breach (one of the potential outcomes of security failure). The coverage did not extend to non-electronic records or accidental disclosure.

Underwriters were starting to offer firstparty coverages of the value of lost data and business interruption (the cyber analog to property insurance), but first-party coverage was not typically underwritten or brokered by members of the E&O insur28 December 21, 2015 / INSURANCE ADVOCATE

Cyber insurance is evolving just as fast as technology.

What is considered core coverage today was not available as little as three years ago, and enhancements to coverage are being negotiated in the marketplace every day.

ance community, and these coverages were not widely utilized.

In the mid-2000s, these early cyber policies evolved into forms more recognizable today: coverage was amended to include “privacy incidents,” which expanded the policies’ response to accidental disclosure of sensitive data in both electronic or paper form; liability coverage was expanded beyond civil actions to also include regulatory investigations; coverage started to appear for contractual fines paid to payment card brands for security noncompliance (contractual liability being generally excluded by E&O policies); and new first-party coverages were created to respond to the costs of investigating and mitigating a security or privacy incident.

Two factors in concert contributed to cyber insurance’s growth: i) new regulations which obligated companies to do more to respond to information breaches, such as the Privacy Rule of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the early electronic breach notification laws like California’s SB 1386; and ii) organized crime’s increasing awareness of the profitability of payment fraud, identity theft and other crimes made possible by stolen information. Whereas victim companies were previously protected from the fallout of security incidents by the public’s lack of awareness of what transpired, these new regulations forced companies to be responsible for data breaches which were caused—or at least exacerbated—by poor

security. As cybercrime increased, cyber insurance grew and evolved to meet the exposure.

The cyber insurance marketplace continues to evolve in several different ways: • Available limits for in-demand coverages continue to increase, both in terms of per carrier and total marketplace capacity; • Coverage continues to evolve to match emerging technologies—an example being the creation of “Cloud Failure Extensions” to respond to the migration to the cloud and the exposure of dependent business interruption; • The underwriting requirements are changing in response to the increasing loss developments; and • Some insurance carriers are partnering with information security service and product providers so as not only to be able to accept risk from companies, but also assist companies in evaluating and augmenting their information security or “cyber” resiliency.

While pricing, capacity and underwriting requirements are changing, it is clear after more than a dozen high profile breaches that cyber insurance is a risk management tool for information security that is as important as a company’s security training or intrusion prevention systems. In fact, cybersecurity oversight is now rightfully viewed as a responsibility of a board of directors’ enterprise-wide risk management. The Commissioner of the Securities and Exchange Commission noted in June 2014 that “there can be little doubt that cyber-risk also must be considered as part of the board’s overall risk oversight.” Board members are increasingly polling their company’s risk managers and IT professionals to confirm that cyber insurance coverage is in place and to better understand the policy offerings in the event that coverage is triggered.

What Does Cyber Insurance Cover?

Generally, most insurers offer cyber policies with coverage on an à la carte basis; a company can choose which cov-

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[ GUEST ARTICLE ] erages are right for it. The main coverage components are: 1. Defense and indemnity for alleged liability due to a cyber or privacy incident (“Liability”) 2. Coverage for investigating and mitigating a cyber or privacy incident (“Event Response”) 3. Coverage for business interruption due to a cyber incident (“Business Interruption”) 4. Coverage for the response to threats to harm a network, or release confidential information (“Cyber Extortion”) The “triggers” of the coverages are important to understand as well: a “cyber incident” typically means the failure of the insured’s computer system security, while a “privacy incident” is any failure to protect “confidential information.” The distinction is a subtle, but important one: a failure of a company’s computer security can result in a privacy incident, but some privacy incidents don’t arise out of a failure of a company’s computer security. Generally, there is a lower threshold for “privacy incidents” to trigger the policy. Coverages and wordings vary from carrier to carrier.

Some carriers split the liability coverage for cyber and privacy incidents, so insureds can buy only one of the two if they choose; other carriers have chosen to combine some of the coverages for marketing purposes; and all of the carriers have slightly different definitions for what “computer system,” “failure of security,” and “confidential information” mean.

It should be noted that the vast majority of cyber policies exclude three key types of loss, which a layman might—understandably—find confusing, but which are a product of the borders between different types of insurance. Those three types of loss are: i) tangible property damage (data not being considered tangible property); ii) bodily injury (bodily injury not including emotional distress); and iii) loss of the company’s funds. Coverage for bodily injury and property damage is usually found in traditional property or casualty insurance, and coverage for stolen funds is usually the domain of Crime coverage. The availability of coverage for a cyber incident under a traditional property or casualty program is often not explicit; insurance carriers are grappling with whether such policies are priced and

structured appropriately for this new risk.

As technology advances—the Internet of Things, computer controlled medical devices, etc.—and the increasing potential for a cyber incident to result in BI/PD, some carriers are starting to exclude this coverage under traditional property and casualty programs. Other insurers are addressing this gap, offering policies that are geared to respond specifically to cyber-related bodily injury and property damage.

It remains to be seen how this growing exposure will be addressed.

The "Liability” or Third Party coverage provided by typical cyber insurance applies to claims first made during the relevant policy period involving allegations of damages due to a cyber or privacy incident.

Liability cyber insurance functions much in the same manner as traditional thirdparty errors and omissions insurance. Like other professional liability forms, a cyber policy’s liability insurance typically covers the following liability expenses: the costs of the legal fees to defend third-party lawsuits; costs of electronic discovery; class action administration costs; and judgments and settlements, often including substantial plaintiff attorney fees. For companies defending a third- party cyber lawsuit, a sound defense strategy will contemplate indemnity rights and recovery efforts.

Two noteworthy extensions exist to the Liability coverage. First, “Regulatory Coverage” extends the Liability coverage so as to also respond to investigations brought by regulators—such as the Office of Civil Rights at the Department of Health and Human Services, the Federal Trade Commission, the Securities and Exchange Commission, and state attorneys general— arising out of a cyber or privacy incident.

