November 16, 2015

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VOLUME 126, NUMBER 18 / November 16, 2015

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

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Contents

November 16, 2015 | volume 126 number 18

[ COVER STORY ]

[ AD FEATURES]

16

15

Reap What You Sow Peter H. Bickford

PIA: 2015 in Numbers

[FEATURES] 4

Foreword: Gotta Love Her! Steve Acunto, Publisher

6

In the Associations: PIACT Applauds CT Insurance Commissioner’s Warning

8

On the Level: What’s the Plan?

Jamie Deapo

10

In the Associations: Hudson Valley RAP Celebrates PIANY’s Legislative Success

22

The Social Notebook: Your Personal Branding Guide in the Digital Age Chris Paradiso

26

In Focus: How to Build a Killer CSR Incentive Program Kelly Donahue-Piro

28

Looking Back: November 17, 1990

30

On My Radar: Why a RIsk Manager in Louisiana Should be Licensed as an Agent Barry Zalma

32

Trends: BUILDING A NEW PARADIGM: Consolidation Trends in the Insurance Brokerage Industry Barry Zalma

33

Classifieds Like us on Facebook…

The Insurance Advocate Magazine

16

10

22

www.insurance-advocate.com INSURANCE ADVOCATE / November 16, 2015 3

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[ FORE WORD ]

Steve Acunto

Gotta Love Her!

S

Pamela J. Newman graced our cover last issue as Insurance Advocate’s 2015 Insurance Professional of the Year and proceeded to grace the victory party as well with her selfless, elegant manner – thanking her staff and according responsibility for her success to them generously.

The Newman Team at Aon has a service formula worth imitating – and they are not bashful about sharing it.

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VOLUME 126, NUMBER 18 NOVEMBER 16, 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

STEVE ACUNTO (R) PRESENTS THE AWARD TO PAMELA J. NEWMAN PHOTO BY MAHVASH SABA, SABA PHOTOGRAPHY

Speaking of sharing, Ellen Melchionni, President of the NYIA, is one Association Executive who understands the value of volunteers. The NYIA ad in this issue—see page 25—bespeaks her appreciation of those colleagues who are themselves corporate leaders but who manage to give of their time to the NYIA and, as a consequence, to the industry’s betterment itself.

Our cover story is sharp and should be, given the overwhelming sense of anxiety felt in the industry over the seeming interest in creating a kind of prosecutorial role where a regulatory one should be. At stake: the desirability of the New York market. We recognize that sainthood does seem the goal of many insurance STEVE ACUNTO AND ELLEN MELCHIONNI leaders’ decisions and virtue does not always characterize the intentions of those who regulate, but there needs to be a happy medium lest the State seem like Franz Kafka is writing the narrative. Our industry does so much good that steady, balanced regulation seems warranted, not the prosecutorial approaches that have characterized the approach to bankers – whose “sky’s the limit” penalties many believe served as a “bank” for the State’s budget. That’s not right, in my view. You agree? sa@cinn.com.[IA] 4 November 16, 2015 / INSURANCE ADVOCATE

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.

POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes.

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TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com.

INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2015. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.

For high-quality article reprints (minimum of 100), including e-prints, contact Gina Balog at g@cinn.com or call 914-966-3180, x113

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[ IN THE ASSOCIATIONS ]

PIACT Praises Ct. Insurance Commissioner’s Warning

H

ARTFORD, CONN.—The Professional Insurance Agents of Connecticut Inc. is applauding Connecticut Insurance Commissioner Katharine L. Wade’s recent notice to insurance companies, directing them not to cancel or non-renew homeowners insurance coverage as a result of foundation is-

sues in homes if such action is not strictly in accordance with guidelines filed by the company and approved by the department.

“The Department hereby directs that no insurer take any action to cancel or non-renew an affected homeowners insurance coverage as a result of a foundation found to be crumbling or otherwise dete-

“PIACT applauds Commissioner Wade for issuing the notice, which serves both to protect the states’ homeowners and assuage any anxiety they may have about their coverage.”

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riorating,” the CID notice stated. “The Department expects that any non-renewal action taken by insurers be strictly in accordance with its underwriting guidelines and rules that are filed with and recorded by the Department.”

The CID said recent news reports and state officials had brought attention to the practice that some homeowners are concerned that their insurance carriers might non-renew their homeowners policies due to deteriorating foundations. The department also cited at least one homeowner complaint of such action.

“PIACT applauds Commissioner Wade for issuing the notice, which serves both to protect the states’ homeowners and assuage any anxiety they may have about their coverage,” said PIACT President Teri Walsh. “If homeowners are concerned about their property and covering it properly, they should work with their professional independent insurance agent, who can advise them on their policies.”

The CID also advised consumers that if they had concerns about their carrier’s actions or the CID notice, they should contact George Bradner, CIC Director of Property and Casualty Division.

PIACT is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout the state. [IA]

www.insurance-advocate.com 6 November 16, 2015 / INSURANCE ADVOCATE

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[ ON TH E LEVEL ]

By Jamie Deapo

What’s the Plan?

F

all is here. The weather’s changing.

Snow and cold are just around the corner. Thanksgiving and the Holidays will soon be upon us. 2015 is drawing to a close.

Insurance agents have other things on their minds this time of year. January

five years ago. As I talk to agents here are some of the concerns they express: • What is being done to attract intelligent, talented young people to our industry?

• How can they find, hire, train and retain new employees to replace the

The key is to honestly assess the things you want to address in your planning, including growth objectives, and then prioritize what you develop. Once that is done you need to research what is available to deal with those issues.

Jamie Deapo

renewals, year-end loss ratios and contingency checks to name a few. They also start to evaluate how successful they have been in achieving their plan for this year. That’s if they ever really created a written plan.

Sounds harsh but there are still plenty of agencies that “fly by the seat of their pants.”

Last weekend was the start of daylight savings and we rolled the clocks back an hour. How many agents would like the opportunity to roll back 2015 and get a chance to do things differently?

Unfortunately that can’t happen.

What can be done is to stop and really evaluate where you are and where you would like to be at the end of 2016. Make a commitment to create a well thought out plan, put it in place and review and adjust it during the year.

The insurance industry is going through some major changes. Some of them wouldn’t even have been considered

significant number of experienced staff that are retiring?

• How do they make changes in their agency to attract new clients and help them retain their existing clients?

• How do you train and mentor new producers when prospecting and producing have changed so significantly from how it previously was done?

• Mergers, acquisitions and perpetuation are significantly affecting our industry.

• How do we learn to better understand Millennials as both clients and new employees?

• How do independent agents compete in the marketplace against direct response companies, aggregators, mega-agencies and the non-traditional competitors coming into our industry?

• How do we become more customercentric and provide clients with an exceptional customer experience?

This is not a complete list but it does represent some of the key things that agents have on their minds and that need to be addressed in their 2016 plans. I do have some good news. You don’t have to figure it out all by yourself and there are resources available to help you.

