2012 Market Fact Book (including all 2011 Surveys in one convenient place!), Buyers Guide

DECEMBER 19, 2011 | VOL. 89, NO. 24

NATIONAL ISSUE Is P/C Insurance Innovative?

Market Facts for Insurance Geeks Insurance News Hound Quiz Cost of Financial Crisis for Policyholders

Shad Steadman, Vice Chairman & COO, Rutherfoord

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LexisNexis, Lexis, Nexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Copyright © 2011 LexisNexis Risk Solutions.

All rights reserved. 07/11

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NATIONAL

On The Cover

Inside This Issue

Special Report: The 2011 Survey Issue

December 19, 2011 • Vol. 89, No. 24 • National Region

N8

N14

N46

IDEA EXCHANGE

NATIONAL COVERAGE N8 P/C Insurance Isn’t Innovative?

Don’t Believe It

Special Report:

N8 Property Rates on the Rise

N21 Young Agents Survey

N10 Foreign Insurers Losing Out in China

N24 Agency Salary Survey

N38 New Life for Performance Reviews

N29 Agency E&O Survey

N39 2011-2012 Buyer’s Guide

N36 Insurance News Hound Quiz

N46 Closing Quote: Cost of the Financial Crisis

N10 Most Insurers Meet Medical Ratio

The 2011 Survey Issue

N35 Enhance Your E&O Culture in 2012: Pearsall

N14 Special Report: 2011 Market Fact Book

DEPARTMENTS N6 N9 N9 N12 N34 N44 N45 N46

N4 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Opening Note Figures Declarations People Business Moves Classifieds MyNewMarkets Closing Quote

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NATIONAL COVERAGE

Opening Note Fact or Fiction?

I

nsurance geeks everywhere are buzzing about the latest issue of Insurance Journal. Well, maybe not, but this issue is sure to get a buzz or two from insurance news geeks nationwide.

That’s because the last issue of 2011 offers a collection of some of the more interesting insurance tidbits for your reading pleasure.

For example, did you know that Sir Edmund Halley — yes, the same one for whom the comet is named — constructed and published the first known mortality tables in 1693?

According to “Against the Gods: The Remarkable Story of Risk,” Halley used a very minimal sample of data — a small town in eastern Germany (now a part of Poland) — to develop the tables over a four year period. It is unlikely that his findings could be considered “actuarially accurate,” but it was the first step in applying probability to estimate human life.

Halley was years ahead of the insurance industry in predicting risk. In fact, insurance companies and governments would not make use of such lifeexpectancy tables for at least another century.

Insurance coverage can Another, perhaps more well-known insurance fact: get a little hairy, too.

New Hampshire is the only state that currently does not mandate auto liability but it does have a proof of financial responsibility requirement for drivers involved in accidents. The rest of the states and the District of Columbia have minimum auto liability insurance requirements. But it was Massachusetts that first required personal auto liability in order to register a vehicle.

But perhaps the most interesting insurance facts revolve around unusual insurance policies.

For example, did you know that Bruce Springsteen reportedly insured his voice with Lloyd’s of London for $5.7 million in the 1980s?

Did you know Major League Baseball’s St. Louis Cardinals once took out a $12 million disability policy for Mark McGuire?

Or that fashion model Heidi Klum once insured her legs for $2.2 million.

Insurance coverage can get a little hairy, too.

Singer Tom Jones was rumored to have bought insurance for his famous swathes of chest hair. Procter & Gamble, which hired Pittsburgh Steelers strong safety Troy Polamalu as a spokesperson for its Head and Shoulders shampoo, insured Polamalu’s long curly hair for $1 million.

Insurance for body parts is no laughing matter either. United Kingdombased Costa coffee shop chain’s chief taster Gennaro Pelliccia reportedly insured his tongue with Lloyd’s of London. Can’t get enough … don’t miss this year’s Market Fact Book on page N14.

Happy holidays and here’s to a prosperous Andrea Ortega-Wells Editor-in-Chief 2012 from all of us at Insurance Journal.

Publisher Mark Wells

Chief Executive Officer Mitch Dunford

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Curtis Pearsall Contributing Writers Christopher Boggs, Dave Coons, Daniel Haefeli, Kai-Uwe Schanz

SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified Advertising (800) 897-9965 x125 classifieds@insurancejournal.com

MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com

DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Art Director Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com

IJ ACADEMY OF EDUCATION Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Dooley | bdooley@ijacademy.com

ADMINISTRATION Accounting Manager Megan Sinclair | msinclair@insurancejournal.com

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N6 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rhondab@fosterprinting.com. Visit insurancejournal. com/reprints for more information.

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NEWS COVERAGE

News&Markets P/C Insurance Isn’t Innovative? Don’t Believe It Property Rates on the Rise

Nearly half of the U.S. property insurance policies renewed in the current quarter have been at higher prices, brokerage Marsh said, adding fuel to an industry turnaround after years of declining rates.

Marsh said 48 percent of property policies renewed in the fourth quarter have been at a rate at least 1 percent higher.

Nearly 20 percent of policies have been renewed at rate increases of more than 10 percent.

In addition, Marsh said nearly a fifth of renewals were done at flat rates with the prior policy.

With more than $70 billion in disaster losses worldwide this year, insurers are anticipating what they call a “hard market” — a period of pricing strength where they can consistently raise customers’ rates.

That would follow years of sharp price declines that in some cases left rates at decadelong lows. Marsh said across all policies, the average rate increase this quarter is 1.7 percent.

“While the market is not classified as ‘hard,’ it is increasingly difficult to achieve cost savings and more insureds are faced with modest increases at renewal,” Marsh said in its regular benchmarking report.

T

here’s more innovation in proper“Insurance has a poor image of being ty/casualty insurance than people not innovative, but often people don’t think. appreciate the range and degree of risks A new Swiss Re report explores why that insurers routinely take on,“ reports the industry is not known for its innoSwiss Re. vation and concludes it’s because much Pain cites new risk classes such of the innovation is incremental or new as cyber insurance and supply chain to the insurer but not to the market. disruption cover, as well as alternative “[A]lthough a changing environment risk transfer techniques as important continuously forces the industry to insurance innovations. rethink its covers, insurers are often But most product innovation in perceived as slow to embrace prodtraditional insurance markets tends uct innovation. This is because the be of the incremental or evolutionary nature of innovation in insurance is type, building on existing knowledge usually incremental and transactionand infrastructure, says the report. It led. Insurers are constantly trying to identifies some of the most prominent discover new incremental innovations classes of risk Insurance innovation in insurance as amendprotection, but tends be incremental ments to terms and they always need conditions of the cover, or evolutionary. to be cautious bundling or unbundling not to overstep of risk protections, and the boundaries of insurability.” policies based on parametric triggers.

Darren Pain, Swiss Re economist and In many cases insurance people author of the study, defines innovation might describe this transaction-led as the “introduction of something new innovation as product flexibility rather that improves on the status quo.” It than innovation per se. But it is easy to doesn’t have to involve anything espeundersell its significance. cially novel or inventive.

“On the client side, such policy “Core to innovation is that it creates refinements — sometimes called value. Innovations vary according to ‘deal-by-deal innovations’ — can be how far they change the existing prodextremely important for shaping existuct or service or the way it is delivered. ing risks to make them or keep them At one extreme, incremental innovainsurable. Innovations also help by savtions involve modest improvements. At ing on unnecessary cover and by using the other, transformational innovations re/insurers’ risk-absorbing capacity to may radically alter the product or comreduce the overall costs of insurance,” petitive landscape,” he writes. says Pain.

The report “Product Innovation in The report notes that technical, orgaNon-Life Insurance,” describes product nizational and market factors constrain innovation in insurance as tending to how expansive insurers are in developbe “more little ‘I’ than big ‘I.’” ing new products. For one, missing The report cites surveys showing information can give rise to adverse that many insurers report the introselection or moral hazards and lead to duction of new or improved products. bigger losses.

However, it adds, most innovations “So caution always needs to be exertend to be new to the firm rather than cised when taking on new or changing genuinely new to the market. risk exposures. Additionally, there is

N8 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

sometimes limited demand for highly innovative products, even if insurers are prepared to offer them. Instead, ‘big’ innovations tend to occur only when an exogenous driving force, such as new legislations or tax changes, stimulates demand,” according to the report.

Governments and insurers can cooperate to spur innovation, for example by designing new insurance vehicles or by partaking in risk sharing. Microinsurance is an example of collaboration amongst insurers, governments, and non-profit organizations to give access to insurance to millions of otherwise unprotected people. Natural catastrophes are also more insurable than ever, especially because risk can be transferred in part to capital markets, according to the report.

“Cooperation with governments or between companies can however, lead to unintended consequences.

Subsidized insurance, for example, can distort incentives and collaboration can potentially lead to reduced competition,” the report says, adding that the key is a balanced innovation portfolio. www.insurancejournal.com

Declarations Frank Talk

UnWise Florida Contract

Write Your Own

“Once (Dodd-Frank) is fully implemented — I think it will be in another year — it is much harder for people to get rid of, because I think it will be popular. The easiest chance you get to strangle something is in the early stages.”

— U.S. Representative Barney Frank, countering speculation that his departure next year from Congress after serving 30 years will undermine the Wall Street reform law he sponsored.

“What I’m telling people is if you want to call yourself an independent agent, this particular contract challenges that.”

— Jeff Grady, president, Florida Insurance Association of Insurance Agents, on the agency contract being offered by Homeowners Choice on business it is assuming from HomeWise.

“The National Flood Insurance Program write your own (WYO) insurance companies have been woefully slow in processing flood insurance claims. We need focused, intense and prompt follow up, not lollygagging-insurancecompany-business-as-usual.”

— U.S. Senator Charles Schumer (D-N.Y.), urging New York’s flood insurance providers to speed up processing of claims from tropical storms Irene and Lee.

Local Is Better “I believe insurance is local and local regulation is preferable.”

— Arkansas Insurance Commissioner Jay Bradford, expressing disappointment that legislative opposition to an Arkansas-run health benefits exchange has quashed the state’s efforts to meet federal requirements for implementing its own exchange.

Odd Year “It was another very odd year.”

— Dr. Jeff Masters, Weather Underground’s director of meteorology, assessing the 2011 hurricane season.

No Conclusion “We are unable to conclude ... Plaintiffs are clearly ‘likely’ to succeed on their assertion that Indiana’s tort claims damages caps violate the federal Constitution.”

— U.S. District Judge Sarah Evans Barker, certifying Indiana State Fair stage collapse victims as class in a challenge to the state’s $5 million cap on liability.

Figures

38

$

Billion

The total estimate of catastropherelated losses experienced by the U.S. property/casualty industry through the first nine months of 2011, which is nearly double total year-end 2010 losses, according to A.M. Best Co.

209

$

Million

The amount, including a record fine, that coal miner Alpha Natural Resources has agreed to pay to settle civil and criminal charges stemming from the April 5, 2010, accident at the Upper Big Branch Mine in West Virginia last year that killed 29 people.

$100,000 Is how much a bicyclist who was injured when he hit a patch of ice and crashed on a pedestrian/bike path in Florence, Mont., last winter got in an out-of-court settlement. www.insurancejournal.com

900

The number of jobs property/ casualty insurers lost in October 2011. The Insurance Information Institute said the number of agents and brokers (life and non-life together) rose by 3,100. The increase increase in agents/brokers merely reversed the nearly-equivalent drop of 3,400 jobs in September, however.

250,000 The number of mid- and high-wage jobs that have been lost in New York State since 2008. Well-paying jobs vanished in sectors such as finance, government and construction, according to New York-based Fiscal Policy Institute. Many of these disappearing high-paying jobs have been replaced by lower-paying ones in areas like home health care services and restaurants.

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N9

NEWS COVERAGE

News&Markets Foreign Insurers Losing Out in China Most Insurers Meet Medical Ratio

Most U.S. health insurers last year would have satisfied the much-disputed spending rules under President Barack Obama’s healthcare reform, according to a report by a congressional watchdog agency.

The rules require insurers such as Aetna and UnitedHealth to spend most of customers’ premium payments on medical care, not administrative costs or profit, or risk paying patients a rebate.

The Patient Protection and Affordable Care Act (PPACA) established minimum “medical loss ratio” (MLR) standards for insurers. Beginning in 2011, PPACA required insurers to meet minimum standards of 85 percent in the large group market and 80 percent in the small group and individual markets or pay rebates to their enrollees.

A number of states have sought waivers to get leeway in how fast the rules go into effect. The rest of the insurance community continues to grumble about the rules, which they have said could force companies to desert some smallgroup and other niche markets.

T

en years ago, foreign insurers were lining up to celebrate China’s entry into the World Trade Organization, eager to tap what was certain to become the world’s next big insurance frontier.

A decade on, it is mainly the local insurers that are celebrating.

Four out of five foreign insurers are suffering losses in their China operations, strangled by tight regulatory controls and intense competition from local rivals who, the foreigners complain, enjoy unfair advantages. Some foreign firms are heading in the opposite direction, reducing their exposure to China or pulling out completely.

“Expectations have not been lived up to,” said Chris Kaye, a Hong Kongbased partner at the Boston Consulting Group. “When you look at some of the business plans for entry … and look at the actual delivery performance, there has been a big shortfall. What we’re seeing now is a re-evaluation of what it takes to win.”

China’s WTO entry did indeed herald a boom. Over the past 10 years, insurers have seen annual premiums jump six-fold to 1.5 trillion yuan ($236 billion). There is room for further

N10 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

growth, backed by a rising middle class most of which are based in major cities, in a country with 1.3 billion people. have made business more profitable.