With this extension, defense costs are covered not only for civil actions, but also for an investigation by such regulators.

Coverage may also extend to any fines and penalties to the extent they are insurable under State Insurance Law. As regulators are becoming more aggressive in investigating data breaches and levying fines on affected companies, this coverage has become increasingly important.

The other extension to the Liability coverage is coverage for the assessments of contractual fines by credit card brands for failure to comply with the Payment Card Industry Data Security Standards

(“PCI-DSS”). Such fines include the costs of reissuance of affected credit cards and the reimbursement for fraudulent transactions to affected consumers. This coverage is becoming more important as it becomes evident that breaches affecting large amounts of consumer payment card information will result in mass reissuance of cards and substantial reimbursement of fraudulent transactions to the consumers by the card brands, which pass those costs back to the liable party.

First party “Event Response” coverage usually applies in response to an actual or suspected cyber or privacy incident first discovered during the policy period. Typical first party coverage includes coverage for the following: forensic investigators to determine the scope of the cyber or privacy incident; a law firm to act as breach counsel to advise the insured of its obligations arising from any breach of sensitive data; costs of notifying affected individuals; a public relations firm to provide advice on whether and how to make public statements, credit and/or identity monitoring; and call center support. Cyber policies will help to stem an event but do not pay for the expenses incurred to correct or remediate technical problems or provide the upgrades necessary to prevent future data breaches.

“Business Interruption,” also referred to as Network Interruption, covers lost net income and extra operating expenses resulting from a material interruption of an insured’s business as caused by a security failure. The business interruption coverage usually applies after the greater of: i) a dollar amount of loss (the retention), or ii) a “waiting period” has elapsed.

“Cyber Extortion” will cover the costs to assess the cause and validity of privacy and security related threats and any monies paid to end such threats. Privacy threats involve attackers who claim to be able to disclose confidential information.

Security threats involve attackers who claim to be able to commit or further an attack against a network.

Cyber insurance is evolving just as fast as technology. What is considered core coverage today was not available as little as three years ago, and enhancements to coverage are being negotiated in the marketplace every day. continued on page 30

INSURANCE ADVOCATE / December 21, 2015 29

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[ GUEST ARTICLE ] continued from page 29

Increasing Front-End, Pre-Breach Loss Prevention Services To provide valuable and differentiating policy enhancements, a number of insurers currently offer preventative tools and consultative solutions to insureds that bind a cyber policy. Loss prevention services may include (i) infrastructure vulnerability scanning, (ii) cybersecurity risk assessment, (iii) “dark net” mining and monitoring, (iv) generation of third-party vendor security ratings, (v) isolation and “shunning” of malicious IP addresses, (vi) mobile apps which provide news, claims data, and related information, and (vii) online employee education and training.

These preventative tools, when properly implemented and utilized, provide an additional line of defense in the prevention and mitigation of cyber incidents.

How Much Coverage is Appropriate?

Almost every purchaser of cyber insurance buys the liability and the first-party coverage for the value of data; the majority—about four-fifths—also buys the firstparty coverage for the costs of investigating an incident and coverage for extortion demands. Roughly half of buyers are purchasing the business interruption coverage.

As companies evaluate the current and future dependency on computer systems to run their business, they should re-evaluate whether they are purchasing the right types of cyber coverage, not only the right amount.

Based on the variance of the above factors, the costs of cyber insurance will vary from organization to organization.

Nevertheless, reports estimating the costs of data breach—the leading type of loss in the cyber insurance space—are relatively easy to find. Many estimates assess costs in relation to records exposed. The NetDiligence 2014 Cyber Claims Study pegs the maximum cost per record at $33,000 (the average was $956.21, and the median $19.84). In May 2014, the Ponemon Institute published a report entitled, “Cost of Data Breach Study,” a global survey of 1,690 information technology, information security, and compliance professionals from 314 organizations, all of whose companies 30 December 21, 2015 / INSURANCE ADVOCATE

Almost every purchaser of cyber insurance buys the liability and the first-party coverage for the value of data; the majority—about four-fifths—also buys the first-party coverage for the costs of investigating an incident and coverage for extortion demands. had experienced cyber breaches. The widely cited Ponemon report concluded that the average per-record cost of a breach in the U.S. was $201 in 2014, up from $188 in 2013. The report went on to peg the average cost of a U.S. data breach at $5.85 million.

These figures should be used as a reference point for potential median data breach losses, and they should be part of a broader review of the risk a company has to cyber exposure from both unavailability of its computer system/data and repudiation of its computer based communications.

While there is no simple answer to the amount of cyber insurance an organization should buy, some important factors to consider include: the size of the insured entity; the amount of sensitive data stored; the industry; the degree of potential reputational risk; organizational resiliency; the degree of regulatory attention paid to the company; threat vectors—for example, state actors, or cyber activists (also referred to as “hacktivists”)—and of course the company’s own risk appetite.

The evolving nature of the cyber insurance marketplace means the adequacy of cyber insurance should be evaluated on an annual basis and that new insurance tools and offerings should be fully considered.

Companies should work with their brokers or other specialized insurance professionals to consider the differences in insurance products offered across the market at the time of placement. Consideration should be given to the differences in coverages and offerings between carriers, the availability and strength of any loss prevention services offered by the carriers, and each carrier’s commitment to a company’s sector. [IA]

Robert J. Jones is the Global Head of Financial Lines, Specialty Claims, at AIG. Robert is responsible for claims within the Cyber, Technology, Media, Fidelity and Kidnap & Ransom lines of business. Robert has developed Financial Lines expertise through a variety of technical and managerial roles in Claims, Reinsurance and Underwriting.

Robert began his career at The Travelers in 1989 and joined AIG in 1992.

Robert received a B.S. from the State University of New York at Binghamton.

About AIG American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 100 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit ourwebsite at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties.

Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.

www.insurance-advocate.com

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[ FACE TO FACE ]

By Michael Loguercio

So This is Christmas

A

s John Lennon so beautifully resonated, “So This Is Christmas, and a Happy New Year…Let’s hope it’s a good one, without any fear.”

Well, “fear” is something that unfortunately we need to keep in mind not only during this Christmas and Hanukkah season, but all through the year as there are people out there who want to hurt us…and I am not talking about terrorists, but scam artists looking to hurt us in our pocketbooks…especially during the holidays.

With this in mind, the Better Business Bureau of Chicago and Michael Loguercio Northern Illinois has issued a warning to consumers of 12 common scams during the Christmas season. “Each year at Christmas consumers lose millions of dollars to scam artist who rip them off,” says their President and CEO, Steven J. Bernas.

So here they are, as per the BBB. The 12 Scams of Christmas for 2015: 1) Look-alike websites: Be sure you’re shopping online on legitimate websites. The BBB says to watch out for URLS that use the names of wellknown brands, long with extra words.

2) Fake shipping notifications: Be careful when clicking links in shipping notification emails, and always verify the shipping company before giving out any personal information.

3) Phony charities: It’s the season of giving, but make sure to research and double check charities and their site URLs. BBB.org offers guidance when seeking out a charity to donate to.

4) Stolen credit card information: As you should do throughout the year, carefully watch your credit card statements to make sure you recognize all the charges. If there are unknown charges, your information may have been stolen or you may have been part of a data breach.

5) Smartphone scammers: Malware can 32 December 21, 2015 / INSURANCE ADVOCATE

access your smartphone through apps.

Be sure to download only official payment and personal security apps.

6) Viral E-cards: Avoid malware by verifying that e-cards are from someone you know and are from a trustworthy website.

7) Free gift cards: Ads or emails offering free gift cards are just a ploy to get your personal information, which can be used for identity theft.

8) Social media gift exchange: Buying one gift and getting 36 in return may sound like a great deal, but it’s just a newer variation on a pyramid scheme and is illegal.

9) Unusual forms of payment: Beware of anyone asking you to pay for holiday purchases using prepaid debit cards, gift cards, wire transfers, or third parties as those payments cannot be traced or undone. Use a credit card on a secure website whose URL begins with “https” (the “s” is for “secure”) and displays a lock symbol in your browser address bar.

10) Phone scams: Be suspicious of phone calls from people who claim your computer is infected and say they need your information to fix it. Likewise, be suspicious of any utility company or bank calling and asking for personal information and prepaid debit card payments for supposedly overdue balances or account problems.

11) Letters from Santa: A number of trusted companies offer personalized letters from Santa, but scammers often mimic them to get personal information from unsuspecting parents. Visit BBB.org for a list of companies offering legitimate Santa letters.

12) Free USB drives: Beware of free USB drives in giveaways; they are an easy way for hackers to spread malware.

Friends, by no means should we allow folks like these to dampen our holidays, or instill fear in our hearts as we celebrate the “most wonderful time of the year” with our friends and loved ones. However these are

the times that we live in, and we should always remain vigilant and cautious throughout the year and never let our guard down when it pertains to protecting ourselves and those whom we love.

By the way, John Lennon wrote that song in 1971, because he said he was tired of hearing “White Christmas.”

So from my family to yours, I wish you all a very Merry Christmas, and a most happy and healthy New Year! May God bless you, and keep us all safe, for many years to come!

Ciao for now, and see you next year![IA] Michael Loguercio is the Regional Director for Advantage Partners Inc.; and has been active in the insurance industry since 1978 as a licensed insurance broker and an insurance technology professional.

He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member.

NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and “Special Service” awards in 2013, 2014 and 2015.

In his community, Michael is the Councilman for the 4th District in The Town of Brookhaven, NY; is the Immediate Past President and current member of the Longwood Central School District Board of Education on Long Island, NY since 2004; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club; Central Brookhaven Lion’s Club; and Ridge, NY, Volunteer Fire and EMS Department. He also served two terms on his Church’s vestry, and in 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public.

Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or MichaelL@apagents.com You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

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[ IN THE ASSOCIATIONS ]

LICONY 15th Annual Conference

L

ICONY held its 15th Annual Legislative & Regulatory Conference on October 7-9, 2015 at The Otesaga Hotel in Cooperstown, New York, with over 200 in attendance. This conference was attended by LICONY member companies, professional and other services firms, NY Legislators and Regulators, and representatives from other trade associations.

LICONY 2015 BOARD CHAIRMAN, DAVID J. WALSH

LICONY PRESIDENT & CEO, THOMAS E. WORKMAN

SPEAKER OF THE HOUSE, CARL E. HEASTIE

L TO R: ASSEMBLYMAN WILLIAM A. BARCLAY, SENATOR NEIL D. BRESLIN, SENATOR JAMES L. SEWARD, ASSEMBLYMAN KEVIN A. CAHILL 34 December 21, 2015 / INSURANCE ADVOCATE

SENATOR JAMES L. SEWARD

ACTING SUPERINTENDENT, NYS DEPARTMENT OF FINANCIAL SERVICES, ANTHONY J. ALBANESE

L TO R: JAMES V. REGALBUTO, DEPUTY SUPERINTENDENT OF LIFE, NYSDFS; TROY J. OECHSNER, ACTING EXECUTIVE DEPUTY SUPERINTENDENT, NYSDFS

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IN THE MATTER OF THE ANCILLARY RECEIVERSHIP OF LUMBERMENS MUTUAL CASUALTY COMPANY Supreme Court, County of New York Index No.: 400534/2013 NOTICE 321 0/2.1 -,+1 *)-(+1 '/&%.$&.2#1 "/!/ 1 #/ ! 1 & 2 1 '/&%.$&.2# 1 #1 . 1 2! 1 2 $ 1 receivership and, the Superintendent of Financial Services of the State of New York and her successors in .1 $.1 #.$ 2 1 #1 2 $ 1 $. . .$1 2 $ 1 . . .$ 1 1 '/&%.$&.2#1 2 1 #1 & 2 #!$ ! $1 & 2 #!$ ! $ 1 1 ! .1 . 1 $ 1 $ .$! #/ ! Insurance Security Fund ( . /$ ! 1 /2 1 21 connection with the ancillary receivership proceeding of Lumbermens.