The key is to honestly assess the things you want to address in your planning, including growth objectives, and then prioritize what you develop. Once that is done you need to research what is available to deal with those issues.

Don’t try to do this alone. Your association membership offers a number of resources to help you work on these items in your plan. Reach out and ask for help.

Your association can provide an enormous amount of information and assistance.

They can also direct you to resources not currently available through them.

The decision to create a well thought out agency plan and put it in place is yours.

You can just as easily “fly by the seat of your pants” or create a very limited plan that only addresses production and retention. The problem with those decisions are that in today’s highly competitive environment you will find it almost impossible to grow organically and profitably.

Don’t hesitate, take the time, create a well thought out plan and start moving forward toward increased growth and profitability. If you do, a year from now you should experience positive results. If you don’t, your chances of having a positive experience are not very likely.[IA]

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[ IN THE ASSOCIATIONS ]

Hudson Valley RAP Celebrates PIANY’s Legislative Successes Zebrowski to insurance agents: PIA and lawmakers can be mutual resources

N

early 300 insurance professionals from across New York gathered on Oct. 28 in the Doubletree Hotel in Tarrytown, N.Y., to enjoy a day of networking, education and more as part of PIANY’s 12th Annual Hudson Valley Regional Awareness Program.

GENE SANDY SPEAKS AT THE HVRAP LUNCHEON

HVRAP CHAIR FRAN SCOTT INTRODUCES PIANY PRESIDENT GENE SANDY, CIC

During the event’s luncheon, newly elected PIANY President Gene Sandy, CIC, took some time to reflect on the many successes PIANY has enjoyed over the past year.

“So far, 2015 has been a very successful year for PIA and its members,” Sandy said. “There’s a lot for us to celebrate, particularly on the legislative and regulatory fronts.”

Sandy specifically highlighted PIANY’s long-fought victory getting the certificates of insurance bill signed into law by Gov. Andrew M. Cuomo, and beginning the movement toward reform to the state’s auto inspection requirements.

PIA worked with the New York State Department of Financial Services, vendors and legislators to eliminate New York’s mandatory photo inspection rules. While the rule was not eliminated, an amended regulation has been adopted that will increase the inspection period significantly.

“Early on in this process, we found friends who supported our effort—friends who were similarly concerned, as we are, for New York state’s insurance-buying drivers and for businesses like our agencies,” Sandy said.

Among PIANY’s allies on the push for photo inspection 10 November 16, 2015 / INSURANCE ADVOCATE

reform was HVRAP’s keynote speaker Assemblyman Kenneth P. Zebrowski, D-96. For his continued cooperation and advocacy for independent agents, Sandy presented Zebrowski with a presidential citation on behalf of PIA.

Keynote address During his keynote address, Zebrowski spoke of his work as chair of the Commission on Administrative Regulations Review and his experience in exploring issues in-depth. He said that if insurance agents and others bring antiquated laws and regulations (such as New York’s photo inspection rules) to his attention, he is willing to listen. During PIANY’s talks with Zebrowski regarding the photo inspection rules, he recognized how the association’s proposed changes would help his constituents and all of New York state’s drivers, which is why he was willing to sponsor the bill. “Use me as a resource,” he said. “I’ll meet with agents throughout the year.”

When he spoke of the years it took to reform the state’s photo inspection regulations, Zebrowski said: “PIANY does a good job of getting a job done. … It’s about constant education from people who are willing to get in the weeds to inform legislators.” His advice to agents about enacting legislative reform: “Keep your eye on the ball. Start talking to a legislator who is willing to listen [to your issue].” continued on page 12

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[ IN THE ASSOCIATIONS ] continued from page 10

been more discussions about changing the law in recent years.

Another audience member asked if New York might address the Patient Protection and Affordable Care Act’s definition of a small business. Prior to the passage of the Protecting Affordable Coverage for Employees Act under the PPACA, employers with up to 100 employees were considered “small” employers for the purpose of health insurance markets, and all states were required to have their small group cut-off at 100 employees effective Jan. 1, 2016.

As for the PPACA, he reported hearing from a number of small businesses which would be affected if the small-business definition were to be changed. He said that now that the federal government has provided leeway through the Protecting Affordable Coverage for Employees Act—which would allow a state to define small employers as those with fewer than 50 employees—it’s a discussion he will bring up in the Assembly.

Education

SANDY (RIGHT) PRESENTS ASSEMBLYMAN KENNETH P. ZEBROWSKI, D-96, WITH A PRESIDENTIAL CITATION

HVRAP attendees could bolster their continuing-education credits by participating in the two sessions offered at the event.

Both the morning and afternoon sessions focused on how technology is playing a role in the evolving business of insurance.

Joe Schneider, RPLU, led the morning education session, CSI—Cyber Threat. The class explored data and identity theft; how the law is developing to keep up; how technology can help;

The assemblyman also spoke about his frustrations with the state’s small-business climate and how people seem more driven to identify the next big thing, rather than focus on what is best for New York’s small businesses. “We have a business climate that is drowning in unfair regulations,” said Zebrowski. “The state needs to look at things that are affecting small businesses.”

Concluding his address, Zebrowski took questions from the audience, one of whom asked if he thought anything might happen with the state’s unique Labor Law. Zebrowski said there have

SCHNEIDER DISCUSSES CSI—CYBER THREAT IN THE MORNING CE CLASS

and the various protections insurance products can offer.

“One of the problems our industry faces is that our retail agents don’t know enough about the risk and enough about the products that solve the problem to confidently bring it up and explain it to their clients,” Schneider said. “What I’d like to have people walk out of the room with today is: The confidence to ZEBROWSKI DELIVERS HIS ADDRESS continued on page 14

12 November 16, 2015 / INSURANCE ADVOCATE

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[ IN THE ASSOCIATIONS ] continued from page 12

TRADE SHOW

TRISCHAN DURING THE AFTERNOON CE SESSION: E&O—THE NEXT GENERATION

understand what the problem is, that there are available solutions and how to explain that to their clients.”

If you are concerned about your agency’s cyberliability coverage, consider a cyberpolicy from PIA. Current options include a stand-alone cyberliability insurance policy from “A++”-rated Philadelphia Insurance Cos., exclusively offered by PIA. Agents interested in this coverage are encouraged to call PIA at (800) 424-4244.

Cathy Trischan, CPCU, CIC, CRM, AU, AAI, ARM, CRIS, MLIS, led the afternoon session, E&O—The Next Generation.

The class served as an in-depth look at how technology is changing how agencies do business and its relation to errors-and-omissions coverage.

Trischan discussed the various ways social media and other Internet services can help one’s agency. However, this Internet presence poses certain risks. The education session investigated the risks associated with a social-media campaign; guidelines to follow to avoid such risks; and the coverages available for protection.