That boom has produced clear winBut for insurers, which target Chiners among local players. China Life nese individuals or companies, having a Insurance Co. and Ping An Insurance large sales force is crucial, analysts say. have grown into the world’s first and “The licensing restriction has led to second-largest insurers by market valumany other problems, such as inability ation, respectively, in part thanks to to gain economies of scale, weak brand the financial crisis hitting foreign insurrecognition … and in some cases, disers globally. They and non-life stalwart advantage in talent wars,” said Sally PICC have truly cashed in on expanYim, senior credit officer of rating agension in the China insurance sector. cy Moody’s Investors Service. “These On paper, China has played by the are the hidden costs that had not been rules. Beijing, which marked its 10-year expected by foreign insurers.” anniversary since joining the WTO In terms of ownership, foreign insuron Dec. 11, has technically stuck to its ers can only enter China’s life insurance promises to open the sector it made to market by setting up a joint venture gain entry to the WTO. with a local firm and their stake is China pledged to allow foreign firms capped at 50 percent. “effective management control” in life Non-life insurers are allowed full insurance joint ventures, but it limited control of their local unit, but are foreign stakes to 50 percent while letbarred from selling compulsory thirdting them choose their partners freely. party motor insurance policies, which Beijing also promised to phase out puts them at a significant disadvantage geographical restrictions on where they in the auto insurance sector. Analysts could operate. say this greatly hinders their ability to Analysts say while China has met compete in the auto insurance market, the letter of the law, in practice, the which makes up more than 70 percent playing field is far of non-life premiums. from level.

A recent survey Local insurers in by PriceWaterhouse“Regulatory hurdles China enjoy unfair Coopers found that are a big challenge,” advantages. said Alex Wong, most of the 28 life and Shanghai-based partnon-life insurers expect ner of PriceWaterhouseCoopers. their market share to stagnate around Foreign insurance firms, for example, current levels over the next three years. must endure lengthy and often inconIt also showed that the level of commitsistent bureaucratic procedures to open ment of foreign insurers toward China a provincial branch. Sino-foreign life has been falling since 2008. insurance joint ventures have seen their Despite the gloomy outlook, analysts growth typically capped to two provsay it is unlikely that foreign insurinces a year, a pace that would require ers will abandon the Chinese market at least 17 years to build a nationwide altogether given its potential. They also network, Wong noted. need to be in the world’s second-largest Foreign banks also have faced similar economy to ward off a slowdown in regulatory controls over their expanUnited States and Europe. sion, but a limited retail presence and a focus on lending to multinational firms, Copyright 2011 Reuters. www.insurancejournal.com

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NATIONAL COVERAGE

People James Conroy

Lyndell Haigood

Bill Thomas

Maurice R. Greenberg

Liberty Mutual consolidated its specialty construction operations and appointed James Conroy senior vice president and chief underwriting officer for construction, Liberty Mutual commercial markets.

Previously, Conroy was responsible for underwriting large construction risks for Liberty Mutual commercial markets.

Before joining the Boston-based insurer in 2003, Conroy held a variety of senior construction risk underwriting, surety and loss control positions.

Lyndell Haigood, regional vice president of State Auto Insurance Co., has been elected president of the Association of Fire and Casualty Cos. in Texas (AFACT) for a twoyear term.

Mike Gerik, executive vice president of the Texas Farm Bureau Insurance Cos., was elected as vice president and Paul Ehlert, president of Germania Insurance, was elected secretary/treasurer.

Ron Lawson, vice president of industry relations for the Republic Group in Dallas, will serve as director at large.

Bill Thomas has partnered with Ben Thomas and Barry Rabune of Costa Mesa, Calif.-based of RSI Insurance Brokers, a property/casualty insurance company that focuses on the transportation industry. The new partnerships’ focus will be providing broker consulting for mid- to large-sized organizations in the agriculture and transportation industries.

Thomas comes to RSI with more than 20 years of employee benefits experience. He has held senior leadership roles with national health plans, large employee benefits brokerage and consulting firms and healthcare provider organizations.

The China General Chamber of Commerce – U.S.A. honored Maurice R. Greenberg for his contributions toward U.S. and China exchanges. The organization’s Win-Win Award was presented to the insurance executive at the group’s dinner in New York City that marked CGCC-USA’s six years of service to Chinese enterprises in America.

N12 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Greenberg is chairman and CEO of insurers C. V. Starr & Co. Inc. and Starr International USA Inc., collectively known as Starr Companies.

Des Moines, Iowa-based independent insurance brokerage Holmes Murphy & Associates named Daniel T. Keough as CEO and Dennis Bishop as president, effective Jan. 1, 2012. Jim Swift will maintain his role as chairman.

Keough will oversee the strength and stability of Holmes Murphy while leading the company’s strategies. He will also direct the company’s northern region divisions.

Bishop will support company objectives and best practices, and oversee Holmes Murphy’s southern region divisions.

Florida Chief Financial Officer Jeff Atwater has named Daniel Anderson to serve as the state’s lead insurance fraud investigator.

Anderson will direct the state’s Division of Insurance Fraud, where he will oversee 155 sworn law enforcement officers, managers and administrators. He will also supervise 48 non-sworn civilian support staff. The division made more than 1,000 fraud-related arrests in the last year. Anderson comes to the division after a 25-year career with the federal Drug Enforcement Administration.

Marsh & McLennan Agency, a subsidiary of insurance broker Marsh Inc., appointed John Sames as regional executive vice president of its New York City and Milford, Conn., offices.

Sames has more than 25 years of experience in the insurance brokerage industry. Most recently, he was president of the Washington, D.C., metro office of USI Holdings.

Global insurer and reinsurer XL Group plc picked Greg Hendrick to lead its insurance segment, effective Jan. 1, 2012. Hendrick, XL’s executive vice president for strategic growth, replaces current CEO Dave Duclos, who retires Dec. 31, 2011.

www.insurancejournal.com

©2011 Texas Mutual Insurance Company

Thank You! Our company has many reasons to be thankful this season–none more important than our agents.

To all of our partners who have worked so hard and helped so many, we wish you a wonderful holiday and look forward to a prosperous New Year.

Texas’ leading provider of workers’ compensation insurance

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SPECIAL REPORT

2011 Market Fact Book Fact or Fiction? Insurance Tidbits of Known and Little-Known Information

H

ave you ever wondered how modern-day fire departments began? Or why agents buy E&O coverage? What about when the first business owners policy launched? These are just a few questions that Insurance Journal and Claims Journal editors will answer for you in this year’s Market Fact Book.

Derived from various industry sources, as well as Insurance Journal’s own database, here’s the 2011 collection of some of the more interesting (and perhaps not so interesting) insurance facts and figures for your reading pleasure. We hope you enjoy!

Fire Fighters Fire insurance carriers may have been a major impetus for modern paid fire departments. Prior to the creation of municipal fire departments, volunteer fire departments, having no clear district lines, “competed” with one another to extinguish fires — the department that arrived at the fire first and successfully doused the flames got paid (yes, there was a profit and even political motive).

As the number of fire insurance companies grew so too did the competition among fire departments. Insurance carriers would supply its insureds with “fire brand” placards (you may have seen some in antique shops) to be placed on the front of the building to indicate that there was insurance coverage and which carrier provided the protection (so the department would know who to bill). Fire departments knew that if

it burn, letting the next department to arrive fight the fire.

insurance coverage was in place they would get paid more and more quickly than just trying to bill the building’s owner.

Fire insurance companies, looking for a better way to protect their investment, eventually formed their own fire brigades. When a fire alarm sounded all the local insurance company fire departments would respond; if the insurance carrier’s brigade arrived first but did not find their fire brand on the building, legend tells us they would watch

Top 10 Most Read from ClaimsJournal.com

I

n 2011, ClaimsJournal.com readers took an interest in weather-related matters and educational articles on issues impacting claims handling, fraud and bedbugs. Three articles on insurance and television were among the top 10 most read. Stay tuned for more claims industry news on ClaimsJournal.com and keep an eye out for Claims Journal magazine in 2012.

1) P/C Insurers Facing Record Losses from Weather 2) Reservation of Rights Letters 3) “Fraud Dog” to Bring Insurance Fraud Cases to Reality TV 4) Essentials: What Every Claim Adjuster Should Know About Bad Faith 5) California ServiceMaster Arrests in Insurance Fraud Case 6) Behind the Scenes: TV Sitcom Portrays Comedic Side of Claims 7) California Couple Convicted of Murdering Woman’s Ex-Husband for Insurance (2004 story) 8) Long Island’s Nassau County Gets New Flood Maps (2008 story) 9) Part 1: Bed Bugs Abatement a Growing Challenge for Landlords, Cities, Insurers 10) Reality TV Star’s Workers’ Comp Benefits Get Axed N14 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Insurance Industry by Numbers • Property/casualty industry’s net premiums written total $426 billion • 2,689 P/C insurance companies in U.S. • U.S. insurance industry employs 2.2 million people • Insurance industry paid $15.8 billion in premium taxes in 2010 • Of 23 top P/C insurers, 12 had 100+ combined ratio in latest quarter • Insurers’ 2011 nine-month profit down 60 percent from last year B-BOPs The business owners policy (BOP) was first introduced in 1976. This was the first time commercial risks were offered property and liability coverage in the same coverage form without the need to piecemeal the parts together in a package.

ISO and AAIS Insurance Services Office (ISO) was founded and created in 1971 by a merger between the Mutual Insurance Rating Bureau and the Insurance Rating Bureau (known as the National Bureau of Casualty Underwriters until 1968).

American Association of Insurance Services (AAIS) was organized in 1975 as a multiline property/casualty advisory organization and as a licensed statistical agent.

AAIS is the successor organization of the former Transportation Insurance Rating continued on page N16 www.insurancejournal.com

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2011 Market Fact Book Market Fact Book continued from page N14

Bureau, a Chicago-based inland marine rating bureau formed from the merger of two smaller bureaus founded in the 1930s.

These two organizations are largely responsible for the standardization enjoyed in the industry today. Although their forms and rates (loss costs) may be held out as advisory, they are considered the standards on which proprietary forms and rates are based.

Renters’ Premium The average renters insurance policy premium is about $173 a year, according to the National Association of Insurance Commissioners (NAIC). Still, only 43 percent of renters buy renters insurance, according to the Insurance Research Council. More than 96 percent of homeowners have insurance on their home.

Independent Agents’ E&O The vast majority of agency owners (86.5 percent) say they buy agency E&O coverage to protect the assets of their agency, according to Insurance Journal’s 2011 Agency E&O Survey.

Truck Sales Up Pickup trucks, SUVs, crossovers and, in Chrysler’s case, minivans accounted for 65.8 percent of General Motors, Ford and Chrysler 2011 sales through November, according to Autodata.

That’s up from 64 percent last year and the domestic automakers’ heaviest truck concentration since 66.3 percent in 2004.

China Commercial Auto The world’s largest auto market, China, permits foreign insurers to sell commercial auto policies in competition with statebacked insurers but prices are tightly controlled.

That may be about to change, however. In September, the China Insurance Regulatory Commission published draft rules to reform the pricing of commercial auto insurance policies. The chairman

of the Insurance Association of China told Reuters that officials want to introduce more competition into the market that is now dominated by 34 Chinese insurers including PICC Property and Casualty Co. and Ping An Insurance. Currently, 19 foreign property/ casualty insurance companies operate in China, including Tokio Marine & Nichido Fire Insurance Co, Chubb and RSA Insurance Group.

Home Claims In 2009, 6 percent of insured homes had a claim, according to ISO. About 95 percent of those claims were for property damage, including theft.

Revenue per Employee Revenue per agency employee remained flat in 2010 with the average for agencies under $5 million in revenues just over $150,000 and agencies with more than $5 million at $172,000, according to the Insurance Agents & Brokers of America’s 2011 Best Practices Study.

Backbone of U.S. Economy The insurance industry continues to be a major sector in the American economy, in terms of the business it generates, the number of people it employs, and the amount of tax it pays to Uncle Sam. P/C and life/health insurance companies paid $15.8 billion in premium taxes in 2010, or $51 for every person living in the United States.

Insurance carriers and related activities accounted for $425 billion, or 3.0 percent of U.S. gross domestic product in 2009, according to the Insurance Information Institute.

The U.S. insurance industry’s net premiums totaled $1.0 trillion in 2010, with premiums recorded by life/ health insurers accounting for 58 percent and premiums by P/C insurers accounting for 42 percent. Net premiums written totaled $426 billion in 2010, according to SNL Financial.

N16 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Earnings Fell Off a Cliff in 2011 This was a year when most P/C insurers saw their income take a nosedive. Fitch reported that a group of 47 publicly traded P/C insurers and reinsurers it tracks had a net profit of $9.7 billion for the first nine months of 2011, down more than 60 percent from one year ago when the same group reported a profit of $26.4 billion.

Moody’s Investors Service also reported that for the latest, third-quarter earnings, 23 P/C insurers it follows reported $1.6 billion in composite income, a whopping 70 percent decline compared to one year ago.

Half of U.S. Market There are many P/C insurance companies in the United States, but the 10 biggest insurers control the lion’s share of the market.

State Farm Mutual Automobile Insurance, the biggest writer of P/C/ insurance with $52.38 billion in direct premiums written, had 10.9 percent of the U.S. market share in 2010.

Zurich Financial Services comes in second place, with $27.44 billion in direct premiums written and 5.7 percent of the market.

Allstate comes in third, with $25.86 billion and a 5.4 percent market share.

The top three are followed by AIG (5.3 percent market share), Liberty Mutual (5.3 percent), Travelers (4.5 percent), Berkshire Hathaway (3.4 percent), Nationwide Mutual (3.1 percent), Progressive (3.1 percent) and USAA Insurance (2.3 percent).

Together, these 10 biggest writers of P/C insurance have 49 percent of the U.S. market.

Health Insurance Gets Costlier Companies shell out big bucks to offer employees health benefits, and the cost continues to go up. The average cost of providing health benefits for each employee rose to $10,146 in 2011, up 6.1 percent from last year, according to benefits consulting firm Mercer.

It’s the first time that it has topped $10,000.

On a brighter note, the pace of cost increases slowed down in 2011.