The Ancillary Receiver has, pursuant to New York Insurance Law Article 74, appointed Scott D. Fischer, . 1 . /! 1 / .$ 2!.2 .2!1 . 1 . /! +1 #1her agent to liquidate the business of Lumbermens.

The Special Deputy carries out his duties through the New York Liquidation Bureau, 110 William Street, New York, New York 10038. The Ancillary Receiver has submitted an application to the Court for an $ .$ 11 1 $ 2 1 1 $ . /$.1 $1 / 1$. . 1 1! .1 & 2 #!$ ! $ #1$. . ! 21 1any claim(s) under Lumbermens policies that are presented for payment from the Security Funds in this proceeding; and (ii) granting the Ancillary Receiver such other and further relief as this Court may deem just and proper.

A hearing on the application is scheduled for the 20th day of January, 2016+1 .!/$21 !. 1 !19:30 a.m., before the Court at the Courthouse, IAS Part 13, 71 Thomas Street, Room 210, New York, New York. If you wish to object to the relief sought, you or your counsel must serve a written statement setting forth your % . ! 2#1 2 1 1#/ $! 2 1 /&.2! ! 21 2# .$ 2 1 .$# 1/ 21! .1 2 $ 1 . . .$ at least seven (7) days prior to the Return Date and file the Answering Papers, together with an affidavit of service, with the Court on or before the Return Date. Service on the Superintendent shall be made at the following address: Acting Superintendent of Financial Services of the State of New York as Ancillary Receiver of Lumbermens Mutual Casualty Company, 110 William Street, 15th Floor, New York, New York 10038, Attention: General Counsel.

The Ancillary Rece .$ #1 ! 21 #1 % .1 $1 2# . ! 21 !1http://www.nylb.org. In the event of any discrepancy between this notice and the documents submitted to Court, the documents control.

Requests for further information should be directed to the New York Liquidation Bureau, Creditor and Ancillary Operations Division, at (212) 341-6809.

Dated: December 9, 2015. SHIRIN EMAMI, Acting Superintendent of Financial Services of the State of New York as Ancillary Receiver of Lumbermens Mutual Casualty Company.

INSURANCE ADVOCATE / December 21, 2015 35

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[ IN THE ASSOCIATIONS ]

IBANY’s Annual Holiday Breakfast

T

he Insurance Brokers’ Association of New York (IBANY) held its annual Holiday Breakfast on December 8 at the Down Town Association in New York City. IBANY’s guest speaker was Mike McGavick, CEO of XL Group, PC, the parent of XL Catlin. The morning also featured the presentation of the 2015 IBANY Insurance Person of the Year award to Aileen Marchese of Ironshore, Inc. Breakfast sponsors were Ironshore and NSM Insurance Group.

Mr. McGavick, named CEO of XL Group in 2008, also chairs the Geneva Association and is a director and immediate past chair of the Association of Bermuda Insurers & Reinsurers, and serves on the boards of Global Reinsurance Forum, American Insurance Association, Insurance Information Institute and International Insurance Society. He previously served in senior leadership at Safeco Corporation and MIKE MCGAVICK ADDRESSES THE AUDIENCE CNA Financial Corporation.

Mr. McGavick told attendees “This is a moment of historic that they are living in “a world of wild risk.” He said, “This is a moment of proportions when the industry historic proportions when the industry will will make a huge difference. make a huge difference. But with risk, there also needs to be change, making it impera- But with risk, there also tive that we keep pace.” Mr. McGavick went needs to be change, on to name what he believes are the top five making it imperative that trends affecting the industry now and in 2016: Globalization, Analytics, Community we keep pace.”

Consolidation, Availability of Alternative Capital and Regulation.

The IBANY Insurance Person of the Chair Renee McFadden of Distinguished Year award was created in 2012 to recognize Programs stressed the strong role that Ms. annually “one individual whose dedication Marchese has played as a professional menand commitment to the insurance industry tor. In addition to her duties as a senior vice are clearly exceptional, and who has helped president and zonal executive of the others in the industry and greater commu- Northeast Region for Ironshore, Ms. nity.” Nominations are open and the winner Marchese works as a coach and mentor to is determined by the board of directors. Past members of Ironshore’s Executive Advisory recipients are Dan Mahar of ELANY, Andy Group. In her 30 years in insurance industry Potash of Distinguished Programs, and management, she has been a strong advoSean McPhillips of CapSpecialty. cate for training, development, and menIn presenting this year’s award to Aileen toring and served on the Executive Steering Marchese, IBANY Awards Committee Committee of the NY Women Alliance and 36 December 21, 2015 / INSURANCE ADVOCATE

the emerging leaders program at AIG. Prior to joining Ironshore, Ms. Marchese served for nine years as a senior vice president within AIG, as assistant vice president and national practice leader for the Financial Products Group within The Hartford, and as a vice president for Kemper Insurance Company.

Ms. Marchese has served for three years as chair of IBANY’s Program Committee.

She is also affiliated with PLUS, APIW and NAIW. Outside of her professional realm, Aileen shares her gifts with Junior Achievement, American Heart Association and Relay for Life.

During the past three years she has served as the president of the Commack High School Softball Booster Club, which, through fundraising efforts, has awarded $6,500 in scholarships to players and purchased new uniforms for the team.

