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JANUARY 9, 2012 | VOL. 90, NO. 1

WEST REGION Fewer Nevada Traffic Deaths in 2011 Utah Pollution Fighters Sue Kennecott Judge Clears BP on Alaska Spill Negligence Consumer Group Slams Mercury Filing

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N6 On The Cover

Inside This Issue

Special Report: Contractors and Subcontractors

January 9, 2012 • Vol. 90, No. 1 • West Region


NATIONAL COVERAGE N6 Special Report: Contractors and Subcontractors






8 Report: Fewer Traffic Deaths in Nevada in 2011

N1 Minding Your Business: Oak & Schoeffler

8 Utah Pollution Fighters Sue Kennecott Over Mining Dust

N2 The Competitive Advantage: Burand

Apartment Builders See Uptick in Market

N9 Special Report: The Construction Market Evolution N11 Despite Losses, Insurers Not Hiking Prices Broadly N12 Spotlight: Employment Practices Liability N14 Insurance Journal’s Academy of Insurance: Q1 N16 Academy of Insurance Spotlight: Bill Whitley

10 Hawaii Supreme Court Rules ‘Known or Obvious Danger’ Defense Not Viable

N24 Closing Quote: Chamness

14 Judge Rules BP Not Negligent in Alaska Spill 18 Reno Air Race Officials Mull Options After Crash 20 Consumer Group Hammers Mercury Rate Increase Filing in California

N17 A Disciplined Approach to Underwriting: Behymer


N18 2012 Insurance Industry Meetings & Conventions Directory

6 9 9 12 16 N23


Opening Note Declarations Figures People Business Moves MyNewMarkets

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Opening Note Is This the Beginning of the End?


ype “December 21, 2012” into Google and you’ll get nearly 10 million results. Nowhere near the attention of some of the world’s best known names or phrases, like, “Jesus Christ,” or “Buddha,” both of which garner more than 120 million results, or “Mohamed,” with over 200 million results. And although he didn’t found a major religion, “Napoleon” has more than 96 million results. But the date beats other references, such as “United States Constitution,” with roughly 8.5 million results, and “Joan of Arc,” which yields nearly 9.5 million results. “Mayans,” the group that’s perhaps most related to that doomsday date, get 6.1 million results. “Nostradamus,” also widely credited with predicting Dec. 21, 2012, as the end of times, yields 18 million-plus results. But he had a lot of other things on his plate beside the end of days. I would bet it’d be hard to predict whether insurance — that word gets 245 million results, thank ‘Nothing bad will happen to you very much big advertisers — will pick up or the Earth in 2012. Our planet slow down as doomsday has been getting along just nears. Will people decide fine for more than 4 billion that, if the world’s about years, and credible scientists to end, what’s the point to getting insurance? Or will worldwide know of no threat a large number of people associated with 2012.’ worry that something real bad will happen, but not bad enough to bring about the end, and therefore go out and get insurance? Or will the vast majority of people go on writing off Dec. 21, 2012, as merely a subject for a handful of people with too much free time? If you’ve got a prediction, or a thought or two on the subject, feel free to email me at If I get enough responses, it may warrant a story on, or in the pages of an upcoming Insurance Journal issue, so be sure and include your full name, company and title. I have a prediction, and it’s an easy one. We’ll have our eyes and ears full of this date in the coming year — which will come and go, leaving us with other big dates to look forward to — and as the date nears more people, even those who swore not to do so, will talk about it. NASA even has a take on the topic, posted in a Q&A, “2012: Beginning of the End or Why the World Won’t End?” with scientists on its website: “Nothing bad will happen to the Earth in 2012. Our planet has been getting along just fine for more than 4 billion years, and credible scientists worldwide know of no threat associated with 2012.”

Don Jergler West Editor

Publisher Mark Wells

Chief Executive Officer Mitch Dunford

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content Andrew Simpson | East Editor Young Ha | Southeast Editor Michael Adams | South Central Editor/Midwest Editor Stephanie K. Jones | West Editor Don Jergler | International Editor Charles E. Boyle | Editor Denise Johnson | Associate Editor Amy O’Connor | Columnists Chris Burand, Catherine Oak, Bill Schoeffler Contributing Writers Chris Behymer, Charles Chamness, George Dale, Paul Jansen, Kevin Hastings

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

MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | Advertising Coordinator Erin Burns | (619) 584-1100 x120 New Media Producer Bobbie Dodge | Videographer/Editor Matt Tolk |

DESIGN/WEB Vice President/Design Guy Boccia | Vice President/Technology Joshua Carlson | Design and Marketing Executive Derence Walk | Art Director Jamie Bethell | Web Developer Jeff Cardrant | Web Developer Chris Thompson |

IJ ACADEMY OF EDUCATION Director of Education Christopher J. Boggs | Online Training Coordinator Barbara Dooley |

ADMINISTRATION Accounting Manager Megan Sinclair |

FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 856-380-4176 or You may subscribe or change your address online at Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semimonthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2012 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052


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


News & Markets Report: Fewer Traffic Deaths in Nevada In 2011


espite a slight increase in pedestrian deaths, the Nevada Office of Traffic Safety says the number of people killed in traffic accidents in Nevada plunged in 2011 and will end the year at slightly more than half of the record 2006 total. The Las Vegas Review-Journal reported 231 people had died in Nevada traffic accidents around the state in 2011. That was down 22 from the same time in 2010, and was far fewer than the record 431 fatalities in 2006. Just 64 of the deaths involved alcohol as a factor, according to the report, or about half the 126 in 2008.