Piracy Bedevils Marine Commerce Piracy is costing the world’s ship owners and charterers more than $9 billion a year, continued on page N18 www.insurancejournal.com

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2011 Market Fact Book Market Fact Book, continued from page N16

and it’s growing. Somali pirates, making use of “mother ships” have mounted attacks within 150 miles of South African and Pakistani waters and 250 miles of India. As of the end of September 625 crew members had been taken by the pirates.

But although Somali pirates are initiating more attacks — 199 as of the end of September — up from 126 for the first nine months of 2010 — they are actually hijacking fewer vessels. Only 24 ships have been successfully taken this year, compared with 35 for the same period in 2010. Hijackings were successful in just 12 percent of all attempts this year, down from 28 percent in 2011.

Cat Losses Explode in 2011 Catastrophe losses reached near record proportions in 2011 — $67 billion — and that was at the beginning of September. Floods in Australia, earthquakes in New Zealand and Japan, which was also hit by a giant tsunami, tornadoes in the United States and four months of floods in Thailand were the most costly.

Damaging Tornadoes According to the National Weather Service (NWS), there have been a total of 58 classified F5 and EF5 rated tornadoes in the United States recorded between 1950 and 2011. The

tornado that destroyed parts of Joplin, Mo., on May 22 of this year (number 57 on the NWS list) caused an estimated $1.9 billion in insured losses, according to the Missouri Department of Insurance.

Flood Insurance Less than a fifth of U.S. homeowners have a flood insurance policy that protects their property and personal belongings, even though four-out-of-five natural disasters in the United States involve flooding, according to the Insurance Information Institute.

Lloyd’s Still Covers Bizarre Risks Lloyd’s has insured a football player’s hair, the anatomical attributes of various celebrities, and even a Frenchman’s heroic crossing of the English Channel in a bathtub. Its latest venture in the strange risk category involves English adventuress and world record holder Sarah Outen. She has embarked on a two and a half year journey to kayak, cycle and row around the world, and she’s now covered by a £1.25 million [$2 million] insurance policy, which Lloyd’s said was “one of the most complex policies” it has written in years.

Declining Employment As of September 2011, there were 2,203,700 people working the insurance industry,

Top 20 Most Searched Markets from MyNewMarkets.com

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orkers’ compensation was one of the most popular markets to look for in 2011. Rates in this segment firmed overall throughout the year though some states still saw some slight decreases. While carriers are still bullish on the segment overall and looking to write business, monoline excess coverage capacity is tight.

Trucking was another hot topic in 2011. This is intriguing in that trucking is often a leading metric for economic activity and could portend brighter things for the economy in general. Of course on the flip side, temporary staffing was another highly searched item as the jobless rate continues to hover around 9 percent nationally. The most searched for markets in 2011 were: 1. Workers’ compensation 11. Used car dealers 2. Trucking 12. Nonprofit organizations 3. Tow trucks 13. Private investigators 4. Homeowners (HO-3) 14. Security guards 5. Truckers/trucking firms 15. Staffing firms 6. Commercial property 16. Cyber liability 7. Restaurants 17. Livery 8. Temporary staffing firms 18. Liquor liability 9. Apartments 19. Medical malpractice 10. Trucks - long haul 20. Waste haulers N18 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

according to the Insurance Information Institute. That number encompasses all sectors of the industry. The number was down slightly from that of the previous month; in August 2011 total employment in the insurance industry (all sectors) was 2,211,100.

Employment at agencies and brokerages (for all types of insurance) also fell between December 2007 and September 2011 — by 6.1 percent to 641,300.

Top OSHA Violation in 2011 OSHA released the most frequently cited standards in fiscal year 2011 (Oct. 1, 2010 through Sept. 30, 2011). The top violation was lack of fall protection at construction sites.

Vehicle Theft According to the National Insurance Crime Bureau (NICB) 2010 Hot Wheels report, Hondas topped the list for most stolen vehicles. The top five stolen vehicles included the 1994 Honda Accord, 1995 Honda Civic, 1991 Toyota Camry, 1999 full size Chevy pickup truck and 1997 Ford F150 pickup truck.

Green Building and Insurance Leadership in Energy & Environmental Design (LEED)-certified existing buildings are outpacing their newly built counterparts, according to the U.S. Green Building Council. As of December, square footage of LEED-certified existing buildings surpassed LEED-certified new construction by 15-million square feet on a cumulative basis.

Technology Risks Technology risks of all sorts are a growing concern for companies and individuals. According to the Federal Bureau of Investigations’ latest Internet crime report, the top 10 cybercrimes were: Non-delivery of payment or merchandise; FBI related scams; identity theft; computer crimes; miscellaneous fraud; advance fee fraud; spam; auction fraud; credit card fraud; overpayment fraud.

Slip and Fall Trends The National Floor Safety Institute reports the five major causes for claims involving slip and falls are walking surfaces, footwear, hazard warning, training and fraud. www.insurancejournal.com

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Together Again: 3-in-1 W

hat are the industry’s young agents thinking? What are typical salaries and benefits in agencies?

What issues do agencies have with their errors and omissions (E&O) coverage and carriers?

The answers to these and dozens of related questions can be found in the following pages as Insurance Journal brings together in one issue three of its most popular and exclusive annual surveys: • 2011 Agency Salary Survey • 2011 Young Agents Survey • 2011 Agency E&O Survey Special thanks to Columbus, Ohio-based actuarial services firm Demotech Inc., Insurance Journal’s official research partner for survey analysis and input.

N20 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

What Young Agents Earn Under $30,000 – 12.6% $31,000 to $50,000 – 30.7% $51,000 to $75,000 – 27.1% $76,000 to $100,000 – 10.9% $101,000 to $125,000 – 7.5% More than $125,000 – 11.2%

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By Andrea Ortega-Wells

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ryan Hanes grew up in the family business listening to stories about life in a small town. He heard his grandfather and then father sharing cheerful conversations with local towns folk about personal relationships, local business, current events, and of course insurance.

But Hanes didn’t choose the family independent insurance agency as a first career choice after finishing college. Instead he went on to law school and soon began practicing in the areas of insurance defense and workers’ compensation.

“But I didn’t really feel fulfilled in the doldrums of doing discovery, document reviews, drafting motions and doing hearings,” Hanes admits. So when his father offered an opportunity to join the family-run insurance agency, Hanes left his practice to become a third generation insurance agent.

Hanes spent his younger years in the Hagerstown, Md.-based Antietam Insurance Associates, a quintessential small town agency, according to the young agent.

“I grew up hearing stories from my grandfather about selling insurance when you had to go from door to door,” Hanes said. “When my father took over the agency, I remember playing in his office. I was struck by the cheerful exchanges that he had with the policyholders. They would strike up conversations about what was going on in town and what was happening in their lives at that time.”

Hanes says what drew him to leave his www.insurancejournal.com

career as a lawyer to join the family insurance agency had everything to do with that experience.

“There was something about the business and the relationships that I saw that gave me a warm feeling as a child and then clicked later in me as an adult and shaded my decision to enter the agency,” Hanes says.

Working for a family-owned agency is common in today’s independent agency system, say young agents in the 2011 Young Agents Survey. Of the 368 young agents responding to the Insurance Journal survey, some 64 percent work for a family-owned agency or brokerage.

Career Benefits Andy Beauchamp, vice president, director and owner of Wabash, Ind.-based Beauchamp and McSpadden, found out the benefits of becoming an agent through his family’s agency.

Beauchamp joined the family business after college as a fourth generation insurance producer in the agency. His great grandfather founded the agency in 1927. Today Beauchamp’s father serves as the agency’s chairman and his uncle is president. “Then we have numerous other family members that are employed as well at Beauchamp and McSpadden, including my brother who is in our Lexington, Ky. office, and my cousin, Parker, who is also a young agent in our Wabash office,” Beauchamp says. Today the agency has about 50 employees.

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40

Beauchamp, who is the chair of the Independent Insurance Agents & Brokers of America’s National Young Agent Committee, says growing up in a family-owned insurance agency showed him the benefits of having a career as an independent agent.

“Growing up, I spent a lot of time watching my father throughout the years as he came up through the agency ranks ... I saw that it afforded a good lifestyle. It gave him a considerable amount of flexibility,” Beauchamp says. “Being in sales, I also saw that, really, the sky is the limit, what you can do, when you’re a commission-based agent.”

That freedom, flexibility and opportunity are some of the key things young agents value most, according to the IJ survey.

Another aspect of the job young agents value are the relationships developed while working as a producer.

“There are few professions whereby a professional can directly and positively impact the lives of people as is the case, on some occasions, during their most devastating and trying times of their lives,” says Hanes, the third-generation Maryland agent. “What we do affects individuals and families in the course of their lives. People trust in us their futures to protect. I think that’s a grave responsibility. It’s a promise that we give people and that we have to enter into with respect every time, for every policyholder.”

Andy Webb, a young agent for Watkins Insurance Agency in Austin, Texas, and chairman of Independent Insurance Agents of Texas’ Young Agents Advisory Council, says “the coolest thing” about being an agent is that every day is a new day. “You get to visit with new people. You get to learn something about a business you didn’t know much about. Having an opportunity to connect to people, I think, is so cool. I’ve been in the business for nine years, almost to the day in fact, but every day is different. It has new challenges and opportunities … and I think continued on page N22

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N21

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The 2011 Survey Issue All in the Family, continued from page N21

that’s just really, really cool.”

Webb is not a family member, but he works for a family run agency and it was a personal relationship with an agency owner that brought him to the business. “It’s a relationship business and I got into (this career) because I had a relationship with a guy who owned an agency,” Webb says.

Webb held a variety of jobs in other fields before deciding to enter insurance. “I worked in the agricultural industry for a while. I worked in the construction industry for a while. And then worked in the airplane business, I did market research for an airplane sales company for a while.” While his previous jobs differed from insurance they all had common characteristics of dealing with people. “I didn’t realize that I was building a base of experience that would translate so

Young Agents’ Outlook on Their Career 4.4% 11.8%

Very Optimistic – 47.1% 47.1%

Optimistic – 36.6% Cautious - 11.8%

36.6%

Not Optimistic – 4.4%

Believes 2011 Income WILL Be Greater Than 2010

well into the insurance business.”

Most young agents agree relationships in the insurance business are critical. Some 92.4 percent reported in the Young Agents Survey that success in the agency business is mostly about building relationships.

Career Choice The reasons young professionals join the independent agency system may vary, but the vast majority, some 84.8 percent according to the Young Agents Survey, consider insurance a permanent career choice.

Slow Starts Thirty-year-old Michael McGroarty of McGroarty and Bradburn Insurance in Robinson, Pa., didn’t start out in the family business but always thought about it.

“I guess I was always thinking about going into the business, but when I graduated college, I wanted to do my own thing and see what I could do, and work in a couple of different industries,” McGroarty says. After college he worked for a few small businesses in varied industries but ended up at a large, national cell phone company.

Outlook on Attracting Quality Talent to the Industry 9.9%

9.7% 10.5%

Very Optimistic – 9.9%

Very Optimistic – 45.6% 16.9%

45.6%

Cautious - 16.9% 27.9%

37.6%

Optimistic – 27.9%

Not Optimistic – 10.5%

Not Optimistic – 9.7%

Outlook on the Future of the Independent Agency System

Outlook on U.S. Economy in 2011 7.2%

2.5% 18%

37.1%

Very Optimistic – 37.1%

9.9%

3.3%

Very Optimistic – 17.2%

31.1%

19.6%

Cautious - 46%

Cautious - 31.9% Not Optimistic – 3.6%

Very Optimistic – 3.3% Optimistic – 19.6%

Optimistic – 47.4% 47.4%

Not Optimistic – 9.9%

Outlook on Soft Market Ending in a Year

3.6%

31.9%

Optimistic – 29.6% Cautious - 53.3%

53.3%

Not Optimistic – 2.5%

Independent Agents Ability to Grow Market Share 17.2%

Very Optimistic – 7.2% 29.6%

Optimistic – 42.4% Cautious - 18%

42.4%

Optimistic – 37.6% Cautious - 42%

42%

46%

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Not Optimistic – 31.1%

“After working for a larger company for a couple of years, I was kind of getting the feeling that I didn’t like the large corporation,” McGroarty says. “I really wanted to go out and work for a smaller business rather than a large business, and the family-owned business was the perfect opportunity.”

McGroarty and Bradburn was founded in 1926 by McGroarty’s grandfather. His father joined in 1973, and he joined in 2007. Today the agency has 10 employees and represents about 25 different companies.

For young agent Denton Christner, partner at the Alameda, Calif.-based BayRisk Insurance Brokers Inc., insurance was a first career choice even though it wasn’t a family business.

Christner began his career in insurance as an Allstate agent years ago. But soon after becoming an Allstate agent, the mammoth carrier began consolidating agencies and cutting out newer agents. He found himself forced into the independent agency system.

“I really didn’t have a choice at the time, but, looking back, I have no regrets coming to the independent side,” Christner says. “As an independent, I can go to several markets, where, as an Allstate agent, I was limited to their market and had to lose a lot of business, because I couldn’t go anywhere else.”

Christner says he never had a doubt that insurance was for him.

“I loved insurance,” he says. “As an Allstate agent, I loved what I did, and I really didn’t know the independent side until I started talking to people and interviewing. The amount of knowledge, as far as product knowledge, and dealing with the public, was, I thought, far superior to what I was trained to do as an Allstate agent, and the support I was given, or the lack thereof.”

Most young agents responding to the IJ survey say their agency or brokerage firm provides “excellent” (45.3 percent) or “good” (34.6 percent) opportunities for educational improvement, but 20.1 percent rated those opportunities as just “fair” or “poor.”

Young Challenges Young independent agents value their career choice today but understand that being young presents a few challenges as well. www.insurancejournal.com

Profile of Young Agents

Web Box To listen to podcast interviews of the young agents featured in this article, visit: http://www.insurancejournal.tv/ channels/young-agents/ According to the Young Agents Survey, 76.8 percent reported that as a younger agent, they have to work harder to gain the confidence of clients.