IBANY’s membership includes broker and associate members of all ages and ranges of experience coming together for industry advocacy, networking and professional development. The association serves as a voice for the industry and market, hosts professional development programs, provides opportunities for network building and interaction between the brokerage and underwriting communities, and promotes the insurance industry as a career of choice. IBANY’s next program will be held at the Down Town Association on Wednesday, January 20 at 8:30 a.m. “A Preview of the 2016 State Political and Regulatory Landscape for the P&C Industry,” will feature speaker Bob DiUbaldo, ACE Group Senior VP & Counsel for State Government & Industry Affairs. For more information about the program or membership in IBANY, visit www.ibany.org or call IBANY at 212-509-1592.

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[ IN THE ASSOCIATIONS ]

AILEEN MARCHESE WITH IBANY PRESIDENT RUBIN ALSPECTOR OF MARSH & MCLENNAN

THESE INDIVIDUALS WORKED IN VARIOUS JOBS WITH AILEEN MARCHESE OVER THE YEARS AND HAVE GONE ON TO LEADERSHIP POSITIONS. APPEARING LEFT TO RIGHT: PETER TAVELLA OF AIG; MARIA TREGLIA OF ARC EXCESS; CRAIG FRIED OF BERKSHIRE HATHAWAY SPECIALTY INSURANCE; 2015 IBANY ASSOCIATE MEMBER EMERGING LEADER OF THE YEAR DANIELA PALMIERI OF BERKSHIRE HATHAWAY SPECIALTY INSURANCE; AND DEAN DEBLASI OF ARCH INSURANCE.

L-R: (ALL IRONSHORE EMPLOYEES): JEFF DUCA, KIM BOLDI, JOHN FERGUSON, AILEEN MARCHESE, DENNIS APPEL, CHRISTINE DEFELICE AND DAWN PURO

AROUND THE ROOM

MIKE MCGAVICK MAKES HIS CLOSING REMARKS

AILEEN MARCHESE OF IRONSHORE, INC. ACCEPTS HER AWARD INSURANCE ADVOCATE / December 21, 2015 37

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[ ON TH E LEVEL ]

By Jamie Deapo

Independent Insurance Agents Gone by 2020

D

o you believe this? Why not, it’s the title of my article so it must be true.

The point is, just because someone writes an article or references survey information it doesn’t mean their prediction will come true. What does happen is that many independent agents reading the headline or the article take it at face value, believe it is true and then unwittingly help to make it happen. I guess you could call it Chicken Little Syndrome.

What so many agents fail to realize is that they are in control.

Your actions, your beliefs Jamie Deapo and how you run your business have a lot to do with whether you remain a significant factor in the insurance purchasing equation.

Do you believe that the best way to purchase insurance protection for consumers, their families and their businesses is through an independent agent? If your answer is yes then you need to do everything in your power to convince consumers of that fact. If your answer is no then why are you still running an agency?

Sell it to someone who says yes to the question so they can provide your clients with the awesome and positive experience they deserve. Do it now while there is lots of capital floating around just looking for an agency to buy.

Sound harsh? I guess it is, but in my day-to-day conversations with agents I run across those who have “woe is me” syndrome. They complain about the competition, the insurance carriers and the consumer’s attitudes. They say the deck is stacked against them and it’s a no-win situation. They’re very negative and I’m pretty sure it rubs off on their staff. Candidly the negativism may have started with the staff and worked its way up to the principal(s).

So what’s my point? My point is this – owning and operating an independent insurance agency is still one of the best 38 December 21, 2015 / INSURANCE ADVOCATE

damned opportunities there is in the business world! It’s an opportunity to earn an excellent living, grow a great business and provide an exceptional and important service to the people who select you to handle their insurance protection.

I’m sure you’re thinking, easy for me to say I’m not an agent any longer. You’re right, but I can tell you that even at my advanced age if I were to leave IIABNY I would seriously consider going back to being an agent.

I can think of no more honorable, important or satisfying job that I have ever had.

Sure there are problems and issues to overcome but no business is without them.

Agents, like any other business, need to change with the times and develop ways to be more efficient and productive. We need to create systems that meet and exceed consumer’s expectations while acknowledging their buying preferences. We need to work aggressively with our carrier partners in significantly improving the way we provide our product and service.

One major challenge we face is convincing consumers that insurance is not a commodity and buying insurance protection is best done through an independent agent.

Consumer attention and buying habits are changing due to heavy advertising by direct response carriers like Geico and the desire of younger consumers to use the internet for buying insurance. One solution is a focused and concerted effort by all independent agents to educate and convince consumers of the advantages of buying insurance protection through them. That’s exactly why the Trusted Choice® brand was conceived and has evolved to include the TrustedChoice.com website. The message it conveys is growing and we need to spread it faster and more effectively.

The challenge is getting as many independent agents as possible promoting the brand and the message it communicates. As a group the power independent agents have to influence the buying public is substantial.

If every agent in every community promoted the brand and its message in every way possible, it couldn’t possibly not resonate and change the opinions of consumers. It also helps to confirm the benefit for those consumers who are already clients of your

agency.

The brand is not meant to overshadow or circumvent your agency’s brand which many of you have worked so hard to cultivate. Instead it is meant to support your brand and acknowledge your agency’s commitment to providing professional advice, advocacy and service for your clients.

Many of the carriers with whom you work and whose policies you provide are currently supporting the brand and actively participating with it. You can see who they are by visiting TrustedChoice.com. More carriers are signing up all the time. These carriers have made a commitment to the independent agency system and are helping to promote your brand. It’s important that they see as many agents as possible using and promoting the brand everywhere in their agency. Remember that ultimately this is your brand and was developed to convince consumers of the benefits of doing business through your agency.

If your agency isn’t an IIABNY member and doesn’t have access to the brand, it’s unfortunate. I wish every independent agency in New York could take advantage of the brand. Use of it is tied to membership because it was the financial investment of IIABNY members and IIABA members in other states that initially created the brand and helped to develop it to where it is today. Any agency wanting to participate and use the brand merely needs to join IIABNY as our membership dues include access to Trusted Choice and TrustedChoice.com.