TRADE SHOW

Networking HVRAP offered participants the opportunity to connect with fellow agents, catch up with friends and make new contacts at its expansive trade show. With nearly 50 exhibitors and plenty of door prizes, the trade show offered participants the perfect venue to catch up on the latest innovations, products and markets.

This year’s event closed with another networking opportunity, sponsored by the PIANY-Young Insurance Professionals. The reception offered insurance professionals the opportunity to enjoy complimentary cocktails and hors d’oeuvres to cap off the day.

For more pictures, information and videos on HVRAP, log on to the PIANY website (pia.org).[IA] TRADE SHOW 14 November 16, 2015 / INSURANCE ADVOCATE

11-16-15_INA 11-16-15 11/13/15 12:28 PM Page 15

2015 IN NUMBERS

A Anniversaries n niversaries

R ecords Records

2K

Number of attendees at the PI A NJ/PI A N Y A nnua l Conference.

9K

Number of attendees at other events, Y IP receptions and education classes in Connecticut, New Hampshire, New Jersey and New Yoork.

New, New w, improved improved

40 years— CIC’s designation program (Conn.); Long Island R A P (N.Y.)

t PIA maggazinee redesign t (MarCom Gold Award winner)

25 years—NJY IP Golf Open

t t E&O R isk Management Tool K it

t New PI A website t t t Company relations section tt K nowledge Exchanges A nd coming in 2016: Look for a new look for your PIA Weekly/Extra Edi d tions.

Representing Representing m members embers

8

Number of laws or regulations PI A helped enact—N.H.: 1 (ra ffle bill); N.Y.: 2 (certificate of insurance, auto photo inspection regulations); and N.J.: 5 (one-page summar y, electronic ID cards, reverse-rate evasion, homeelevation flier, Spanish-language materia ls).

2

Number of your pa st presidents elected to the PI A Nationa l ’s boa rd of directors — Conn.: Timothy G. Russell, CPCU, and N.J.: Keith A. Savino, CPI A.

PIA PIA sstaff taff w working orking ffor or y you ou

70+

3 6 1 138 38

E EMPLOYEES MPLOYE ES ON O N - STAFF STAF F A ATTORNEYS TTORN EYS

MATTE R EXPERTS EXPE RTS S SUBJECT U BJECT- MATTER DESIG NATIONS LICENSES L IC E NSES, DESIGNATIONS

3 34 4K 4K 2K 61 6 1

ONLINE ON LI N E IINQUIRIES NQUI RIES PHONE PHON E INQUIRIES I NQUI RIES ISSUE I SS U E - S SPECIFIC PECIFIC REFERENCE RE F E RE N C E D DOCS OC S CONTRACTS ATTORNEY A TTORNEY- REVIEWED REVIEWED CONTRACTS INSURANCE ADVOCATE / November 16, 2015 15

11-16-15_INA 11-16-15 11/13/15 12:28 PM Page 16

[ COVER ]

By Peter H. Bickford

REAP WHAT YOU SOW 16 November 16, 2015 / INSURANCE ADVOCATE

T

he Wall Street Journal has – wittingly or unwittingly – underscored the conundrum that is NY’s Department of Financial Services. Its October 26 article headed “New York Bank Regulators Exit After Clash With Governor Cuomo’s Office,” reporting on the resignation of the Department’s acting superintendent, makes no reference at all to insurance. The October 30 follow-up article, headed “Banking Job is Tough to Fill” includes a statement by a spokesperson for the Governor that the administration “is conducting a robust and thorough search for the right person to ensure DFS’s strong enforcement of the rules of the road for Wall Street continue and lead the agency into the future.” Again, no mention of insurance.

An outsider reading these columns would have no clue that the DFS is responsible for regulating insurance as well as banking, or that the DFS is the primary regulator of insurance companies doing business in the state while it is not the primary regulator of most banks doing business in the state – it just seems that way.

For instance: • You would not know that insurance companies generated $2.4 billion in revenues for the state in 2014, including $1.4 billion in premium, franchise and related taxes; and about $1 billion in assessments and other fees (NAIC 2014 Insurance Department Resources Report).

• Nor would you suspect that DFS revenues from insurance are about four times DFS revenue from banks (DFS 2014 Annual Report).

• And you would have no idea of the reach of the industry to Mainstreet USA, including the fact that in 2014 DFS issued over 180,000 licenses to agents, brokers, adjusters and others dependent on the insurance industry for their livelihood (DFS 2014 Annual Report).

But the marginalization of insurance

by DFS is only part of the problem. The

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[ COVER ] enforcement mentality of the new wave of regulators affects the entire financial service sector of which insurance is an important piece. With the focus on punishment over support, fines over growth, and disengagement over dialogue, the administration, through the loud actions of the DFS, has been negatively affecting the entire financial community. This negative impact is not just at the c-suite level (a term DFS spokespeople love to use), but also for all the people employed by or dependent on those businesses by discouraging job stability and economic development.

A June 2015 study by The Partnership for New York City titled “At Risk: New York’s Future as the Financial Capital of the World” observed: The [financial services] industry continues to favor New York as a place that provides excellent access to both talent and customers, a relatively stable business environment, and many lifestyle amenities. But there are rising concerns about high costs, high tax rates, aging infrastructure and a hostile political and regulatory climate. Survey responses suggest that, absent public actions to address these concerns, the city’s future as the world financial capital is at risk.”

By the time this article is published a new superintendent of financial services may have been designated, and the expectation may again echo these recent pronouncements focused on policing Wall Street and void of insurance industry references. But there is also the hint that the administration has recognized the negative consequences of its singular focus on enforcement to the detriment of economic development and may be considering a course adjustment.

The purpose of the DFS as detailed in Section 102 of the Financial Services Law is to “provide for the enforcement of the insurance, banking and financial services laws, under the auspices of a single state agency” and to accomplish goals that include the following: “(a) To encourage, promote and assist banking, insurance and other financial services institutions to effectively and produc-

tively locate, operate, employ, grow, remain, and expand in New York state; “(b) To establish a modern system of regulation, rule making and adjudication that is responsive to the needs of the banking and insurance industries and to the needs of the state’s consumers and residents; . . . “(e) To promote and provide for the continued, effective state regulation of the insurance industry; . . . “(h) To promote, advance and spur economic development and job creation in New York; . . . and “(l) To educate and protect users of banking, insurance, and financial services products and services through the provision of timely and understandable information.”

Who remembers that the original version of the 2011 bill merging the banking and insurance departments was titled the “Financial Regulation and Protection Law” and the DFS was to be known as the “department of financial regulation”? Who remembers that the insurance industry lobbied to tone down the enforcement aspects of the new law in an attempt to achieve a more balanced regulatory framework? Reviewing the first four years of the DFS one would be hard-pressed to find meaningful examples of efforts by it to fulfill any of these goals, as the emphasis has been almost entirely on the goal of enforcement.