“When I started, I was having difficulty trying to talk to business owners that were older than me and proving myself to them because they had more experience dealing with older agents,” Christner says. “Even though I have the product knowledge and experience, it’s harder to translate that and to earn the trust of somebody who could be a little more experienced.”

McGroarty, who works hand-in-hand with his father, sees his youth as an advantage when approaching new clients; however, he understands some business owners want to see an “experienced” agent.

“It is not that they do not trust you, but they like to see somebody with some experience, especially if they have been in their industry for a long time,” McGroarty says, adding that teaming up with his dad helps.

“I go to meetings with my dad, and he goes to meetings with me,” he says. “It shows both an older, experienced side, somebody that has been around a long time, and then the energy of the youth side and the future in this industry. … It helps him and it helps me at the same time, and it kind of overcomes that disadvantage that the younger agents have.”

Beauchamp says that even inside the agency, young agents sometimes experience challenges when it comes to their youthfulness. “I think there’s still kind of a divide between the older agency owners compared to new ones, or the new young agents that are coming into the business,” Beauchamp says. “If you have an individual who might be in her early 20s that’s coming into the business, they’re going to work differently from an individual that might be in their mid- to late 50s or early 60s.”

Older agency principals have to embrace how the younger generation works, Beauchamp says, something he sees happening in many agencies today.

If older principals accept how the younger www.insurancejournal.com

generation does business, ultimately “it’s going to be a winning situation for both parties,” he says.

Career Recommendations While many in the insurance industry keep business in the family, many more come from careers in other industries.

Amy Oswick, 37, a producer in the Los Angeles office of Lockton, joined the independent agency system after a successful career in financial services — a background she believes has given her an advantage in the insurance industry.

“I had seen Lockton in the market. They were talking to the same clients that I was working with and networked in the same groups that I was working with. … I really saw an avenue that I could work with some of the same people I was working with on the finance side and take a very holistic approach to solving some of their business problems.”

Watkins Insurance’s Webb also believes his experience in other fields has helped him as a young agent.

“Being a producer is probably not well suited for somebody just coming out of college,” he says. “I think that getting experience in another field was a tremendous asset to me. I think if I had come here straight out of college, I wouldn’t be successful as a producer. But getting some experience, even if it’s in a completely unrelated field … I think would be a tremendous asset.”

McGroarty says he would definitely recommend the independent agency system as a career choice to other young people but admits he would not have become an agent without his own family ties.

“I don’t think I would be in the property/ casualty agency business if my father was not in it,” McGroarty says. “I think part of the problem is, is that it is not really promoted out there.”

Hanes also believes the insurance industry is an outstanding profession for young people. “I think there’s ample opportunities out there,” he says. But to do well in the industry, newcomers need to understand success will take a lot of drive, motivation, hard work, and a certain amount of toughness, he adds.

“More importantly, today, I think it takes

Older Side of Young 56.3% are 31 to 40 years old; 43.8% are 30 and under.

Career Choice 84.8% consider insurance to be a permanent career choice; 13.6% are unsure.

Experience 28.5% have less than three years in insurance; 23.6% have three to five years; 28.8% have six to 10 years; 19.0% have 11 or more years.

Education 65.2% have a college degree; 62.4% have completed or are working on an insurance designation.

Family Affairs 63.5% work in family-owned agencies.

Employment Status 12% presently are sole owner of an agency; 13% share ownership with a partner(s) Ownership Dreams 79.8% do not presently own an agency; of these, 59.7% would like to own someday but just 40.3% report feeling very confident ownership dreams will come true Working class 61.5% work between 41 and 55 hours a week.

Gender ID Male 65.4%; Female 34.6% Recruitment Target 53.5% have been offered a job by another agency. a component of being very versatile, to view old ways of doing things and try to do them a little bit different or innovate from the norm,” Hanes says. “The way I see that my father, Maurice Hanes, grew the business is very different from the way my grandfather, Leonard Summers, grew it before him.

Leonard went door-to-door, and my father forged relationships within the community, and now I see that the way that I have to grow the business is also very different in many aspects as well.”

Hanes says becoming an insurance agent is perfect for entrepreneurial-minded young people.

“But I think that you have to realize you’re going to be thrown into an environment that is as competitive as the most competitive industries,” Hanes says. “Thus, creativity becomes the paramount staple. But I think it is perfect for any young person ready for the challenge and wanting to do the work that it takes to see positive results.”

Insurance Journal editors Stephanie Jones, Kenneth St. Onge, Andrew Simpson and Patricia-Anne Tom also contributed to this article.

November 21, 2011 INSURANCE JOURNAL-NATIONAL REGION | N23

By Andrea Ortega-Wells

lot of agencies, a lot more than we expected, that just froze compensation until things get better.”

Producer commissions are not faring so well in most agencies either. According to IJ’s Salary Survey, the majority of agencies reported producer commissions in 2010 decreased (29 percent) or stayed the same in 2010 as in 2009 (44 percent). But even in today’s challenging times a good 28 percent of agencies reported producer commissions increased.

The IJ Agency Salary Survey generated some 833 responses from independent insurance agencies nationwide, providing insight into who’s worth what in the independent agency system. Demotech Inc., IJ’s official research partner, provided analysis and input on this year’s survey results.

The Right Price Chris Burand, owner of the agency management consulting firm Burand and Associates LLC based in Pueblo, Colo., says the turbulent times are leading many great producers and other agency staff to jump line is crucial. Great producers and even ship, one reason why agency owners must great customer service representatives could implement fair compensation plans. be more valuable to agencies than ever “There’s a sense of desperation out there,” before, experts say. But what are great prohe says. “There’s more producer movement ducers worth? What about great CSRs? And from one agency to another agency today just how should agency owners determine than I’ve ever experienced. … There are adequate compensation plans? some agencies that are working harder than With average agency ever before to get producsalaries remaining ers to move over to their ‘It’s important for relatively flat for the past shops. You have some good agencies to pay four years, according to producers that see the writemployees for their ing on the wall that there’s Insurance Journal’s annual Agency Salary Survey, no future in the agency performance.’ setting fair compensation that they’re at because they for great producers and CSRs is all the more have shareholder strife or loss in markets, important, experts say. or whatever the reasons may be, so they’re Diamond says his firm’s own research looking to jump.” The very best agency also shows salaries stuck given the times. employees seem to be more willing to move “There’s a lot of frozen compensation,” he than ever before, he says. says. “Both in the responses we’ve been Now’s the time for agency owners to getting to our make sure their compensation plans are up benchmarking to par, Burand says, as the right kind of comsurveys, and pensation plan could be the key to attract 2008 2007 in the contacts and then retain great employees.

2.2% 2.9% that we’ve Yet, despite the importance, most agen2.3% 2.7% made, we’ve cies have never evaluated how they pay 2.7% 3.2% seen an awful agency employees, says Burand.

Agency Salary Survey Reveals Frozen Salaries; Experts Say Time Is Right to Evaluate Compensation

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ny business owner knows that a great employee is worth a lot. That holds true for independent insurance agencies when it comes to great producers and the employees that support them.

Agencies need good producers, says Al Diamond, president of the Cherry Hill, N.J.based Agency Consulting Group. But great producers – those who fervently seek to grow their book of business year after year – are worth much more, he says.

“Those people who are always looking to grow their books of business, handing off lower level clients to customer service people or account executives within the agency … are worth their weight in gold because they are always growing the agency’s revenue base,” Diamond says.

In today’s economic times and soft market conditions, adding to the agency’s bottom

Average Salary Adjustment Management Sales Staff Support Staff

2010 -0.6% -0.2% 0.6%

2009 -1.2% -0.8% -0.1%

N24 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

Agency Size in 2010 56%

22%

“The vast majority have never really evaluated their compensation plans,” Burand says.

According to the IJ Agency Salary Survey, most agencies (79 percent) did not change commission structure in 2010 but 12 percent reported a plan to change their agency’s commission structure in 2011.

Burand says the agencies that do evaluate compensation plans should do so every three years or so. “Three years is a pretty good number,” he says.

In reality, many agencies don’t begin to examine agency compensation plans until they start feeling a pinch in their pocketbook, Diamond says. But he agrees agencies should be evaluating compensation about every two to three years to make sure that the plan treats both the employees and the agency fairly.

“If it (compensation plan) works toward the benefit of one or the other, it isn’t working well,” Diamond says.

Megan Bosma, vice president of financial consulting at Marsh Berry, says market changes require that agencies evaluate compensation plans every couple of years, at the least.

“With shifts in the market I think the

focus of the agency changes,” Bosma says.

“An agency goes through periods of growth where they may be hiring a lot of individuals. Or they may go through slower periods of time where there may be a reduction in staff,” she says. “I think they have to take a look at it (compensation) at least every couple of years to make sure that they’re adequately staffed and that the compensation of the staff is appropriately based on the market rates.”

The Good and the Great Creating a compensation plan that is both fair to employees and the agency is critical in today’s competitive market, the experts say. But to do that agency managers must distinguish between the good and the great.

“We call a lot of folks producers,” Diamond says. But if someone isn’t generating growth in the book of business every year, while they may still be very valuable to an agency, they are not really a producer, and therefore should be compensated differently than a producer, he says.

“They’re managing the book of business and hopefully they’re doing a great job in keeping that book of business with the

22%

Decreased Increased Stayed the Same

Anticipated Size in 2011 8% Plan to Stay the Same Plan to Decrease Plan to Increase

62% 30%

Salary Increases in 2010 Same in 2010 as 2009 Higher than 2009 Lower than 2009

55%

24% 21%

agency. But they’re not really a producer. A producer goes out and adds growth to their book of business every year,” Diamond says.

Burand says agencies often over pay producers that may not be growing their book of business as well, which hurts the bottom line. He says some agencies pay lesser producers – from a perspective of how big their books of business are – considerably more continued on page N26

Average Salaries by Agency Premium Volume (Management) P/C Premium Volume

President/ CEO

Office Manager

Sales Manager

Accounting Manager

Personal Lines Mgr.

Commercial Lines Mgr.

Marketing Manager

Avg. Comm. and Fee Income

Under $1 million $1 million - $5 million $5 million- $10 million $10 million - $25 million $25 million - $50 million $50 million - $100 million $100 million or more

$63,150 $104,257 $186,724 $272,142 $318,145 $530,681 $803,125

$38,157 $46,240 $57,531 $75,561 $95,425 $109,062 $127,125

$51,000 $61,071 $66,029 $107,180 $140,083 $160,000 $224,821

$37,500 $41,607 $48,300 $63,947 $74,241 $91,346 $115,288

$30,000 $38,554 $46,440 $60,427 $63,255 $69,797 $87,236

$25,000 $47,424 $54,429 $78,412 $88,152 $105,312 $123,645

$32,500 $46,184 $53,645 $73,571 $73,402 $94,659 $139,736

$354,545 $455,384 $1,561,090 $3,183,278 $5,393,269 $9,006,696 $26,778,409

Average Salaries by Agency Premium Volume (Support Staff)

P/C Premium Volume

Personal Lines CSR Salary - High

Personal Lines CSR Salary - Low

Personal Lines Years of Experience

Commercial Lines CSR High

Commercial Lines CSR Low

Commercial Lines Years of Experience

Under $1 million $1 million - $5 million $5 million - $10 million $10 million - $25 million $25 million - $50 million $50 million - $100 million $100 million or more

$38,455 $37,175 $42,033 $51,583 $50,567 $49,111 $58,475

$22,467 $27,481 $29,673 $34,516 $34,204 $32,895 $34,809

5.6 8.5 10.2 9.4 10.6 9.3 9.1

$26,802 $47,573 $48,245 $70,305 $65,165 $69,263 $89,694

$18,432 $29,058 $33,362 $41,119 $39,230 $38,588 $41,250

7.2 10.0 11.4 11.4 11.4 11.1 10.8

www.insurancejournal.com

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N25

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The 2011 Survey Issue Who’s Worth What, continued from page N25

Strategies Agencies Implemented in 2010

than producers with larger books of busismarter agency managness. ers will create producer Cut Benefits 14% “So a producer with a smaller book, on compensation plans Shift Health Plan Costs to Employees 24% average, they’ll be paid, oftentimes, as much that attach bonuses Increased Benefits 3% as 40 to 45 percent, whereas the very best for achieving goals and Reduced Employees 15% producers in the industry are often paid penalties for failing to Postponed Hiring 45% between 20 to 25 percent,” he says. achieve minimum proPostponed Raises 51% Burand considers this compensation misduction requirements, he Increased Hiring 9% take a product of poor agency management. says.

Increased Compensation 12% Agency owners don’t accept the reality According to IJ’s that not every sale is profitable, he says.

Agency Salary Survey, “There are fixed costs attached to a producthe vast majority of Strategies Agencies Will Implement in 2011 er’s book of business, regardless of size. And agencies (68 percent) therefore, the larger the book, all else being did not offer a bonus Cut Benefits 10% equal, the more profitable it is. Some agency program for non-owner Increased Benefits 4% owners seem to believe that a producer’s producers who exceeded Reduced Employees 9% book has the same profit margin, regardless annual sales goals. The Postponed Hiring 38% of how much business that producer writes. survey did not ask about Postponed Raises 40% And you see that much more where the propenalties however.

Increased Hiring 25% ducers are not producing very much busi“The lack of conseness. Those agency owners have the hardest quences for not achievIncreased Compensation 22% time understanding the concept of fixed ing goals is one of the costs to a producer’s book.” biggest causes of failure in so many agenand lower renewal rates. “I don’t think that Burand often asks agency owners how cies,” Burand says. “The vast majority of the rates should be the same,” she says. “We many CSRs the agency employs relative to agencies’ producers have no consequences still run across agencies that have the same how many producers. “The for failing to achieve goals; new and renewal rates; there should be disratio is almost always at none whatsoever. You can parity between the new and renewal rate.”