If you believe like I do that there is no better way to buy insurance protection than through an independent agent, then support the brand and do everything possible to get its message out to consumers. If you aren’t a member and currently can’t access the brand call us and we’ll make you a part of the only national brand promoting independent agents.

Don’t believe all that you read. The future of the independent agency system is in your hands. Committed and successful independent agents aren’t leaving insurance – they’re evolving and growing and spreading the message about the value they bring to buying insurance protection [IA]

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[ ON M Y RADAR ]

By Barry Zalma

How to Plead a Consumer Fraud Case for Denial of a Claim Win Some, Lose Some

W

hen people are unhappy with their insurance company they refuse to limit themselves to a suit for breach of contract and obtain the

during Hurricane Sandy, initiated this action against Liberty Mutual on October 10, 2014. Plaintiffs allege that they purchased homeowner’s insurance from

as well as attorneys’ fees and costs. Liberty Mutual moved to dismiss Plaintiffs’ NJCFA claim, their claim for punitive damages, and their claim for attorneys’ fees and costs.

DISCUSSION The tort of bad faith should be sufficient to provide damages to an unhappy insured but they insist on also seeking consumer fraud damages from an insurer who fails to pay what the insured wanted.

Barry Zalma

indemnity promised by the policy. Rather, they file lawsuits seeking tort damages for breach of the covenant of good faith and fair dealing and violation of consumer protection acts, as well as any other cause of action the imagination of the plaintiff ’s lawyer can conceive of placing into the complaint. Ignoring the principle that in litigation “less is more,” they insist on overkill. The tort of bad faith should be sufficient to provide damages to an unhappy insured but they insist on also seeking consumer fraud damages from an insurer who fails to pay what the insured wanted.

In Robert J. v. Liberty Mut. Ins., Slip Copy, 2015 WL 4138990 (D.N.J., 7/8/2015), the U.S. District Court for the District of New Jersey was called upon to limit the litigation brought by a victim of Hurricane Sandy against their insurer Defendant Liberty Mutual Insurance (“Liberty Mutual”). Liberty Mutual, attempting to bring the litigation to reasonableness, moved the court to dismiss Plaintiffs’ claims for violations of the New Jersey Consumer Fraud Act, punitive damages, and attorneys’ fees.

FACTUAL BACKGROUND Plaintiffs Robert and Jaime Ryan, New Jersey residents whose home was damaged 42 December 21, 2015 / INSURANCE ADVOCATE

Liberty Mutual, with maximum coverage of $1,635,740, and that their “home and its contents were essentially destroyed by Hurricane Sandy.”

Plaintiffs alleged that “Liberty Mutual has unreasonably and in bad faith denied coverage and underpaid for the damage.”

They assert that Liberty Mutual’s agents “improperly adjusted and denied Plaintiffs’ claims without adequate investigation, even though Plaintiffs’ losses were covered by the Policy.” They also claim, among other things, that Liberty Mutual was “deceptive in the adjustment of this claim” by “fraudulently creating values and assigning them to the covered loss to increase its own profitability” and by “fraudulently telling its policyholder that the losses were not covered despite evidence that they were.” Plaintiffs further allege that Liberty Mutual’s response to their claim was part of “an ongoing, widespread and continuous scheme to defraud its insureds in the payment of benefits under their policies of insurance.”

Plaintiffs assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the New Jersey Consumer Fraud Act (“NJCFA”). They seek compensatory, consequential, punitive, and statutory damages

Liberty Mutual moves to dismiss Plaintiffs’ NJCFA claim. Def.’s Mem. 5–9.

The NJCFA “is remedial legislation” that the New Jersey Supreme Court “construe[s] liberally to accomplish its broad purpose of safeguarding the public.”

Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 11–12, 860 A.2d 435 (2004). In relevant part, the statute prohibits “[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false promise, [or] misrepresentation … in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby….” N.J. Stat.

Ann. § 56:8–2.

There are three elements to an NJCFA claim: “1) unlawful conduct by defendant; 2) an ascertainable loss by plaintiff; and 3) a causal relationship between the unlawful conduct and the ascertainable loss.”

D’Agostino v. Maldonado, 216 N.J. 168, 184 (2013) (citing Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 557, 964 A.2d 741 (2009)).

Liberty Mutual argues that Plaintiffs’ claim must be dismissed because the NJCFA “does not apply to disputes about insurance benefits or coverage.” In the 1980s, the New Jersey Appellate Division held that the NJCFA does not apply to the payment of insurance benefits. The New Jersey Appellate Division has since maintained that “while the [NJ]CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.” Myska v. New Jersey

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[ ON M Y RADAR ] Mfrs. Ins. Co., No. A–027514T4, 2015 WL 2130870, at *13 (N.J.Super.Ct.App.Div. May 8, 2015).

Most recently the Third Circuit noted in dicta that “New Jersey courts … have consistently held that the payment of insurance benefits is not subject to the Consumer Fraud Act.” Granelli v. Chicago Title Ins. Co., 569 F. App’x 125, 133 (3d Cir.2014).

Here, Plaintiffs’ NJCFA claim goes to Liberty Mutual’s subsequent performance of its obligations under the insurance contract. Plaintiffs do not merely claim that Liberty Mutual underpaid their benefits, which would amount only to breach of contract, but instead assert that Liberty Mutual acted deceptively and fraudulently when investigating their property damage.

Their NJCFA claim accuses Liberty Mutual of “telling its policyholder that the losses were not covered despite evidence that they were,” in “creating values and assigning them to the covered loss to increase its own profitability,” and “in falsely misrepresenting what its responsibilities were under the policy.” By alleging that Liberty Mutual’s investigatory conduct was deceptive, Plaintiffs make clear that their NJCFA claim targets Liberty Mutual’s conduct in performing its contract obligations, which distinguishes their NJCFA claim from the type of mere underpayment allegation that concerns the New Jersey Appellate Division. This Court predicts that the New Jersey Supreme Court would apply the NJCFA to Liberty Mutual’s allegedly deceptive conduct in investigating Plaintiffs’ property damage. Liberty Mutual’s motion to dismiss Plaintiff ’s NJCFA claim is denied.