A number of critics have jumped on the recent resignations as evidence of a pattern of improper micromanaging by the Governor over the investigative authority of the agency. However, this brouhaha over control of the DFS is misplaced. The DFS is a state administrative agency whose head is appointed by and reports to the governor. The superintendent is an arm of the administration and not separate and independent from it. The governor is entitled to appoint people who reflect his objectives. If those objectives change, the governor is entitled to change the head of the agency. If the people of the state do

Peter H. Bickford

BUT THERE IS ALSO THE HINT THAT THE ADMINISTRATION HAS RECOGNIZED THE NEGATIVE CONSEQUENCES OF ITS SINGULAR FOCUS ON ENFORCEMENT TO THE DETRIMENT OF ECONOMIC DEVELOPMENT AND MAY BE CONSIDERING A COURSE ADJUSTMENT.

continued on page 20

INSURANCE ADVOCATE / November 16, 2015 17

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[ COVER ] continued from page 17

not like the goals or policies of the administration, they can elect a new governor.

This seems so basic to our democratic process, yet the howling about interfering with the independence of the DFS has been intense.

Even with all the noise about continuing the strong policing of Wall Street, and even if the Governor appoints a new head of DFS with a strong enforcement background, there is also the possibility that underlying the recent changes is the recognition by the administration that some kind of reboot is necessary. There is the prospect that the administration has come to recognize that mega-fines are not sustainable long-term, that financial services industries will not accept regulation by enforcement forever, that New York’s prominence as a financial leader is in jeopardy, that its policies are having a dilatory effect on job creation and economic development, and that there needs to be a return to effective regulation designed to support the industry and help encourage its growth and standing in the economy as well as root out wrongdoers.

If the administration has finally recognized that only by planting the seeds of growth and development can it harvest their benefits, here are a few seeds it might like to consider sowing at DFS: • DFS should start by being a far more transparent agency. During its fouryear life it has undone decades of open communication with industry and consumers, including eliminating most of the information about the business of insurance in its statutorily required annual report (substituting instead a litany of its own perceived “accomplishments”), ceasing to issue guidance through departmental opinions, and generally focusing on enforcement to the exclusion of dayto-day industry and consumer issues.

• Make its website far more user friendly for businesses and consumers, and improve access to information. A good starting point would be to post all regulations for free access, scrapping outdated contracts with publishers that limit access to a for-pay basis only. DFS is a public agency and the public should have 20 November 16, 2015 / INSURANCE ADVOCATE

free access to its regulations and rulings.

• Restart DFS’s early efforts to improve the backlog of rate and form filings, including resurrection of the Filing Modernization Project and other initiatives to improve efficiencies within the agency.

• Don’t be so paranoid about the surplus lines markets, including the domestic “free trade zone.” These markets are essential and valuable resources for NY residents and businesses, particularly those with unusual or hard to place risks.

• Support, or at least explore with an open mind, new industry and capital market initiatives, such as permitting domestic surplus lines operations, re-establishing a syndicated insurance risk exchange, and encouraging rather than discouraging non-traditional capital investment.

Alternative markets and non-traditional capital investments offshore have been draining resources from NY and the rest of the US for far too long. It is time to embrace efforts to help restore NY as a financial leader and not just be its police.

• Explore avenues to strengthen an Achilles Heel of state regulation of insurance as identified by the Federal Insurance Office: its guaranty fund system. NY can be a national leader in addressing the inconsistencies in guaranty fund coverages and funding, particularly with the treatment of annuities, which are more and more being used as alternative funding vehicles for pensions outside of the protection of Federal Law. • Most importantly, improve dialogue with industry, consumers and capital markets.

It may be some time before we have any clarity regarding the future direction of the DFS and its treatment of the insurance industry. We can only hope that recent events include a recognition of the need to improve relations with the industry, and that the cry for DFS to continue to be the Wall Street police can be tempered with a realistic need for balance.

DFS does not have to totally yield on enforcement to improve the regulatory atmosphere. Rooting out bad guys is good

EVEN WITH ALL THE NOISE ABOUT CONTINUING THE STRONG POLICING OF WALL STREET, AND EVEN IF THE GOVERNOR APPOINTS A NEW HEAD OF DFS WITH A STRONG ENFORCEMENT BACKGROUND, THERE IS ALSO THE POSSIBILITY THAT UNDERLYING THE RECENT CHANGES IS THE RECOGNITION BY THE ADMINISTRATION THAT SOME KIND OF REBOOT IS NECESSARY.

for everyone (except the bad guys). But regulation has to be balanced.

Removing weeds and weevils from regulatory fields containing no seeds for growth and development will in time turn the fields irrevocably fallow.[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.

www.insurance-advocate.com

11-16-15_INA 11-16-15 11/13/15 12:30 PM Page 21

In nssu urranc nce Advocate

ÂŽ

Contactt Information

Investment Banking for the Insurance Sector Agency and Brokerage Valuation Mergers & Acquisition Advisory Capital Raising Business Process Consulting Shareholder Advisory

CINNMEDIAInc. 914.966.3180 Ext. 110 aquilan@cinn.com STEVE ACUNTO _______ TAG Financial Institutions Group, LLC Empire State Building 350 Fifth Ave, Suite 5310 New York, New York 10118 212.993.7430 www.tagfingroup.com Steven H. Nigro Managing Partner snigro@tagfingroup.com Kieran D. Pinney Principal kpinney@tagfingroup.com

TAG Financial Institutions Group, LLC An affiliate of The Alberleen Group and in association with Cuttone & Company, Inc. | Broker/Dealer Partner | Member NYSE/FINRA/SIPC | www.cuttone.com

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[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Your Personal Branding Guide in the Digital Age

T

he idea of personal branding is relatively new in today’s complex marketing world. The first mention of the concept “personal branding” online was in 1997 when Tom Peters wrote an article for Fast Company titled The Brand Called You. However, in the last decade, the importance of personal branding has grown astronomically as new social media tools like Google+, Pinterest, Facebook, Twitter, LinkedIn, and Instagram have enabled anyone to easily express themselves online.

When most of us think of brands, we think of logos, advertising campaigns, and big corporations. Many of us love brands that we can relate Chris Paradiso to, and have a personal connection with, such as Tom’s, and also detest others. The reason we choose a brand is not just for the color of a logo or its design, but for the reputation and quality that it stands behind (for example, Tom’s shoes – for every pair purchased they give a pair away to someone in need). Similarly, our individual brand is created by the personal values that we believe in and how we build our reputation by our contributions to our communities, whether it’s online or offline. Your brand is your everything.

Guide to Personal Branding in the Digital Age What’s great about personal branding is that it isn’t about the products we sell or the services we offer, but instead it’s all about bringing value as human beings, and how we choose to express ourselves. We all have something we want to express to the world. Whether you’re an artist, musician, writer, entrepreneur, insurance agent, or agency owner, or just really passionate about your favorite hobby, you have something meaningful to offer to the world.