‘Old-fashioned least one-to-one, regardless argue that, well, they’ll Like Burand, Bosma also believes agencies of the size of books that compensation plans make less money because should set producer goals that must be met the producer has. So, if the their book will decline, regarding minimum production requirehave no future in producer has $500,000, and but that’s not really a true ments. If those goals are not met, then the this industry.’ you have the same number consequence. There’s no employee should lose their status as a proof staff as the producer that penalty involved.” ducer, she says. has $250,000, you can see where the fixed Burand says that while some agencies Bosma also added that expenses such as cost or profit margin in that smaller book’s cringe at the word “penalty,” the smartest automobile allowances, marketing, advertisgoing to be substantially less.” agencies enforce them. “And there’s a good ing and promotion, travel and entertainment When evaluating producer compensareason for it; because some people are only expenses should also be considered when tion, agency owners also should base pay motivated by the threat of a penalty.” determining producer compensation. “If and commission rates on performance, adds Bosma believes producer compensation those perks aren’t paid for by the agency on Marsh Berry’s Bosma. should have higher new commission rates behalf of the producer, I believe that that “It’s important for agencies to pay employees for their performance. And I think it’s Average CSR Salaries by Region important to identify what the agency deems acceptable performance … and be Personal Personal Commercial Commercial able to measure performance and then Lines Lines Lines Lines reward employees who actually perform,” Region CSR High CSR Low CSR High CSR Low Bosma says Burand agrees, but adds producer perforEast $48,126 $32,993 $55,944 $36,752 mance should be attached to both rewards Midwest $36,397 $24,712 $50,930 $27,042 and consequences.

South Central $41,885 $28,856 $52,657 $35,128 Ideally, a producer’s compensation packSoutheast $40,145 $29,335 $48,133 $33,638 age creates positive incentive, but also has West $44,110 $30,343 $55,505 $34,222 consequences built into it, Burand says. The N26 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

justifies a higher commission rate,” she says.

Some 44 percent of respondents to IJ’s Agency Salary Survey said their agency does not offer additional incentives to non-owner producers. Popular incentives in the survey included: cash bonuses (34 percent); educational courses (31 percent); trips (14 percent) and company cars (10 percent).

Of those survey respondents that did receive producer bonuses for exceeding sales goals, 43 percent used discretionary factors to determine the bonus, 40 used net book growth, and 37 percent used personal production as a way to determine the bonus.

Bosma says performance based compensation plans — penalties or not —should be implemented on all levels of the organization, from production through support staff.

Average Agency Size Comparision by Region 2009 2010 2011

East 20.6 44.6 33.3

Midwest 16.7 39.7 42.2

Southeast 21.0 24.9 35.1

West 18.7 35.3 25.7

result service staff try Size of Agencies Responding to Survey much harder to keep P/C Premium Volume 2011 2010 2009 2008 customers. “They also Under 10 million 58.3% 60.4% 61.3% 61.9% welcome the producOver $10 million 41.7% 39.6% 38.8% 38.1% ers generating new business. … That’s a money, even though you give them all the very healthy trend.” assurances in the world that they’re going Burand agrees that employee compensato be protected, they’ll be so uncomfortable tion should be tied to production in a perthat they’ll leave.” fect agency world; however, he says realistiAgencies must examine and understand cally that’s impractical. that if a person is in the CSR role, one of the “The traditional CSR cannot handle the reasons may be that they like a lot of securiidea of their compensation being tied strictly ty, he says. “And if you tie it to commissions, to commissions. In many cases, they can’t they may see insecurity.” handle the idea whatsoever of even being Although Burand added that the more paid for making their own sales. They don’t sophisticated agencies might seek and hire have the producer mentality. And if you individuals more willing to relate some part institute a compensation plan that relates of their compensation to commissions. to it … even though they may make more continued on page N28

CSR Compensation Diamond’s Agency Consulting Group has been an advocate for more than 10 years for agencies to implement incentive based compensation for every person in the agency; not just producers. While many larger agencies have adopted some incentivebased compensation for CSRs and Average Agency Salaries by Region other support staff, Diamond says East smaller agencies are now moving Average Agency Income $4,199,586 in that direction as well.

President/CEO - Salary $257,699 Office Manager - Salary $77,995 “In the last two or three years, Sales Manager - Salary $120,816 it (incentive compensation) has Accounting Manager - Salary $77,414 Personal Lines Manager - Salary $62,028 taken off like crazy for the mainCommercial Lines Manager - Salary $85,331 stream agencies,” Diamond says.

Marketing Manager - Salary $92,717 Average Years Experience - Personal Lines 10.2 Many agencies have not grown Average Years Experience - Commercial Lines 11.6 much in the past five to 10 years Average Agency Raise - Management -0.8% Average Agency Raise - Sales -0.3% due to market conditions and yet Average Agency Raise - Support 0.5% still face pressure from employees Average Agency Size - Employees 33.3 about compensation. Diamond % CL Book Affected by Economic Recovery 47.4% says this pressure has caused some agencies to modify traditional What Benefits Agencies Offer longevity or merit based compen2011 sation programs to incentive based compensation for employees, Group health insurance 79.9% Dental 50.1% including CSRs and in some cases Group life/disability 56.1% even administrative workers too.

401(k) 53.9% Profit Sharing 20.1% “We may have been forced into IRAs 8.4% incentive compensation but that Pension Plan 5.0% ESOP 4.3% incentive compensation is causing Stock Options 2.6% a lot more growth in the agencies FSA 12.3% Education reimbursement 48.2% because now service employees None provided 10.9% feel the pinch when they lose Other (please specify) 6.0% customers,” Diamond says. As a www.insurancejournal.com

South Central 21.6 26.1 26.0

Midwest $3,636,594 $175,446 $56,121 $79,583 $60,278 $45,052 $57,313 $61,354 9.5 10.7 0.8% 1.0% 0.9% 42.2 48.5%

South Central $3,083,565 $212,064 $61,231 $103,269 $61,218 $46,369 $67,989 $69,286 9.0 11.8 0.2% 1.1% 1.2% 26.0 50.0%

Southeast $3,063,025 $271,005 $62,857 $116,466 $64,345 $54,184 $68,415 $67,500 8.7 9.8 -0.1% -1.4% 0.4% 35.1 47.8%

West $3,249,324 $216,913 $72,668 $117,636 $65,338 $51,354 $77,674 $76,538 8.0 9.8 -1.5% -0.9% -0.1% 25.7 45.4%

2010

2009

2008

79.1% 48.0% 54.6% 52.4% 19.2% 9.9% 7.4% 4.3% 3.1% 11.1% 48.5% 11.3% 6.8%

79.7% 47.9% 56.0% 52.6% 18.9% 9.1% 8.0% 2.9% 3.5% 11.4% 47.3% 11.1% 5.4%

80.0% 48.7% 55.4% 53.2% 21.7% 9.6% 9.3% 3.4% 3.7% 11.5% 46.8% 11.6% 5.5%

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N27

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The 2011 Survey Issue Who’s Worth What, continued from page N27

According to IJ’s Agency Salary Survey, 41 percent of agencies do not offer CSRs incentive compensation for personal lines, while 47 percent do not offer CSRs incentives for commercial lines. Of those that do offer CSR incentives, 31 percent base it on new business in personal lines and 26 percent base it

on new business for commercial lines.

Marsh Berry’s Bosma added that if the CSR is performing functions more in line with an account executive role then they should be paid a commission rate in addition to salary.

“If they’re actually going out and visiting

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N28 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

clients and presenting the renewal to the client and taking on some of the traditional production related duties, I think that an account executive could earn a commission.”

Or if the agency isn’t structured where they have the account executive model, Bosma says the service person should be paid for their level of experience and performance with a bonus program relating to the goals of the agency. “If the agency is really looking for the service staff to retain the business, there should be a retention component of the bonus plan as well as participation in unit goals or overall agency goals,” she says.

Overall, agencies should pay producers on a commission schedule but act quickly to modify compensation plans when producers are performing, or not performing, Bosma concludes.

“You have to be able to hold those individuals accountable so that if their book does decline their compensation should decline as well,” she says.

When it comes to compensating service staff, Bosma says agency owners must evaluate what works for their agency. “So if you’re more of a sales organization, maybe you want every individual in the organization to try and generate new sales, and performance can be related to sales,” she says. But “if you’re more of a service organization, you may be looking more at retention and paying service staff based on retention numbers either for their line of business or in total.”

It’s important to remember that support staff can contribute to overall agency performance, Bosma says. “They don’t get involved so much in the sales and the retention side of it but in terms of watching expenses and managing the profitability of the agency, I think that’s where their performance metric could be utilized.”

Burand says agencies need to look at how to modernize their firm’s compensation plans, especially in today’s challenging market. “Everyone that’s never really done it (evaluated compensation) in detail should do it right away because the old-fashioned compensation plans have no future in this industry. They’re just flat out too expensive.” www.insurancejournal.com

No. 1 Reason Agencies Carry E&O Coverage

0.2% 13.3%

Protect the assets of the agency Required by my carriers Access to risk management information on Retire from the business

Number of Agency E&O rs Carriers in Past Five Years One carrier Two carriers Three carriers More than three carriers

86.5%

5.5%

0.8%

38.1%

55.6%

Why Change in E&O Carriers iers

By Andrea Ortega-Wells

A

gency owners have a lot to protect. Of course, first and foremost they must protect their clients.

But they must also protect their book of business. They must protect their relationships. They must protect their reputation in the community they serve.

One way agency owners protect themselves and their business is by purchasing agency errors and omissions (E&O) coverage.

Most independent insurance agencies and brokerages purchase E&O coverage today, but why do they buy it? What are they actually protecting with E&O coverage?

The vast majority of agency owners (86.5 percent) say they buy agency E&O coverage to protect the assets of their agency, according to Insurance Journal’s 2011 Agency E&O Survey.

Protecting an agency’s assets — financial and possibly even reputational assets — is why most agency owners choose to buy E&O, the experts agree. But these same experts warn that their E&O policy may not www.insurancejournal.com

cover everything agents think it covers.

“If an agent makes a mistake in anything that they do on behalf of a client, and the insurance company ends up not covering it, they’re responsible for it,” says Al Diamond, president of Agency Consulting Group in Cherry Hill, N.J. “They’re basically acting as the primary insurer for their clients if the insurance companies don’t cover the losses that occur within their agency.”

Diamond says even frivolous lawsuits can be costly for agency owners. “And there are an awful lot of them these days that need to be defended and E&O will cover that.”

Most agencies buy E&O coverage to avoid paying out those large losses from their own pocket, says Chris Burand, founder and owner of Burand & Associates LLC, based in Pueblo, Colo.

“In most cases, agencies don’t have enough cash on hand to pay those losses,” he said.

“They would have to sell their book of business, or some portion of their book of busi-

5.4% Lower price Nonrenewed due to claims 7.2% Nonrenewed due to change in 7.6% underwriting criteria Carrier withdrew from agency E&O market et Needed broader coverage 2.1% Other reasons 1.8%

Agency E&O Premium Change in 2010 Compared to 2009

38.1%

Increased Decreased Stayed same

Agency E&O Premium Change in the Past Three Years Increased Decreased Stayed the same

31.9%

42.1%

19.7%

28.3% 53.3% 18.4%

Prediction on E&O Premium mium m Change at Next Renewall Increase Decrease Remain the same

53%

40.4%

6.7%

continued on page N30 December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N29

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The 2011 Survey Issue Agency PRO-tection, continued from page N29

ness, or even their entire agency, in order to pay the claim if they didn’t have E&O insurance,” Burand said.

Diamond says the asset agency owners want to protect the most is the agency’s book of business.

“The revenue stream created by the book of business is their greatest asset,” he says.

Diamond agrees that most agencies are cash poor businesses, with little in the way of funds to pay out claims on hand. “The bulk of the value of an agency is in this book of the business. … 90 percent to 95 percent of the value of an agency is in its book of business.”

But while good E&O coverage may be important to protect an agency’s financial assets, the coverage does nothing to protect an agency’s reputation, according to Burand.

“E&O insurance does not protect their reputation and that’s a big deal,” Burand said.

Curtis Pearsall, president of Pearsall Associates Inc. who is also a special consultant to the Utica National Agents E&O program, has seen E&O claims appearing in local press that can be very damaging to an agency’s reputation.

For example, if the agency erred when insuring a local school, local press would be more apt to pick up a news story where the agency might be exposed further.

“The agency insured a school, and all of a sudden, the claim isn’t covered. Now, all of a sudden, that appears in the local paper that the school suffered a loss that wasn’t covered by insurance written through such and such an agency,” Pearsall said. “It certainly will hurt the reputation of that agency.”

Reputational damage resulting from E&O claims may have some unexpected consequences.

“It could potentially impact the ability of the agency to make necessary changes, not only hiring people, but hiring the right people,” Pearsall says. “When a claim is made against an agency, if they don’t have any E&O, they’re really potentially sacrificing everything they have worked to build.

Why would they do that?” Transfer the risk to insurance via an E&O policy and agency

Annual Cost of Agency E&O Coverage $1,000 or less

3.1%

$1,001 to $2,500

15.8%

$2,501 to $5,000

22.9%

$5,001 to $10,000

18.5%

$10,001 to $15,000

12.2%

$15,001 to $25,000

7.8%

$25,001 to $50,000

9.5%

More than $50,000

10.1%

0%

5%

10%

15%

20%

25%

30%

Percent Change for E&O Premium in Past Three Years Increased Decreased

1-5% 29.6% 15.6%

6-10% 20.2% 11.7%

owners can sleep better at night, he says.

One defensive tactic to guard against reputational damage could be an E&O audit, says Burand.

“That’s really where E&O audits come into play,” Burand says. “That’s one of the key reasons agencies should pay for E&O audits; because an audit does more to pro-

11-15% 10.8% 13.0%

16-20% 6.3% 8.4%

tect their reputation by helping them with risk management than an E&O policy does. … It’s their only protection for reputational damage.”