Plaintiffs’ Claim for Punitive Damages Is Insufficient Liberty Mutual argues that Plaintiffs’ claim for punitive damages must be dismissed because the complaint omits “any allegation of an outrageous intentional tort.” Deliberate, overt, and dishonest dealings, insult and personal abuse constitute torts entirely distinct from the bad-faith claim. Plaintiffs have not pled facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Their claim for punitive damages is dismissed.

It would be useful if the New Jersey Supreme Court clarified the issue and determined that its consumer fraud act either applies to or does not apply to insurance.

Plaintiffs May Be Entitled to Attorneys’ Fees Plaintiffs’ complaint includes two requests for attorneys’ fees, in connection with their claim for breach of the implied covenant of good faith and fair dealing and in their Request for Relief. The New Jersey Supreme Court’s holdings bar the recovery of attorneys’ fees in connection with Plaintiffs’ claim for breach of the implied covenant. Plaintiffs’ request for attorneys’ fees arising from their breach of implied covenant claim is dismissed. Plaintiffs argue that they are still “entitled to attorney’s fees by virtue of their Consumer Fraud Act claims.”

The NJCFA mandates the recovery of attorneys’ fees. As such, the Court denied Liberty Mutual’s motion to dismiss Plaintiffs’ claim for attorneys’ fees in the Request for Relief.

ZALMA OPINION This is, at best, a Pyrrhic victory for Liberty Mutual. They eliminated a claim for punitive damages for breach of the covenant of good faith and fair dealing only to lose on its claims for statutory based damages.

If, as the plaintiffs allege, Liberty acted wrongfully in dealing with the insurance claims, it will be punished. This is, however, just an analysis of pleadings, including an interpretation where there is a split in the district court finding concerning the application of the statute to insurance. It would be useful if the New Jersey Supreme Court clarified the issue and determined that its consumer fraud act either applies to or does not apply to insurance.[IA] Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance

consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productId=2146 24, or 800-285-2221 which is presently available.

Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com INSURANCE ADVOCATE / December 21, 2015 43

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[ COURTSI DE ]

By Lawrence N. Rogak

For Services Performed in New Jersey, the NJ Fee Schedule is the Prevailing Fee Surgicare Surgical Assoc. v National Interstate Ins. Co.

P

laintiff appeals from an order of the Civil Court of the City of New York, Bronx county (Anthony Cannataro, J.), entered November 17, 2014, which granted defendant’s motion to dismiss the complaint pursuant to CPLR 3211.

Order (Anthony Cannataro, J.), entered November 17, 2014, affirmed, with $10 costs.

This first-party no-fault action arises from health services rendered by plaintiffprovider at its New Jersey location. Plaintiff billed $10,800 for the services (associated with arthroscopic knee surgery), but defendant-insurer paid only $5,996.67 on the claim, an amount in accordance with the New Jersey Fee Schedule. In this action, plaintiff, in effect, seeks the ($4,803.33) difference between the amount charged and payment made by defendant pursuant to the aforementioned fee schedule.

The Superintendent’s interpretation is entitled to deference, since it is neither irrational nor unreasonable, nor counter to the clear wording of a statutory provision…

Insurance Department regulation (11 NYCRR) § 68.6 provides that where a health service reimbursable under Insurance Law § 5102(a)(1) “is performed outside New York State, the permissible charge for such service shall be the prevailing fee in the geographic location of the provider” (emphasis added). We agree, essentially for reasons

stated by Civil Court (46 Misc 3d 736 [2014]), that where a reimbursable health care service is performed outside the State of New York in a jurisdiction that has enacted a medical fee schedule prescribing the permissible charge for the service rendered, an insurer may properly rely on such fee schedule to establish the “prevailing fee” within the meaning of 11 NYCRR 68.6, and demonstrate compliance therewith by payment in accordance with that fee schedule.

Significantly, the Superintendent of Insurance issued an opinion letter stating that the reimbursement amount under section 68.6 “is determined by the permissible cost” in the out-of-state location (Guatemala) (see Ops Gen Counsel NY Ins Dept No 03-04-03 [Apr 2003]). The Superintendent’s interpretation is entitled to deference, since it is neither irrational

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[ COURTS I D E ] nor unreasonable, nor counter to the clear wording of a statutory provision (see LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co., 12 NY3d 217, 223 [2009]).

Indeed, the Superintendent’s reliance upon the “permissible cost” in the foreign jurisdiction is consistent with the legislative purpose underlying Insurance Law § 5108 and implementing regulations to “significantly reduce the amount paid by insurers for medical services, and thereby help contain the no-fault premium” (Goldberg v Corcoran, 153 AD2d 113, 118 [1989], appeal dismissed 75 NY2d 945 [1990]).

Applying section 68.6 as interpreted by the Superintendent, the “prevailing fee in the geographic location of a provider” is the “permissible” reimbursement rate authorized in the foreign jurisdiction. Here, the permissible rate authorized in New Jersey for the services rendered by plaintiff is set forth in New Jersey’s no-fault statute and applicable fee schedule. Allowing plaintiff to bill at a rate significantly higher than the permissible charges in the New Jersey fee schedule would undermine the purpose of Insurance Law § 5108, and thwart the core objectives of the No-Fault Law “to provide a tightly timed process of claim, disputation and payment” (Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 319 [2007], to “reduce the burden on the courts and to provide substantial premium savings to New York motorists” (Matter of

…the omission of the term “fee schedule” from the regulation does not indicate that its exclusion was intended.