“You have enemies? Good. That means you’ve stood up for something, sometime in your life.” - Winston Churchill Now, it is easy to start a blog, YouTube 22 November 16, 2015 / INSURANCE ADVOCATE

channel, or a website to express your passions, promote something that you’ve created, and connect with people (prospects and/or clients) who have similar interests.

The barriers to entry for expressing yourself online or starting a digital business have dropped so much in the last decade that there really isn’t anything stopping you from diving right in and separating yourself from others in the industry. As an independent insurance agent you need a brand.

Having a personal brand and a reputation around it is not just important for sharing what you’re passionate about. An estimate (that blew my mind) was that 80% of jobs are now found in the informal job market through networking and personal connections, which shows that your personal brand matters in everything we do, whether we are looking for a job or we are looking for prospects to sell insurance to, I will once again remind you your brand is your everything.

Identify Your Personal Brand and Express Yourself Here’s a quick guide that I used to create my agency’s brand, including some different options for establishing yourself online and building your personal branded network.

First – Identify your personal brand Creating a personal brand starts with a little research into your individual talents/interests you may have.

Identify your passion and study it (become the expert) as much as you can so you can grow your expertise and be able to share that with the social world. Ask yourself questions about what you really love to do and love to learn about, and then also what you want to share with others. You can only be successful if you’re sharing your passions. After that, do additional research until you become the expert, and offer a unique and/or unconventional angle on your passion. You need to separate yourself from the herd; be different, because people want to see the real YOU. What makes YOU different from your competition? Having a personal

brand is about differentiating yourself. Yes, it’s about expressing your own unique creativity and personal style, so really it’s all about YOU. We all have natural talents.

The key to your brand is to express happiness which comes from your passions, because this allows you to find ways to meaningfully develop your talents, and combine them with your livelihood. You sell insurance. Great. Why should I buy from you though? Please don’t say “service,” because every agent says “service” and you need to remember to be different.

Develop your core message. Create your own mission statement that identifies exactly who you are and what you stand for.

Take some time to study other people with similar brand messages, and try to present your own unique view on your topic and/or passion. Then, once you’ve identified your passion and created your style with your well put together message, you’re ready to start developing your very own personal website, and I hope you take a peek at mine here at www.chrisparadiso.com.

Second – Set up your personal branding website Yes! Getting your own .com and starting a website is a lot easier than you think, and it’s not an option in today’s internet world. Each and every insurance agent, whether you’re an agency owner or an outside sales rep, needs their own personally branded website.

Get your personal website and then start your blog. If you want to look professional, I strongly recommend buying your own personal domain name. I personally use www.wordpress.org because of its ease of use, and I feel other agents should start there too. There are other easy-to-use sites such as Tumblr, but I personally love WordPress. Try to figure out what works best for you. Once you open your blog, please make sure to blog regularly, because blogging three times a month just isn’t enough. Try to blog two times a week, and try to be consistent on the days and times you’re posting. Consistency is key.

Sign up for Google Analytics. Signing continued on page 24

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[ THE SOCIA L NOTEBOOK ] continued from page 22

up for Google Analytics is FREE. Yes, a 4letter F word that I love, FREE. To see how prospects discover your website, share your personal branded content, and how they interact on your website, Google Analytics is an incredible free web service that everyone must be using to understand who is using your website and why. I highly recommend familiarizing yourself with its interface (or hand it off to a marketing manager), because you can do just about anything necessary to improve a website through Google Analytics. The first step is realizing what prospects like and don’t like about your site, which you can understand by the data collected.

Third – Social Media On your personal branded Social Media platforms, most people prefer interacting with real people, not fake people, marketing managers, or faceless brands as many agencies are practicing.

Open social networks like Google+, Instagram, Facebook, Pinterest and Twitter, for example, are much more effective if you are expressing yourself as an individual, rather than an agency. I’m not suggesting you don’t also have an agency brand, though.

Get a Twitter account both for you personally and for your agency. I actually find Twitter to be the most useful and fun Social Platform because you can follow anyone you find interesting, and easily interact with open dialogue with people such as best-selling authors, insurance CEOs, business experts, and people you simply find fascinating. It’s often with a single tweet you can connect with anyone you wish to, unlike the traditional ways of marketing. It’s also a great insurance agency content discovery tool where you can start or join conversations around topics/articles that resonate with you and/or your agency. Yes, Twitter is also very important to Google and search indexing, so I would tell you that you MUST have a Twitter account and stay active on it.

Create a Facebook Page if you don’t have one. I’m assuming everyone has a Facebook account, because I would be very surprised to run across someone who doesn’t have one open already. You will want to separate your personal Facebook 24 November 16, 2015 / INSURANCE ADVOCATE

In today’s world, everything has gone visual, and every agency needs to use a graphic designer.

account from your website-related content feed, so I recommend making a custom Facebook Page with a graphic designer like we do here at Paradiso Insurance. In today’s world, everything has gone visual, and every agency needs to use a graphic designer. Remember, hire a professional; just as independent agents think of people who go to the Lizard or Flo, go to a pro and get the work done right.

Customize your LinkedIn Profile, and become an All-Star. Several recent articles I have read on studies have shown that 70% of businesses recruit on LinkedIn; yes, 70%. To be recruited, watched, or reviewed by a prospect on LinkedIn, you need to make sure your Profile is rated as 100% complete which requires a few hours of your time, and make sure you have a professional photograph. If you don’t have a photo, what is that saying about you?

Let’s remember LinkedIn is a B2B social platform—take it seriously and complete it correctly.

Create a YouTube Channel for yourself personally and also for your agency. If you’d rather create fun but respectful professional video blogs than write content, YouTube is an amazing platform where anyone with something interesting to say can find an audience. Also it’s owned by Google and remember Google makes the rules. If you’re not sure where to start, either call me, YouTube it, or if you like to read, I recommend reading the YouTube Creator Playbook. YouTube is must – please don’t wait to get into this arena and start to play ball.

Get a Pinterest account because it’s a growing social platform and also helps aid the SEO of your agency and your personal brand, because it’s a visual social platform. Pinterest is powerful, because visual content makes up 93% of human communication, and not only that, visually appealing posts provide 94% more engagement (stats provided by HubSpot). Signing up is free, easy, and can be done at any time, so get started!

Get a Google+ account too because people are in this arena. Yes there aren’t as many using this platform as Facebook, but there are still 100s of millions of users on Google+, and it’s owned by Google. Is your agency using Google+? Google+ is a great way to share the content you find interesting directly from Google’s search results page and YouTube but for agents it’s a great tool for niche marketing. Google also provides a lot of really useful tools to manage your own Personal Branding. I recommend you explore how you appear online with their “Me On The Web” service, which is accessible from your Google Dashboard. Yes, Google provides market research tools like their Keyword Planner and Insights For Search, which can help you identify the right keywords to optimize your personal branded website and/or your agency’s.