Altruistic E&O Buyer A small portion of the Agency E&O Survey respondents, 13.3 percent, reported

Risk Management Steps Implemented in Past Three Yearss Attended an E&O class Agency staff has achieved additional designations More actively utilized an exposure analysis checklist Hired a third-party to perform an agency audit Enhanced agency focus on internal quality control Developed/updated agency procedural manual

N30 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

More than 20% 5.6% 11.6%

47% 79.1% 62.6% 36.8% 37.2% 6.8%

www.insurancejournal.com

that they buy E&O mainly because their carrier partners require it.

This is not the best reason agencies should buy coverage, says Tony Messec, president of Western E&O Brokers in Albuquerque, N.M., an independent insurance agency that specializes in insurance agents’ and brokers’ E&O coverage.

Messec agrees that agency E&O coverage is important when it comes to protecting agency assets, but he says asset protection should only be 50 percent of the reason for buying E&O coverage.

“They should not be buying it because their carriers require them by contract to buy it,” Messec says. Agents should buy E&O because it protects their agencies and their clients, he says. Buying E&O to protect clients should be the other 50 percent, Messec adds.

Messec believes there should be an altruistic motivation to buying E&O coverage as well.

“If the agency really and truly has erred and one of their clients is damaged, doesn’t that agent want to have some means of making the client whole to the point that the agency should have made them whole if only they had done their job properly?

That’s what E&O coverage does,” Messec says.

“It repairs that damage to the client as if the agency had done the job correctly to start with, which to me is an equally valid reason for buying E&O coverage,” he says. “So you could buy for selfish reasons, you could buy for altruistic reasons, or you could buy for both. I prefer the both.”

Newer Exposures If protecting the agency and its clients are not reason enough to purchase E&O, the rising number of E&O exposures should serve as motivation to invest in appropriate coverage and limits, experts say.

One area for new E&O exposures is social media, according to Pearsall.

“As agencies get involved with social media, they should make sure that they have a plan in place for how they’re going to use it, and what do they hope to accomplish,” Pearsall says. “Make sure not only www.insurancejournal.com

the agency is handling their social media presence professionally, but make sure that the staff is not going out there saying negative comments about the competition or about certain customers, things of that nature. It certainly has the potential to get them into an E&O problem.”

“Agents don’t realize what exposure they have right through their Web site and through the social media they use,” Diamond says. “They have to be extremely careful. Once you hit that ‘enter’ button, or once you post something on the Web site, if it offends anyone, you can get sued for it. … Whether you’re joking or not, if you’re critical about them, you face certain lawsuits, and that risks your assets tremendously.”

But Burand says it’s not the technology that’s increasing the E&O exposure; it’s the E&O carrier’s reaction to the technology that’s increasing the exposure as more carriers require encryption as part of E&O policies.

“Agents haven’t read those memos.

Agents have not read those clauses,” Burand says. “Those are just phenomenally increasing exposure to agents and most agents have not adopted adequately for it.”

Messec doesn’t see technology as an E&O threat as much as he sees coverage changes as a threat to agents today.

“I’m not quite as concerned with the new method of delivery,” Messec says.

“Generally speaking it makes no difference to an insurance agent’s E&O policy whether the policy was sold online or face-to-face in the retail agency’s office.”

Not that there aren’t some new exposures in the technology space, Messec adds. “But those don’t concern me nearly as much as the way in which coverage is changing and expanding,” he says.

“The world of insurance is creating new products, improved products, at a much more rapid rate than it did decades ago and agents have to stay up on all these things to know what their clients need, what’s available for them. And that I believe has increased the exposure to E&O, quite significantly,” Messec says.

It’s not only the newer coverages but

Satisfied with Agency E&O Terms, Conditions and Limits

28.9% 63%

Yes No Somewhat satisfied

8%

Changed Agency E&O Limit in Past Three Yearss

23.3%

Yes No

74.9%

New E&O Risk Management ment Steps in the Past Year 28.3%

Yes No

71.7%

Concerned that Reduced d Staff Could Lead to More Errors ors 25% Concerned Not concerned

75%

% of Agencies to Update te Client Exposures Each Year 15.9% Yes No

84.1%

% of Agencies to Enhance nce Customer Education in Past Three Years Yes No

15.9%

84.1%

continued on page N32 December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N31

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The 2011 Survey Issue Agency PRO-tection, continued from page N31

Aware of Insolvency most agencies fail to manage E&O exposures. “If you look at just the Provision in E&O 27.6% vast number of BOPs that exist in Policies 72.4% any agency, then just by sheer numYes bers, the fact that they’re moving, No that they have that many, there’s a good chance of an uncovered expoInsolvency Provision sure.”

Impacts Carrier According to Pearsall, there is 42.2% Placement one particular area of coverage that 57.8% Yes could come back to bite agents: No dogs.

In 2010, the insurance industry The 2011 Annual Agency E&O Survey addressed inquiries related to the paid out more than $410 million in insolvency provision in agency E&O policies. Insurance Journal’s Official dog bite claims, according to the Research Partner, Demotech Inc., has developed several solutions to this challenge. Contact Joe Petrelli at 800-354-7207 or jpetrelli@demotech.com Insurance Information Institute.

“The insurance industry is not going to discuss a solution to address concerns related to the insolvency provision. to continue to pay those dollars. exposure facing agents today might just be They are going to try to find a way renewals. “Don’t let any insurance renewals to solve the problem, and I believe Comparison of Average E&O Premium be renewed as is without having someone it’s going to be through tighter in Largest States competent review them,” Diamond advises. underwriting guidelines. They’re “A small insurance policy, one that doesn’t going to identify breeds that they’re 2010 2009 California $19,872 $20,265 pay much premium, can still be sued for not going to be willing to cover.”

Florida $17,612 $22,821 In today’s world of mixed breeding millions of dollars.”

Illinois $9,284 $23,735 The good news: 84.1 percent of IJ’s Agency in dogs, many insureds don’t even New York $16,868 $15,765 E&O Survey respondents reported that their know the combination of breeds in Texas $16,645 $21,271 agency looks to update the exposures of a household pet.

All Other $16,638 $18,679 Grand Total $16,803 $19,622 “Maybe German Shepherd is one of clients at each renewal. The same number of respondents said they have also enhanced the excluding classes. If the people the agency’s effort to educate customers on don’t know that there’s German Comparison of Changes in E&O Premium insurance issues in the past three years.

Shepherd in the dog, there could in Largest States be a claim problem down the road State Decreased Increased Same if something does happen,” Pearsall Market Conditions California 20.0% 32.0% 48.0% Even with the rising number of exposures warns.

Florida 22.9% 39.6% 37.5% facing agency E&O today, the market for If the agent makes a statement Illinois 24.1% 31.0% 44.8% coverage continues to improve and enhance that implies to the customer that New York 20.6% 50.0% 29.4% coverages to better protect agency assets, there will not be a claim problem Texas 19.3% 56.1% 24.6% All Other States 18.7% 42.6% 38.7% the experts say. because the dog is a mutt, but then Average Total 26.4% 32.6% 41.0% “Over the 25 plus years that I’ve been the dog bites someone coming on doing E&O, coverage has improved in the premises and the both pricing and availability,” Messec says. carrier then denies the Comparison of E&O Claims Made Against “Today’s agency has a much better chance of claim because of the Agencies in Largest States having solid gold coverage at an affordable breed of the dog, then, State Never <5 years 6 to 10 >10 price than an agency did 25 years ago.” all of a sudden, the Messec says only agencies with underagency is now going to California 42.1% 40.8% 10.5% 6.6% be faced with a problem writing issues see undesirable terms, condiFlorida 47.9% 22.9% 12.5% 16.7% tions and higher prices for coverage. But for for telling the customer Illinois 51.9% 14.8% 11.1% 22.2% that there was coverage, the most part, it’s a soft market, he adds.

New York 48.5% 30.3% 12.1% 9.1% Texas 43.6% 32.7% 12.7% 10.9% “It’s always a competitive market,” Messec Pearsall said.

All Other States 45.4% 23.8% 17.7% 13.1% says. “It doesn’t make a difference whether But Diamond Average Total 45.5% 27.1% 15.0% 12.5% or not it’s a soft market or hard market.” says the greatest E&O

also the new exclusions that are creating additional E&O challenges for agencies.

“It’s not just enhancements; it’s changes,” Messec says. “There is just an immense amount that must be known and it is impossible to be an expert in all of them; and it’s very difficult to be competent in all of them.”

Burand cites a traditional business owner policy (BOP) as an example where coverage changes and differences could potentially be an E&O issue.

“There’s a lot of difference in BOPs,” Burand says. “Sometimes they’re real small and sometimes they’re significant. It depends on the client. It depends on the carrier. But there are a lot of differences.”

Burand says it’s an area where he sees that

N32 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

The majority of respondents (63.0 percent) to IJ’s Agency E&O Survey reported satisfaction with terms, conditions and limits in their E&O coverage. However, some 74.9 percent reported that their agency had not increased the agency’s E&O limit in the past three years.

Pearsall says higher E&O coverage limits should be considered because it could mean the difference between surviving an E&O claim, or not.

“I’m aware of an E&O claim where the agency had E&O, but they didn’t have a high enough limit. They were sued for $3 million, and they only had $1 million of E&O,” Pearsall said. “Now, the claim got settled well within the $1 million, but had it been settled for $3 million that agency probably would have had to sell their operation to pay off the amount of the claim.”

Even though many E&O claims are closed out without payment, one claim could make or break an agency, Diamond says. Having the right E&O limit is critical.

“It’s like life insurance. You may have only one claim, but it’s a doozey,” Diamond says. “You don’t want to go into it without being protected.”

Most agencies (64.5 percent) had between 1-10 full time employees; 26.1 percent had between 11-50 employees; 4.9 percent had between 51-100 employees, while 4.4 percent had more than 100 employees.

The majority of agencies (51.6 percent) responding to the survey reported being in business for more than 30 years.

The average premium volume for all responding agencies was $24 million.

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About the Survey Insurance Journal’s Agency E&O Survey for 2011, conducted Oct. 5 through Oct. 24, 2011, drew 590 respondents from 49 states. IJ’s official research partner, Columbus, Ohiobased Demotech Inc., provided analysis for the Agency E&O Survey.

There were no respondents from the District of Columbia and Hawaii. The five states with the highest number of respondents were California (14.9 percent), Texas (11.2 percent), Florida (8.6 percent), New York (6.8 percent) and Illinois (5.6 percent).

Total property/casualty premium volume in 2010 was less than $5 million for 49.9 percent of responding agencies; 17.7 percent said their agency’s P/C premium was between $5 million and $10 million; and 14.3 percent had P/C premium between $11 million and $25 million. Some 14.8 percent said P/C premium was between $26 million and $200 million while 2.9 percent reported P/C premium as more than $200 million. www.insurancejournal.com

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N33

NATIONAL COVERAGE

Business Moves Confie Seguros, Auto Insurance Discounters Confie Seguros, a national provider of insurance with an emphasis on serving Hispanic consumers, has expanded its operations in Texas with the acquisition of Auto Insurance Discounters Inc., a Houstonheadquartered brokerage Houston.

Auto Insurance Discounters is a property, casualty and life insurance agency. Started in 1992, the company has grown to 13 locations serving Houston and the surrounding counties.

Confie entered the Texas market with its 2008 acquisition of Alamo Auto Insurance in San Antonio. Confie continues has made 10 previous acquisitions this year to further build its national footprint.

Confie Seguros is a portfolio company of Genstar Capital, a San Francisco-based private equity firm that focuses on investments in selected segments of the life sciences, healthcare, financial services, software, and industrial technology industries.

Genstar established Confie Seguros in 2008 in collaboration with the company’s management team to acquire insurance agencies focused on the Hispanic consumer.

Aon, ASPN Aon is closing down Agency Specialty Product Network (ASPN), a subsidiary, by the end of the year.

“Aon values the long-term relationships developed with local agents and brokers and we remain committed to developing, underwriting and distributing specialty products and services tailored to agent distribution through our Aon Affinity and managing general underwriting businesses,” said an Aon spokesperson, who confirmed ASPN’s planned closing.

ASPN is a special brokerage, marketing unit. It provided other agents and brokers access to various insurance products, markets and services they might not otherwise have access to. It offers services to clients including carriers, wholesalers, managing

general underwriters, and insurance services companies.

Based in Chicago, Agency Specialty Product Network Insurance Services was previously known as Aon Specialty Product Network, and operates as a subsidiary of Aon Corp.

Markel, Thomco Richmond, Virginia-based specialty insurer Markel Corp. is acquiring Thompson Insurance Enterprises, a national program administrator that does business as Thomco.

Headquartered in Kennesaw, Ga., Thomco manages national programs including ones for medical transportation, senior living, childcare centers, fitness clubs, pest control operators, tanning salons and inflatable rental operators.

Thomco will continue to operate as a separate business unit with Greg Thompson and Bob Heaphey, current chairman and president, respectively, leading the operation.

The operating unit will be a part of Markel Specialty. Completion of the transaction is expected in the first quarter of 2012. Terms of the transaction were not disclosed.

Torus, C.V. Starr Torus is acquiring the renewal rights to C.V. Starr Syndicate 1919’s Continental European marine, casualty, financial lines and general property business, effective Jan. 1, 2012. Both Torus Syndicate 2243 and CV Starr Syndicate 1919 are managed by Starr Managing Agents Limited (SMAL). As part of the agreement the majority of the Continental European based employees will transfer from Starr Underwriting Agents Limited to Torus Insurance Marketing Limited, which is an authorized cover-holder on behalf of Syndicate 2243.

Torus will also be appointed as coverholder for Syndicate 1919 by SMA with respect to the transfer of business lines, subject to regulatory approval to ensure all relevant business previously insured by Syndicate 1919 and the business being renewed into Syndicate 2243 will be handled by the same underwriting and claims teams in Paris, Cologne, Rotterdam and Milan.