Medical Socy. of State of NY v Serio, 100 NY2d 854, 860 [2003]).

Contrary to plaintiff ’s claim, the omission of the term “fee schedule” from the regulation does not indicate that its exclusion was intended. Construed within the context of the regulation, whose scope and application broadly extends to all geographic locations outside the State of New York, the legislature’s use of the comprehensive term “prevailing fee,” rather than the less inclusive term “fee schedule,” comports with common sense and the reality that the different jurisdictions have not unanimously adopted a no-fault regime, and/or uniformly based the permissible reimbursement charge upon a medical fee schedule.

We note that since the services here were rendered after April 1, 2013, the defense of excessive fees is not subject to preclusion (see 11 NYCRR 65-3.8[g][eff Apr. 1, 2013).

Plaintiff ’s remaining contentions are unpreserved or without merit.[IA]

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[ GUEST OPINION ]

By Jane M. Orient, M.D.

The Locker Room Controversy and the Threat to Your Child’s Health

A

n Obama Administration ruling that a school must allow a transgender “girl” with male parts full access to the girls’ locker room, or lose federal Title IX funding, sparked a revealing exchange between Megyn Kelly and school superintendent Daniel Cates on Fox News.

Kelly tried to entrap an uncomfortable official, who seemed to be reciting a memorized script in an effort to escape the Jane M. Orient, MD wrath of parents, bureaucrats, and lawyers on both sides.

Their discussion about “balancing rights” to “privacy” and “nondiscrimination” ignored serious health issues. Though both profess concern for the vulnerable transgender child, they seem blind to the fact that he (“she”) is being used as a pawn in a political/cultural war. They imply that parents’ objections are solely about their girls’ seeing body parts different from theirs.

Both are accepting seriously flawed assumptions.

First, both Kelly and Cates seem to believe the ACLU’s assertion that a transgender (in this case male-to-female) person truly is a female “through and through”—and “as a matter of science.” Cates says that the district “respects and honors” transgender students.

Both Cates and Kelly refer to the student as a “girl” and use feminine pronouns.

In fact, the science cannot be clearer.

There are two sexes. Leaving aside rare conditions such as congenital adrenal hyperplasia, this is absolutely plain at birth, and not a matter of arbitrary “assignment.” A person with a Y chromosome is throughand-through male in every cell in his body.

If Caitlyn Jenner’s skeleton is dug up a few hundred years from now, it will unequivocally be identified as male.

Second, they both assume that it is possible to convert a male into a female, and that doctors are helping a patient affirm his true identity by so doing.

46 December 21, 2015 / INSURANCE ADVOCATE

In fact, it is possible for a male to become a eunuch or female impersonator, but he will never be able to be somebody’s natural mother. And what do we do to a boy to try to make him appear female? Do we have any information about the longterm effects of female hormones starting in childhood? Maybe we will eventually, if we follow today’s experimental subjects—who are too young to consent and are likely not having the possible consequences spelled out. If castrated, they will lose forever the prospect of having natural offspring. And what will genital surgery do to urinary continence? How will hormones affect their risk of breast cancer? What about blood clots and strokes? And osteoporosis and fractures as they age? If adult athletes are forbidden to “dope” with steroids, why is it acceptable for children?

And what will happen to strength and lung capacity? Men have 40 percent greater body strength and 25 percent greater lung capacity. I doubt that transgender males will lose enough strength to completely cancel their advantage over girls. My 9-year-old nephew, still quite small, could easily handle a full-sized wheelbarrow filled with cement.

But how much of their potential will they sacrifice? And what is the risk of injury to girls playing with them on the athletic field?

In psychiatry, it is generally taught that the doctor should not affirm a patient’s delusions. Eventually, the transgender child will have to confront reality as an adult. He may well change his “self identification,” but his chance to fully develop as a man may be irrevocably taken from him.

There are excellent reasons not to have boys and girls undressing in front of each other, and a transgender “girl” is just a wedge. The real agenda is to further the sexual and cultural revolution: to undermine the family, to stigmatize the Christian faith and indeed all traditional morality, and to break down all resistance to a totalitarian state that dictates belief and behavior.

Cates and Kelly are effectively on the same side, although Kelly is an aggressor and Cates a seemingly impotent substitute for real opposition. Public schools will nei-

ther fully protect your daughter as federal policy enables sexual predators in the locker room, nor shield your sons and daughters from a morally corrupt environment, nor allow you to defend them from dangerous medicine.

If your school district will sacrifice your sons and daughters to comply with the agenda of the Obama Administration, run for the nearest exit. Their physical, psychological, and spiritual health is at risk in a radical social experiment.[IA] Jane M. Orient, M.D. obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. She completed an internal medicine residency at Parkland Memorial Hospital and University of Arizona Affiliated Hospitals and then became an Instructor at the University of Arizona College of Medicine and a staff physician at the Tucson Veterans Administration Hospital. She has been in solo private practice since 1981 and has served as Executive Director of the Association of American Physicians and Surgeons (AAPS) since 1989. She is currently president of Doctors for Disaster Preparedness. Since 1988, she has been chairman of the Public Health Committee of the Pima County (Arizona) Medical Society. She is the author of YOUR Doctor Is Not In: Healthy Skepticism about National Healthcare, and the second through fourth editions of Sapira's Art and Science of Bedside Diagnosis, published by Lippincott, Williams & Wilkins. She authored books for school-children, and Professor Klugimkopf’s Spelling Method, published by Robinson Books, and coauthored two novels published as Kindle books, Professor Klugimkopf’s OldFashioned English Grammar, Neomorts and Moonshine. More than 100 of her papers have been published in the scientific and popular literature on a variety of subjects including risk assessment, natural and technological hazards and nonhazards, and medical economics and ethics. She is the editor of AAPS News, the Doctors for Disaster Preparedness Newsletter, and Civil Defense Perspectives, and is the managing editor of the Journal of American Physicians and Surgeons.

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