Actively participate in online conversations. The key to finding your community online is to identify with the right audience, then participate in online forums within your targeted audience, social communities, and groups on Facebook, Instagram, Pinterest, and LinkedIn groups.

To find interesting online conversations around the topics that interest you, use Google Alerts, Social Mention, Twitter Search, Social Oomph, and Google to search for keywords related to these topics.

Your personal brand will allow you to bring in an ROI in the social world.[IA] 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.

11-16-15_INA 11-16-15 11/13/15 12:31 PM Page 25

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KNOW K KNO N NO OW BETT BE BETTER E T TER TER TE R NEW NE E W YORK YORK CONNECTIONS CONNEC NEC TIONS TIO TI ONS NS S www.nyia.org w w w.nyia.or yi .org yia.o

INSURANCE ADVOCATE / November 16, 2015 25

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[ IN FOCUS ]

By Kelly Donahue-Piro, President of Agency Performance Partners

How to Build a Killer CSR Incentive Program

H

ave you ever started a new initiative with your team but gotten discouraged when it didn’t take off like wildfire? Maybe you spent hours thinking of the best plan to drive the highest result but when you launched it your team

goal, four account rounds per person per month. They watch that goal daily. They report to the team on what’s working, what talking points are best and how many are in the hopper. When your team sees you spending time on it they will follow suit.

You, as the leader, have to commit to weekly emails, walking around congratulating everyone, working with the laggers and cheerleading the team to success. gave you bitter beer face.

Here is the reality. In motivating your CSRs it Kelly Donahue-Piro takes far more than some gift cards. It takes your personal time and investment into being their biggest cheerleaders.

Most CSRs are not money motivated people. I always ask agencies to stay away from account rounding commissions splits.

It seems great if you are sale-centric but for your average CSR the juice isn’t worth the squeeze. Let’s think about it. A CSR account rounds an umbrella and the premium is $250. If you make 12% commission it is $30; then if the CSR makes onehalf of that it is $15 and after taxes it is $10.

Then it is paid out five to six weeks later!

The CSR never feels that boost. Plus the paperwork around the $10 can often stop them in their tracks.

Bottom line is this model is easy for you since you pay commissions but hard on them. If you really want to incentivize your CSRs you need to include immediate recognition. From the owner or manager and in front of the team. Too often agencies shy away from peer to peer recognition because they think the other team members will be discouraged. You are right, they will for a few weeks. But once they see that it can be done and that people on their team can do it, they will come around. Sometimes you have to wait out the naysayers. The longer you hang on, the better the program does.

So this leads to the next component.

Every successful incentive program has a leader at the top driving results. They set a 26 November 16, 2015 / INSURANCE ADVOCATE

When you have one meeting and then expect people to change their behavior, you have just wasted everyone’s precious time.

You, as the leader, have to commit to weekly emails, walking around congratulating everyone, working with the laggers and cheerleading the team to success. Your next incentive program can’t be another “we will wait and see what happens” type of plan.

You have to drive it to success.

Now what motivates a CSR? Generally it is not money. I know, that’s nuts right?!

For most CSRs they won’t spend that money on themselves. It will go to the kid’s soccer cleats, paying down a credit card bill or taking the family to the movies. You can score way more with something that is special to that person or by taking a goal they have that’s BIG and showing them how they can get to it via the incentive program. Some examples of the smaller incentives include spa days, clothing gift cards, gas gift cards, bottles of wine and time off. For the larger ones you have to sit with the person to find out what’s important to them. Is it sending their child to soccer camp, a credit card bill they want to pay off, a cruise for them and their spouse? You can then easily break down how to get there and hold the funds in a savings account so they can see it grow.

The CSR can then engage their entire family in the progress so working a few extra hours won’t hurt as much at home.

Once you launch the program, be prepared for some disbelief. Your team may have seen programs launched and gone nowhere before. Not this time. You are going to be in the driver’s seat of success.

If the program fails, you have to look at yourself. Did you update your team weekly?

Did you provide them with immediate rewards? Was there an opportunity for coaching you missed? If the answer is yes, then leadership is to blame.

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[ ON M Y RADAR ]

By Barry Zalma

Why a Risk Manager in Louisiana Should be Licensed as an Agent Risk Manager Can Be Liable for Failing to Provide Coverage Ordered

I

nsurance Risk Management companies help their client obtain insurance by negotiating on behalf of an insured with insurance agents and brokers. The

ployees to our clients to perform specific job tasks within the oil and marine industry. These tasks include welding, fitting, rigging, helpers, and burners to work on

miss as well as a supplemental memorandum, Midwest also argues that Shore’s claims are perempted.

Peremption The insured uses a risk manager to take on an obligation to provide needed coverage that the insured does not feel competent or have the time to acquire directly.

insured uses a risk manager to take on an Barry Zalma obligation to provide needed coverage that the insured does not feel competent or have the time to acquire directly. In Plata v. Triton Diving Services LLC, Slip Copy, 2015 WL 4129144 (E.D.La., 7/8/15), a risk manager was alleged to have failed to acquire appropriate coverage, leaving the insured uninsured for an important and needed coverage. The insurer and agent were granted judgment by the court and the case was limited to the claim against the risk manager.

Factual Background This action arises out of the alleged breach of business relationship and/or contract between the plaintiff, Shore, and the defendants, Risk Management Underwriters, Inc. (“Risk Management”), Midwest, and CRC Insurance Services, Inc. (“CRC”).

Shore contracted with Risk Management to obtain insurance covering its business activities. Risk Management then contacted CRC and Midwest for assistance. Shore claims that it provided Risk Management and Midwest with a Master Service Agreement (“MSA”) between it and Conrad Industries, to which it provided employees for work in the marine industry. Shore also claims that it supplied Risk Management and Midwest with the following description of its work: “[Shore] supplies our em30 November 16, 2015 / INSURANCE ADVOCATE

platforms, jackets, skids, modules, ships, tugs, boats, barges, etc. …”

Defendants ultimately procured a Colony Insurance Company Commercial Policy. The policy included several dozen forms, including a Maritime Operations Exclusion and Watercraft Amendment.

Shore claims that because of these exclusions, it was denied coverage for costs arising from defending a personal injury lawsuit by its employee, Hector Plata, who was injured while working at Conrad’s Shipyard.

Rec. Shore also claims that since then, a second employee, Francisco Villareal, has filed suit for injuries sustained while working for Conrad, and Shore expects that Colony will likewise deny coverage, requiring Shore to shoulder further costs.

Shore commenced this action in state court alleging 1) breach of fiduciary duties and 2) negligent misrepresentation. The action was subsequently removed to this Court. The Court has since dismissed Shore’s claims against CRC. Midwest now moves the Court to dismiss Shore’s claims against it.