The transaction has been approved by Lloyd’s.

N34 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

IDEA EXCHANGE

Errors & Omissions E&O Insights: Enhance Your Errors & Omissions Culture in 2012

A

s the end of 2011 approaches, this is a good time to reflect upon what went well and what didn’t during the year — as well as what changes you should make in 2012. Here are a few errors and omissions (E&O) tips tied into the holidays via the popular “12 Days of Christmas” list.

By Curtis M. Pearsall

12

The minimum number of staff meetings you should hold during the year. Communication in the agency will be enhanced by meeting at least once a month. Include an education component to boost your staff’s technical and sales knowledge and competency. This is also a great means to discuss how each staff member perceives their E&O exposure and the positive changes that can be made.

11

The number of times a week you should emphasize the importance of documentation. There is no doubt agencies that take an aggressive position on documentation reap the benefits. It is projected that 90 percent of E&O claims would either not happen or have a happier ending if there was solid agency documentation.

10

The number of files per employee upon which you should perform a quality control check each month. This ensures the staff is following agency directives and to reward your solid performers.

9

The minimum number of times you need to check the current A.M. Best rating of your carriers. This is easily done through the A.M. Best website (www.ambest.com)

www.insurancejournal.com

or by signing up for email alerts that will notify you promptly of any rating changes.

8 The number of times you should say “thank you” to your staff for a job well done.

Insurance agencies, like most business, are only as good as their employees. A staff that is appreciated will be a staff that will be with you for years to come.

7

The number of times you should, over the course of a year, say “thank you” to your customers — without whom you are not in business. Surveys show this is the minimum number of times required for customers to know that you appreciate their business.

6 An ideal number of times to communicate with your customers. This is a perfect way to let your customers know about the latest available products or how their insurance policies will respond to various types of losses.

As a result of this process, your customers will probably secure additional coverages when the exposure arises. Identifying your clients’ exposures can greatly reduce the likelihood of an E&O claim being made against you.

Doing this periodically will also enable you to address any seasonal issues.

5

The number of staff (if you have a staff of 10) you should send to an education class in 2012. Whether it’s a program like CPCU, CIC, CPIA, one of the CSR programs, or a seminar on telephone skills or customer service, your staff will appreciate the commitment to provide them with the tools necessary to do the job.

4

The number of positive E&O changes you should make in your agency in 2012. The goal is for constant improvement and growth in your E&O culture and commitment.

Many are easily implemented. In addition to the ones mentioned in this article, when you send out the policies to your customers, include a cover letter requesting that the customer reads the policy and, if they have any questions, the should contact the agency promptly.

3

The minimum number of policies you should write for each of your customers. If you have fewer than this, set three as a goal.

Cross-selling will improve your retention and will lead to additional sales opportunities.

2 The minimum number of staff that should attend an E&O seminar in 2012. For a staff of 10 or fewer, this will qualify you for an E&O credit with many of the E&O carriers. If possible, at least one member of management should go. With some E&O carriers, this is a requirement for the credit.

In addition, this is a powerful way to show commitment to E&O prevention.

1

Show a strong commitment to doing the right thing. Lead by example. Your staff will be proud to work with and for you. Set a goal of being the #1 agency in your community. This might not mean being the biggest, but it does mean being the best!

The best of holidays to your agency staff, their families and all of your customers. See you in 2012!

Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: curtis@pearsallassociates.com.

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N35

NATIONAL COVERAGE

Insurance News Hound Quiz Test Your Insurance News Knowledge Are you an insurance news hound? Test your insurance news IQ and find out. The following questions and answers (see bottom of the page) were developed based on news stories published on InsuranceJournal.com and ClaimsJournal.com in 2011. Good luck!

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1. Which of the following mergers/acquisitions was NOT announced in 2011. â?&#x2019; a. Applied Systems Buys Artizan â?&#x2019; b. ACE to Acquire Penn Millers â?&#x2019; c. MarketScout to Acquire Aonâ&#x20AC;&#x2122;s Agency Specialty Product Network (ASPN) â?&#x2019; d. Nationwide and Harleysville Insurance to Merge â?&#x2019; e. Allstate to Buy Esurance 2. Which of the following CEOs announced their retirement in 2011? â?&#x2019; a. Liberty Mutualâ&#x20AC;&#x2122;s Ted Kelley â?&#x2019; b. Applied Systemsâ&#x20AC;&#x2122; James P. Kellner â?&#x2019; c. Zurich/Farmerâ&#x20AC;&#x2122;s Paul N. Hopkins â?&#x2019; d. Lloydâ&#x20AC;&#x2122;s Lord Levene â?&#x2019; e. All of the above 3. What is the name of Progressiveâ&#x20AC;&#x2122;s usagebased private passenger auto insurance program? â?&#x2019; a. iDrive â?&#x2019; b. Cartrack â?&#x2019; c. Measured Miles â?&#x2019; d. Snapshot

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4. A 1099 tax reporting mandate, passed as part of the Patient Protection and Affordable Care Act, would require businesses to file a 1099 for all business-to-business transactions for goods or services totaling more than $600 over the tax year. A repeal of this mandate passed both the House and Senate with bipartisan support, but President Obama vetoed it. â?&#x2019; a. True â?&#x2019; b. False 5. The U.S. Supreme Court in 2011 rejected a class action employment discrimination lawsuit against Wal-Mart because: â?&#x2019; a. The statute of limitations has passed. â?&#x2019; b. The female employees in 3,400 stores did not have enough in common to qualify as a single classaction lawsuit. â?&#x2019; c. There was insufficient evidence that there was damage from the alleged discrimination.

6. Four former executives at General Re and one at AIG won reversals of their convictions over a reinsurance transaction that prosecutors said fraudulently boosted AIGâ&#x20AC;&#x2122;s loss reserves. â?&#x2019; a. True â?&#x2019; b. False 7. Unitrin changed its name to: â?&#x2019; a. Uninsurance â?&#x2019; b. Insunit â?&#x2019; c. Kemper â?&#x2019; d. K-Unit 8. Deadly storms in April set a U.S. record for the most tornadoes within one month. The final report for the month showed there were how many storms? â?&#x2019; a. 753 â?&#x2019; b. 247 â?&#x2019; c. 101 â?&#x2019; d. 1,113 9. In Oklahoma, tort reform legislation passed in 2011 that capped non-economic damages in bodily injury cases at: â?&#x2019; a. $225,000 â?&#x2019; b. $350,000 â?&#x2019; c. $500,000 â?&#x2019; d. $1 million 10. What was the total amount of insured losses in Texas from wildfires in 2011 as of early December? â?&#x2019; a. $2 billion â?&#x2019; b. $750 million â?&#x2019; c. $500 million â?&#x2019; d. $925 million 11. Which former state insurance commissioner was criticized for issuing him or herself insurance licenses before vacating office? â?&#x2019; a. Mississippiâ&#x20AC;&#x2122;s George Dale â?&#x2019; b. Georgiaâ&#x20AC;&#x2122;s John Oxendine

Š2011 Liberty Mutual Group. All rights reserved.

Answers: 1. c; 2. e; 3. d; 4. b; 5. b; 6. a; 7. c; 8. a; 9. b; 10. c; 11. b; 12. a; 13. b; 14. d; 15. c; 16. d; 17. d; 18. b; 19. c; 20. c; 21. c. The actor is Gabe Kaplan, star of â&#x20AC;&#x153;Welcome Back, Kotter.â&#x20AC;?; 22. b N36 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

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❒ c. South Carolina’s Eleanor Kitzman ❒ d. West Virginia’s Jane Cline 12. In 2011, the South Carolina Supreme Court upheld the constitutionality of the state’s twotier statutory cap on damages. ❒ a. True ❒ b. False 13. In which Midwest state did a coalition of business leaders promote during this year’s legislative session the “Fix the Six” agenda, which sought employment law, workers’ comp, tort and unemployment insurance reform, a franchise tax cap and elimination of the minimum wage escalator? ❒ a. North Dakota ❒ b. Missouri ❒ c. Minnesota ❒ d. Michigan 14. Which Midwest state racked up more than $1 billion in insurance claims from spring and summer storms in 2011, beating a previous record of $700 million paid in 1992? ❒ a. Missouri ❒ b. Ohio ❒ c. Michigan ❒ d. Kansas

18. How many names of Atlantic hurricanes have been retired since 1953, the year the World Meteorological Association began naming tropical storms? ❒ a. 55 ❒ b. 75 ❒ c. 83 ❒ d. 100

❒ c. Florida, California, Texas, North Carolina, Michigan ❒ d. Montana, Oklahoma, Wyoming, Nevada, Arizona

19. What is the strangest reason given for a car recall earlier this year? ❒ a. Ghost face due to faulty airbag deployment ❒ b. Passenger ejection seat did not work ❒ c. Yellow sac spiders in ventilation system ❒ d. Navigation system only had Klingon setting

21. “Spider-Man” star Tobey Maguire agreed to pay $80,000 to settle a suit over money he was paid by a convicted Ponzi scheme operator in Texas Hold ‘Em matches with several highprofile individuals. Another notable actor has settled. What 1970s show did the actor star in? ❒ a. “Battlestar Galactica” ❒ b. “Good Times” ❒ c. “Welcome Back, Kotter” ❒ d. “Rockford Files”

20. Earlier this year, the National Insurance Crime Bureau reported on the states with the most stolen watercraft between Jan. 1, 2009 and May 31, 2011. Choose the correct answer identifying the top five states reporting the most watercraft thefts. ❒ a. Louisiana, Wisconsin, Michigan, California, Florida ❒ b. Alaska, New York, New Jersey, Florida, Texas

22. What merchandise did the wife of an Arizona man taken down by police at a Wal-Mart say her husband placed under his waistband to free his hands so he could help his grandson caught in the crush of holiday shoppers? ❒ a. A power tool ❒ b. A video game ❒ c. Kitchen utensils ❒ d. A package of holiday greeting cards

15. In November, Massachusetts Gov. Deval Patrick signed into law a bill that bans the use of which of the following factors in underwriting and rating private passenger auto insurance? ❒ a. Insured’s occupation ❒ b. Insured’s taste in music ❒ c. Credit scores ❒ d. Income level 16. Before this year’s Hurricane Irene, when was the last time a hurricane made landfall in the United States? And what was that hurricane’s name? ❒ a. Katrina in 2005 ❒ b. Fred in 2009 ❒ c. Earl in 2010 ❒ d. Ike in 2008 17. New York Transportation Department recently used which of these novel schemes to promote its traffic safety campaign? ❒ a. Mimes mimicking traffic accidents ❒ b. TV ads with Angelina Jolie as a spokesperson ❒ c. Hiring former Occupy Wall St. protesters as crossing guards ❒ d. Haiku poetry on road signs www.insurancejournal.com

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N37

IDEA EXCHANGE

Human Resources Breathe New Life into Your Old Performance Review Tactics

T

he end of the year is swiftly approaching, signaling that the time has come for the daunting task that all supervisors face — the employee performance review. Many hypotheses exist about how to execute employee assessments. The consensus is that it’s time to take a new look at wornout assessment tactics. But,

By Dave Coons there still must be a formal exchange of information between the employee and supervisor to improve the output. Supervisors must not only executive a productive review, but strike a balance of year-round feedback to keep employees on track. The “right way” naturally varies from company to company, department to department, and employee to employee.

A performance review, in some form, is necessary for a healthy work environment.

Then why do so many managers and employees dread the annual review? Perhaps it is time to breathe new life into old employee performance review tactics.

Have A Two-Way Conversation Review and Set Goals Remember the review is for talking with, Some things must remain part of the not at, the employee. It is an opportunity review process, like challenging goals and for both parties to learn. Make it less about bench marks. Departmental and individual filling out a form and more about having goals should be set at the beginning of every a conversation. Keep the documentation year and the employee’s progress toward and paperwork, but allow employees to goals should be tracked. Measurable progress see everything in advance so they can make is important and the employee should be their own notes and come to the table with aware of the metrics used to measure success. their own talking points. The evaluation Progress must be shared often, not only at should be a free flow exchange in which review time. The review is no time for suremployees can voice their prises — an employee should concerns, as well. know their progress at any The employee point throughout the year. performance Address Strengths and Goal setting should be review should Weaknesses part of this process. Employees benefit everyone. should have a hand in setting Rather than just handing out ratings, discuss their own goals. Listen to strengths and weaknesses. Do not present a what they hope to achieve and incorporate it weakness without possible solutions. Talk into next year’s objectives. Ask the employee about ways to improve, and ways to adjust what factors are helpful in reaching goals processes if need be. Be open to change. Is and what roadblocks might be present. Set there a way to shift workloads to play up the tone for the year; ensure employees leave the employee’s strength? Pay attention to energized and with a new sense of purpose. group dynamics. Who works well together Be Flexible and on what types of tasks?

Employees undoubtedly have different ways of processing information. Stay in tune with how they respond to feedback. Present areas for improvement in a way that makes sense to that individual. Ask employees what they think should change to help them realSANTA ASKED US TO BIND A POLICY THAT COVERS YOU ize their goals. If anything feels forced or uncomfortable, explore how you can modify FOR ALL YOU HOLD DEAR. IT CERTAINLY INSURES the review process or your communication YOU FOR PERPETUAL GOOD HEALTH AND GOOD CHEER. style for that particular employee.

Remember the performance review should +DSS\ +ROLGD\V benefit everyone — the supervisor, the &ƌŽŵ the department and the company ĞŶƚƵƌLJͲEĂƚŝŽŶĂů employee, as a whole. This is the time of year set aside /ŶƐƵƌĂŶĐĞ ŽŵƉĂŶLJ for one-on-one dialogue; take advantage of the opportunity. Create an open forum to discuss strengths and weaknesses, problems and solutions, and goals and to set the tone for a successful year ahead!

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N38 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Coons is senior vice president of the Jacobson Group, a national provider of talent to the insurance industry. Phone: 800-466-1578. Email: dcoons@jacobsononline.com. www.insurancejournal.com

2012 BUYER’S

GUIDE Welcome to Insurance Journal’s Annual Buyer’s Guide, your A-Z for P&C. Looking for insurance services, products, and solutions? Save this valuable directory - it’s listed by category so it’s easy to find what you’re looking for.

Search our companion online Buyers Guide, a comprehensive directory including thousands more products for the property/casualty industry, at www.insurancejournal.com/buyers.

To be included in our Markets or Premium Finance Directories, contact Kristine Honey at khoney@insurancejournal.com or visit www.mynewmarkets.com Please feel free to reach out and send us your comments and suggestions to lnguyen@insurancejournal.com.

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Claims

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Schifrin, Gagnon & Dickey, Inc. Northridge, CA 91324 (800)743-2524 www.sgdinc.com

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2012

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N40 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

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The Agency Trainer Pueblo, CO 81001 (714) 924-9454 www.agencytrainer.com DW Simpson Global Actuarial Recruitment Chicago, IL 60613 (800) 837-8338 www.dwsimpson.com Millennium Consulting Services, LLC Raleigh, NC 27614 (919) 569-6762 www.mcs-nc.com

www.insurancejournal.com

Allan Pilger Telemarketing Mission Viejo, CA 92692 (949) 701-7476 www.allanpilgertelemarketing.com AllMedia Inc Plano, TX 75024 (469) 467-9100 www.allmediainc.com

Insurance Journal’s Academy of Insurance San Diego, CA 92108 (800) 897-9965 x166 www.ijacademy.com facebook.com/IJAcademy Twitter @IJAcademy Possibly the broadest ranging training resource for P&C insurance professionals nationwide. Training courses, conducted online, focus on four major disciplines within the industry: * Sales Training * Agency Management * Coverage Analysis * Personnel Management

Marketing

Finance

Astonish Results Warwick, RI 02886 (877) 905-1999 www.astonishresults.com

MHNet Behavioral Health Austin, TX 78759 (888) 646-6889 www.mhnet.com The Eagle Insurance Agency, LLC Syracuse, NY 13202 (315) 479-8237 www.eagleins.org

Human Resources

JumpStart Leads Newport Beach, CA 92660 (877) 262-5962 www.jumpstartleads.com The G&D Group Aliso Viejo, CA 92656 (800) 846-7745 www.thegdgroup.com

Technology

Barry M. Gold & Co, LLC Tustin, CA 92780 (714) 639-1802 www.insurancerecruiting.com Crossroads Consulting, LLC Monroe, CT 06468 (203) 459-9969 www.crossroadsconsulting.com Insurance Recruiting & Executive Search (IRES) Charlotte, NC 28271 (704) 243-2110 www.iresinc.com

Blitz Lead Manager Toledo, OH 43617 (419) 841-8800 x1876 www.blitzleadmanager.com

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N41

2012

BUYERâ&#x20AC;&#x2122;S

GUIDE Technology Leads 360 El Segundo, CA 90246 (310) 765-7531 www.leads360.com Leads360 is an all-encompassing sales platform, proven to deliver smarter, more efficient sales processes and increased conversion rates.

With unmatched expertise, drawn from managing over 40 million prospects for more than 10,000 clients, Leads360 is the platform of choice for the largest and most successful agencies.

Alicor Solutions, LLC Las Vegas, NV 89118 (888) 578-0212 www.alicorsolutions.com Clear Data Strategies Danbury, CT 06810 (866) 897-6968 www.cleardatastrategies.com

Underwriting Services Associated Insurance Services (888) 443-3528 www.associatedinsvcs.com

Epic-Premier Insurance Solutions Lakeland, FL 33811 (888) 999-7736 www.epic-premier.com

Safety & Risk Control Services, Inc Metuchen, NJ 08840 (732) 906-2244 www.safetyrisk.com

HawkSoft, Inc Aurora, OR 97002 (866) 844-4680 www.hawksoftinc.com

Urban Wildland Interface Services Big Bear City, CA 92314 (619) 203-4955 www.urbanwildlandinterface.com

Insurance Tracking Services, Inc Long Beach, CA 90802 (562) 435-2955 www.instracking.com

WIAA Insurance Services Rancho Cordova, CA 95670 (916) 443-4221 www.wiaainsurance.com

National Equipment Register (NER) Jersey City, NJ 07310 (201) 469-2030 www.ner.net

The Wedge Group Frisco, TX 75034 (214) 446-3209 www.thewedge.net Simplify. Grow. Converting Prospects into Clients is the single most important Action a producer can take in a Growth Agency. Learn about iWin 9-5-1, Prospect Development and Sales Management System, because Growing Your Agency is your #1 Goal.

Pyramid Squared Danbury, CT 06810 (866) 897-6968 www.pyramidsquared.com

N42 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

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CLASSIFIEDS

East Classifieds

Insurance Journal East • 3570 Camino del Rio North, Ste. 200 • San Diego, CA 92108-1747 Fax: 619/584-1200 • Phone: 800/897-9965 x125 • classifieds@insurancejournal.com For Ad Rate and Information

NOTICES

December 19, 2011 Aioi Nissay Dowa Insurance Company of America 475 N Martingale Rd., Suite 330 Schaumburg, IL 60173-2275

December 19, 2011

December 19, 2011

The Cincinnati Indemnity Company 6200 S. Gilmore Rd. Fairfield, OH 45014

NOVA Casualty Company 726 Exchange Street, Suite 1020 Buffalo, NY 14210

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

December 19, 2011

SERVICES

December 19, 2011 The Cincinnati Casualty Company 6200 S. Gilmore Rd. Fairfield, OH 45014

Continental Western Insurance Company 11201 Douglas Avenue Urbandale, Iowa 50322

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty insurance in the Commonwealth of Massachusetts.

The above company has made application to the Division of Insurance to amend their Foreign Company License to transact Life, Accident, Health, Property and Casualty insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 02118-6200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

West Classifieds

Insurance Journal West • 3570 Camino del Rio North, Ste. 200 • San Diego, CA 92108-1747 Fax: 619/584-1200 • Phone: 800/897-9965 x125 • classifieds@insurancejournal.com For Ad Rate and Information

JOBS

SERVICES

IR Group San Francisco East Bay – Seeking Claims Exec/Managing Director of Claims Operations. Will manage a staff of 50 while developing processes and policies that will impact a field staff of over 1,000. www.starintermediary.com

N44 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

www.insurancejournal.com

NATIONAL COVERAGE

MyNewMarkets High Value Home, Auto, Umbrella Market Detail: Marsh Private Client Services (www.marshpcs.com) offers high value home, auto, umbrella liability, flood, earthquake, art, equine and aviation coverage.

Available limits: Maximum $100 million Carrier: Chartis, Chubb, ACE, Fireman’s Fund States: All states Contact: David Pauli at 415-743-8122 or email: david.l.pauli@marsh.com

Public Entities Market Detail: CivicRIsk Insurance

Bringing Market Seekers and Market Providers Together • Find markets in our database • Promote your markets on our site • Join our community forums • Membership is free!

www.mynewmarkets.com

Agency LLC (www.civicrisk.com) offers blended, occurrence and wrongful acts coverage underwritten in a single policy form that includes: general liability, automobile liability, errors and omissions, police professional liability, employment practices liability. Follow form excess over qualified underlying carriers also available.

Available limits: Maximum $10 million Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Tom Dultz at 818-660-1671 or email: tdultz@civicrisk.com

Workers’ Compensation Market Detail: Saffe Property and Casualty (www.saffeinsurance.com) offers a high-hazard workers’ compensation program with pay as you go billing. Available in 43 states to trucking, staffing, PEO, construction, healthcare and agribusiness classes.

Available limits: Minimum $500,000, maximum $1 million Carrier: Unable to disclose, admitted States: All states except Alaska, Maine

Minn., N.D., N.Y., Ohio, Wash., and Wyo. Contact: Charles Garnham at 214-382-2454 or email: cgarnham@saffeinsurance.com

Environmental Impairment Liability for Site Owners Market Detail: ISM General Agency’s (www.ismga.com) environmental impairment liability is designed for site owners and operators and offers first and third party coverage for on-site and off-site clean-up, bodily injury, and property damage resulting from pre-existing and/or new pollution conditions. Policies can be written for terms up to 10 years in length with limits up to $50 million for a specific site or a portfolio of sites.

Available limits: Maximum $60 million Carrier: Unable to disclose, non-admitted States: Ariz., Calif., Nev., N.Y., Okla., Ore., Texas, and Wash.

Contact: Sheila Morton at 800-637-4757 or email: sheila_morton@kandkinsurance. com To submit a listing for a new insurance product visit: www.MyNewMarkets.com, or email: editorial@insurancejournal.com.

Advertisers Index N: National

American Reliable www.americanreliable.com N11 Applied Underwriters www.applieduw.com N48 Arrowhead General Insurance Agency www.arrowheadgrp.com N43 Astonish Results www.astonishresults.com N12, N15 Burnett & Company www.bcoinc.com N37 Catlin US www.catlinus.com N17 Century National www.cnico.com N38 CoverX www.coverx.com N33 Gateway Specialty Insurance www.gatewayspecialty.com N33 www.insurancejournal.com

Great American- Specialty Human Services Division www.specialtyhumanservices.comN47 LexisNexis www.lexisnexis.com N2 Midlands Management Corporation www.midlandsmgmt.com N34 PersonalUmbrella.Com www.personalumbrella.com N5 RiskMeter.com www.riskmeter.com SIAA www.siaa.net Sports & Fitness Insurance www.sportsfitness.com Texas Mutual Insurance Company www.texasmutual.com

Westrope www.westrope.com XL Specialty Insurance Company www.xlgroup.com

N3 N7

N28 N19 N36 N13

December 19, 2011 INSURANCE JOURNAL-NATIONAL REGION | N45

IDEA EXCHANGE

Closing Quote term at attractive margins. Ultimately, insurers are made to pay the price for recapitalizing banks.

This price is a heavy one: Global insurance assets amount to about US$24 trillion, more than 10 percent of total global financial assets. A yield reduction of as little as 100 basis points would result in a loss of investment income of approximately US$240 billion, more than three times the total costs for Hurricane Katrina every year. A lasting negative impact on investment income would be a particular challenge for nonlife insurers with low or volatile underwriting results and life insurers who have entered into contractual minimum yield obligations.

Investment returns are a key input to pricing insurance contracts. To make up for lower returns insurers would have to raise premium rates for non-life and life insurance policies and reduce the returns they can offer to life policyholders.

The Costs of the Financial Crisis for Policyholders W

By Daniel Haefeli

and Dr. Kai-Uwe Schanz

hen examining the consequences of the financial crisis on the insurance industry it is important to differentiate between direct and indirect effects on one hand, and short- and medium-term ramifications on the other.

Insurers were directly and immediately impacted by write downs on their investment portfolios. The subsequent economic slowdown had a further adverse impact on equity markets and credit quality, impairing the insurance industry’s massive corporate bond portfolios.

Indirectly, insurers were heavily hit by the economic slowdown that followed the turmoil in financial markets. In 2009, developed countries experienced the worst recession in 80 years. The ongoing sovereign debt crisis in Europe — accelerated by the financial crisis — conjures up the spectre of a double-dip recession. In response, households and firms cut insurance budgets and premium volumes contracted sharply.

Life insurers continue to feel the pinch as interest rates head for record low levels, making companies struggle to meet guaranteed policyholder returns.

Yield Curve The ultra-loose monetary policies of central banks have resulted in a positive yield curve, with a sizeable differential between short- and long-term yields. Banks are benefiting from this constellation, generally tending to prefer low interest rates to reduce funding costs whereas insurers benefit from higher rates as their inverse business cycle (collect premiums first, pay claims later) makes interest income a key pillar of their business model. Leveraging the current shape of the yield curve, banks borrow at low cost and lend longer

N46 | INSURANCE JOURNAL-NATIONAL REGION December 19, 2011

Challenges Ahead The challenges ahead of insurers are compounded by impending regulatory changes. The global trend towards riskbased capital regimes — with Solvency II arguably being the most complex framework — reduces insurers’ freedom when investing their assets. Going forward, market risk (e.g., the risk of changing interest and foreign exchange rates) has to be underpinned by more risk capital, making investments in higher-yielding asset classes potentially uneconomical. This reduces the capacity of insurers to act in a counter-cyclical manner.

Regulators, therefore, run the risk of weakening the stabilizing role insurers traditionally play within the financial markets.

Insurance-related changes to the International Financial Reporting Standards compound this as the market-to-market principle fails to properly reflect the long-term character of insurance liabilities and corresponding assets.

Sovereign bonds carry the lowest risk charges under Solvency II, incentive for insurers to invest more heavily in this asset class. However, as a consequence of current monetary policies top-rated fixed-income securities yield at record-low levels, and sovereign bonds are no longer considered as fail-proof.

Insurers, therefore, are caught in an uncomfortable dilemma: Either accept low-yielding investments in government bonds or engage in higher-risk asset classes which carry significant or even prohibitive capital charges and imply a much higher volatility.

High Price to Pay Lawmakers may want to acknowledge that insurance policyholders are paying a high price for restoring the balance sheets of those financial services players who were instrumental in causing the financial crisis in the first place — higher premium rates primarily in non-life business and lower guarantees and profit participation on the life side.

Haefeli is the head of insurance and finance, and Schanz is the special advisor, strategic research, both of The Geneva Association. www.insurancejournal.com

Hungry for more on your plate?

Consider a carrier with a broad appetite for social service accounts, offering competitive coverages, generous commissions, outstanding customer service, deep niche expertise and a history of strong financial performance. Consider Great American: insuring those who improve our communities.

For more information please email John Norman at jmnorman@gaic.com 301 East Fourth Street I Cincinnati, OH 45202 I GreatAmericanInsurance.com

Specialty Human Services www.SpecialtyHumanServices.com

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2011-12-19 NATIONAL.indd 48

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