Law & Analysis Midwest advances several arguments for why the Court should dismiss Shore’s claims against it. In its first motion, Midwest argues that Shore has failed to state a claim for breach of fiduciary duty and negligent representation under Louisiana law. In its second motion to dis-

Midwest argues that under Louisiana law, actions against insurance agents are perempted after one year. La. R.S. § 9:5606(A) provides: “No action for damages against any insurance agent, broker, solicitor, or other similar licensee under this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide insurance services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered. However, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.”

However, the state of Louisiana defines as follows: “‘Insurance producer’ or ‘producer’ shall mean a person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance, and includes all persons or business entities otherwise referred to in this Code as ‘insurance agent’ or ‘agent’, or ‘insurance broker’ or ‘broker’, or ‘insurance solicitor’ or ‘solicitor’, or ‘surplus lines broker’.” [La. R.S. 22:1542.]

A plain reading of Louisiana statutory law leads the Court to conclude that unlicensed entities do not fall within the ambit of the statute. Furthermore, the Court is persuaded by the principle that when interpreting prescriptive and peremptive statutes, courts should construe in favor of maintaining enforcement of the action.

Peremptive statutes are to be construed against prescription and peremption and in favor of the claim that is to be extinguished.

Therefore, the Court finds that because Midwest was not licensed at the time that

11-16-15_INA 11-16-15 11/13/15 12:31 PM Page 31

[ ON M Y RADAR ] it provided services to Shore, actions against Midwest are not regulated by the statute.

Although actions against insurance agents in Louisiana are treated normally as tort actions, Shore alleges that it engaged Risk Management which in turn engaged Midwest to assist it in procuring insurance for Shore, which is more like a contract action. Shore further alleges that Midwest and Risk Management “made representations to Shore that they would procure proper insurance sufficient to provide coverage for the business risks specifically explained to them by Shore.” Finally, Shore claims that it provided Midwest with a specific description of its work which stated that Shore provided employees to clients to perform specific job tasks which could not be covered as a result of the exclusion.

Applying the standard of review for a motion to dismiss to these allegations, which requires the Court to take all wellpleaded allegations as true and to draw all reasonable inferences in favor of the plaintiff, the Court finds that Midwest did warrant a specific result. Specifically, under the facts alleged in the complaint, Midwest warranted that it would procure insurance to cover the full range of Shore’s particular business activities, after receiving Shore’s description of what these business activities entailed. Thus, the ten-year prescriptive period for breach of contract applies.

Breach Of Fiduciary Duty To prevail on a claim for breach of fiduciary duty, Shore must prove: 1) an undertaking or agreement by the insurance agent to procure insurance; 2) failure of the agent to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly if he has failed to obtain the insurance; and 3) actions by the agent warranting the client’s assumption that the client was properly insured. Midwest does not dispute that there was an agreement between Midwest and Shore for Midwest to procure insurance.

While an insurance agent is under no duty to “spontaneously identify” the client’s needs, it is required to “provide coverage for the client’s specific concerns.” The Fifth Circuit in Offshore Production Contractors, Inc. v. Republic Underwriters Ins. Co., 910 F.2d 224, 229–30 (5th Cir.1990), held that:

“[A]n insurance agent is more than a ‘mere order taker’ for the insured … Where an agent is familiar with the insured’s business, has reason to know the risks against which an insured wants protection, and has experience with the types of coverage available in a particular market, we must construe an undertaking to procure insurance as an agreement by the agent to provide coverage for the client’s specific concerns.”

Following the Fifth Circuit’s guidance, the Court finds that Shore has sufficiently alleged a failure by Midwest to use reasonable diligence. According to Shore’s complaint and amended complaints, Shore provided Midwest with a specific description of the type of work in which it engaged. The description included an explicit reference to marine industry work and work aboard marine vessels. Contrary to Shore’s wishes, Midwest procured a policy with a “Maritime Operations Exclusion” and a “Watercraft Amendment,” which Shore alleges excluded coverage of many activities that Shore had notified Midwest its employees performed. Midwest failed to use reasonable diligence in procuring insurance coverage.

Negligent Misrepresentation Midwest also argues that Shore has failed to state a claim for negligent misrepresentation. In order to recover for negligent misrepresentation, Shore must show 1) a legal duty to supply correct information; 2) breach; and 3) damages resulting from justifiable reliance on the misrepresentation.

The complaint now includes the allegation that defendants “ensured Shore that the subject policy contained maritime employers liability coverage, with an In Rem endorsement and the Watercraft exclusion deleted.” Midwest does not challenge the remaining elements of Shore’s negligent misrepresentation claim. Thus, the Court found that Shore has stated a claim of negligent misrepresentation and the claims must go to trial.

Zalma Opinion By concluding the action was a breach of contract action, the court increased the statute of limitations from one year to ten years, allowing the case to proceed against the risk manager. Clearly, by allowing the Maritime Operations Exclusion to be in the policy the risk manager was negligent

and breached the contract. Since the Risk Manager was not a licensed agent the court held it to answer while letting the agent and insurer free because of the statute of limitations.

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=214 624, 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.

INSURANCE ADVOCATE / November 16, 2015 31

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[ TRENDS ]

By Steve Vilas, Burnham Benefits Insurance Services, Inc.

BUILDING A NEW PARADIGM: Consolidation Trends in the Insurance Brokerage Industry

C

onsolidation within the insurance brokerage community has been an ongoing trend at least since the 1990s but undeniably more pervasive in the last several years, due in large part to the complexities of the Affordable Care Act (ACA) and the overall transformation of the healthcare market. In the latter part of 2012, for example, imminent health care reform compliance deadlines and increases in capital gains tax created an onslaught of mergers and acquisitions (M&A) among benefits brokers—particularly small firms selling to larger ones which were far better equipped to assist employers with ACA compliance. Though the following two years saw a decline in small transactions, insurance M&A accelerated through 2014 with an increased number of larger M&A announcements, providing enough evi-

According to a report from Deloitte, 2015 Insurance M&A Outlook <https://www2.deloitte. com/content/dam/Deloitte/global/ Documents/Financial-Services/gx-fsiinsurance-m-and-a-outlook-030915.pdf>, eight $1 billion+ deals were announced in 2014—for a total that equaled the last several years combined—with emerging interest from foreign buyers and initiated consolidation in the reinsurance sub-sector.

In volume alone, the most active sub-sector was brokerages, with 321 deals announced, placing 2014 close behind 2012—the most active of the past ten years.

With economic uncertainty and political upheaval creating disruptions across the globe, insurance regulations are far from stable, leaving the future M&A landscape still uncharted. While there’s no crys-

Though the following two years saw a decline in small transactions, insurance M&A accelerated through 2014 with an increased number of larger M&A announcements, providing enough evidence to suggest it would continue on an upward trajectory.

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[ TRENDS ] tal ball for predicting the future for the insurance industry, there is a high degree of certainty that the old paradigm has permanently shifted away from long-term growth objectives as a result of a new regulatory structure, lower investment yields and excessive market capacity.

The changes that have occurred in the healthcare market over the past several years have undoubtedly forced the role of an employee benefits broker to evolve into one of an advisor. It is no longer enough to market a benefits program and help with open enrollment; employers need help navigating through plan options, as well as funding alternatives such as limited funding, self-funding and captives. They want help implementing benefits administration and human resource information systems (HRIS) that improve their efficiencies, and seek guidance with new regulatory requirements placed upon them not only by ACA but also state and local ordinances. Equally as important, they seek a trusted advisor who can educate their employees about their health and wellness options so that they become knowledgeable consumers when it comes to healthcare and health insurance. And finally, they are looking for innovative and engaging ways to motivate employees to embrace healthier lifestyles, recognizing that a healthier workforce keeps medical costs under control in the long term.

Not long ago, the mere mention of ACA invoked fear and panic throughout the brokerage industry. While it has undeniably created a complete disruption in the healthcare industry and has imposed significant regulatory requirements upon providers, insurers, employers and individuals, it has also spurred a tremendous amount of innovation: new local provider networks, alternative funding arrangements, new types of plans, technological innovation, a renewed focus on wellness and more consumer choice. Today’s progressive benefits advisors are recognizing their changing roles, embracing these changes by adding people and resources to meet clients’ rising expectations. It’s an expensive proposition but one by which brokers are achieving tremendous growth.

However, not all firms are willing or able to make this investment and are looking for alternatives, including acquisition by larger firms.

Private equity firms are more recent players in the brokerage segment. They have been drawn to this segment due to its strong cash flow and the PE firm’s ability to generate a strong return on equity (ROE), and today remain significant players in the M&A arena.

Public companies have historically been active acquirers, a trend that continues. They buy agencies using some combination of cash and stock. This is based on an established market for the shares so that the seller will be able to “cash out” at some point. Some public buyers allow the sellers to operate with a fair amount of autonomy as long as certain returns are generated, while other buyers achieve additional value through the consolidation of service and support. Clients of an acquired firm often find they have access to more products and services than they had prior to the sale, but conversely often find they are working with a new service team after the earn-out period is over, as quarterly results drive decisions over time at these firms.

Private equity firms are more recent players in the brokerage segment. They have been drawn to this segment due to its strong cash flow and the PE firm’s ability to generate a strong return on equity (ROE), and today remain significant players in the M&A arena. Some have taken large, public firms private, while others have created national firms starting with a large regional as a platform. Their approach is different than their public brethren, who hang on to and eventually integrate their acquisitions. For PE firms the objective is to buy, increase earnings and sell, often in a three-to-five-year timeframe. Selling agencies will receive cash and restricted stock in deals with these buyers, with the hope that they will realize a liquidation of their shares when the company is re-sold. As with acquisitions by continued on page 34

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[ TRENDS ] continued from page 33

public firms, this can lead to more resources for clients of the acquired firm.

However, because the goal of the equity investor is to sell the firm in a relatively short period of time, clients may experience more disruption in service when the company is prepared for re-sale.

Large regional brokers are likely to remain the alternative for many smaller agencies and producers—traditionalists with limited human or capital resources, who are too small for the public and private equity firms or who are looking for a better cultural fit. The regional firms have added resources to support their clients’ expanded needs, and can help them evaluate funding alternatives, provide guidance to help navigate ACA, state, and local regulatory issues and can provide advice and support regarding employee communications, technology and wellness programs.

As brokers adapt to this new landscape, we can expect more M&A activity (such as the Willis-Towers merger) in 2016 and beyond. Though strategically significant, transaction volumes may be less dramatic than those of the past decade but those brokerages with forward-looking investment strategies will possess both the depth and breadth within the industry to be active as a consolidator.[IA] Steve Vilas has more than 25 years of experience with insurance brokerage/ consulting firms, specifically in managing agency finances and operations, launching new initiatives, recruiting and expanding market share. As a vice president at Burnham Benefits, Vilas’ role is to expand Burnham’s footprint in other markets by overseeing new initiatives, private exchanges, captives and special programs. Vilas also works to help Burnham grow in key market areas including the public sector and the transportation and distribution industries. Burnham Benefits’ goal to expand its one-of-a-kind client experiences into new markets allows Vilas to continue his path as a proven leader, strategic advisor and a respected member of the Burnham team. Vilas works closely with Burnham Benefits’ Northern California regional president Michael Michalski, to 34 November 16, 2015 / INSURANCE ADVOCATE

As brokers adapt to this new landscape, we can expect more M&A activity (such as the Willis-Towers merger) in 2016 and beyond. Though strategically significant, transaction volumes may be less dramatic than those of the past decade but those brokerages with forward-looking investment strategies will possess both the depth and breadth within the industry to be active as a consolidator.

meet the needs of Burnham clients by helping them navigate the Affordable Care Act and other changes in the industry. Together, their goals are to continuously develop new business and create new tools and resources to better serve existing clients along the way.

Vilas most recently served as chief operating officer of Employee Benefits at Edgewood Partners Insurance Center, LLC, in San Francisco. He has also served as chief financial officer at both VRT Insurance Services, Inc. and at Sitzmann Morris & Lavis, both in Oakland. Vilas is a current California Accident and Health licensed agent. He earned a Bachelor of Science degree in business administration from the University of California-Berkeley.

ABOUT BURNHAM BENEFITS INSURANCE SERVICES: Burnham Benefits Insurance Services, Inc. is a privately held, full-service employee benefits consulting and brokerage firm headquartered in Irvine, Calif. The firm is among the largest in the state to specialize solely in strategic employee benefits consulting and brokerage services. With a comprehensive offering of client-first health and wellness programs, Burnham effectively manages more than $1.5 billion in premi-

ums for more than 400 clients. A certified Benefits Corporation (B Corp), the firm maintains a more than 97 percent client retention rate and has averaged 25 percent growth annually over the past 10 years. Because Burnham Benefits does not have outside shareholders, it can easily adapt and create customized solutions that fit clients’ best interests — investing in cuttingedge technology and the tools and resources needed to provide the specialized level of service that today’s rapidly challenging climate demands.

Its team of more than 80 highly skilled industry professionals includes inhouse underwriters, compliance officers, healthcare reform consultants, communications specialists and wellness experts. Through a strategic partnership with Burnham Gibson Financial Group, Burnham also provides retirement planning and wealth management services. Burnham Benefits’ footprint currently spans offices in Orange County, San Francisco Bay Area, Los Angeles, San Luis Obispo, Santa Barbara, Sacramento and San Diego, Calif., as well as a satellite office in the Washington D.C. metro area.

Burnham Benefits holds national recognition as Business Insurance’s #1 Best Places to Work in Insurance 2013 and 2014 and has been ranked a Best Place to Work by the Orange County Business Journal for five years running.

For more information, visit www.BurnhamBenefits.com

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