Former Idaho Police Officer Awarded $717,000

A former Idaho officer with the Fort Hall Police Department injured when his patrol vehicle was hit by another vehicle has been awarded $717,000 by a Pocatello jury. But Nicolas Garcia says he’d rather continue working as a police officer than have the money. The jury in December awarded Garcia $210,757 in lost wages, $206,179 for future lost wages, and $300,000 for noneconomic damages. In September 2007, Garcia was driving home in his patrol car when he was hit by another car that failed to yield at a stop sign. He suffered careerending back injuries. Garcia’s case involved the underinsured motorist who hit him, a workers’ compensation claim and Granite State Insurance, which is the underinsured policy provider for Shoshone-Bannock Tribes. AP

In Clark County, 105 people died on the highways in 2011, down 25 for the same time span the previous year. “People are getting the message,” said Traci Pearl, administrator of the Nevada Office of Traffic Safety. She attributed the decline to more police enforcement, greater attention by motorists, less drinking and driving, and more frequent use of seat belts. Records showed that through late December, 42 pedestrians had died in Nevada in 2011, already up from 41 in 2010. Twenty-eight of those cases were in Clark County, two fewer than in 2010. Las Vegas was ranked the sixth most dangerous city for pedestrians in the spring by Transportation for America, an advocacy group based in Washington, D.C. It found there were 2.5 pedestrian deaths per 100,000 residents per year in Las Vegas, above the 1.6 national average. Reno reported nine pedestrian deaths, up from four in 2010. Copyright 2011 Associated Press. All rights reserved.

Utah Lawmaker Wants Out of Daylight Saving Program

Utah Pollution Fighters Sue Kennecott Over Mining Dust



ne Utah lawmaker wants to pull the plug on daylight saving time. The Desert News of Salt Lake City reports Republican Rep. Jim Nielson of Bountiful plans legislation that lets Utah opt out of the semiannual changing of the clocks. Nielson says he’ll offer the proposal during the 2012 legislative session that begins in January. Under federal law, daylight saving time begins at 2 a.m. on the second Sunday of March until 2 a.m. and ends the second Sunday of November. States can opt out of the program, but only Arizona and Hawaii have done so. Nielson says citizen complaints prompted his proposal. But he says he also considers the program a heavy-handed government mandate. Utah lawmakers failed to pass a similar bill in 2010. Copyright 2011 Associated Press. All rights reserved.


lean air groups are making good on a promise to sue Kennecott Utah Copper over air pollution. The groups say Kennecott is kicking up too much dust at its Bingham copper mine and should curtail operations. They say Kennecott is violating the federal Clean Air Act even though Utah’s pollution regulators have allowed the company to significantly ramp up mining production. The federal lawsuit was filed on Dec. 19, 2011, by Utah Moms for Clean Air, Utah Physicians for a Healthy Environment and WildEarth Guardians. Kennecott says the groups’ claims are without merit and that it isn’t violating pollution standards. The Utah doctors say Kennecott is responsible for a third of the air pollution throughout Salt Lake valley. Copyright 2011 Associated Press. All rights reserved.

Declarations Alaskan Texting

Social Host

Policy Review

“If the Alaska legislature wanted to prohibit texting, then it should have, and could have, clearly said so, just as California did.” — Alaskan Magistrate Jennifer Wells, saying the Legislature should have been explicit if they truly meant to prohibit texting while driving. The Alaska law merely refers to driving with a “screen device operating.” It never mentions text messaging and does not apply to cell phones used for verbal communication or displaying caller ID information.

“If you were out of the country and something happened and you got held responsible, I bet it wouldn’t ever happen again.” — Maryellen Johnson, who has children in middle and elementary schools on Mercer Island, Wash., where a recently passed “social host” ordinance mandates that people who own, rent or lease property where teenage drinking happens can be fined $250.

“The Caughlin Ranch Fire is a reminder to us all to call our insurance agent or company and ask for an annual policy review.” — Nevada Insurance Commissioner Scott J. Kipper, stating that Nevada’s insurance carriers reported around 600 claims as a result of the Caughlin Ranch Fire in November resulting in more than $16 million in claims.

Defamation Suit “I went from a $4.5 million practice to seeing just two patients each week.” — Albert Carlotti, a doctor, who, along with his wife, Dr. Michelle Cabret-Carlotti, were awarded $12 million by a Maricopa County jury in Arizona from a former patient they accused of defaming them in online postings.




Million The amount a study shows Honolulu may save if it ditches an insurance program on a 20-mile rail line that would bundle insurance for all contractors instead of a more traditional insurance model where contractors purchase insurance individually.

$3.2 Million

That’s how much a recently filed lawsuit accuses a former executive at a New Mexico hospital of bilking the care center out of by funneling the money through companies he owned in Arizona, Texas and New Mexico. The lawsuit says that he and other defendants engaged in a “pervasive scheme” to misappropriate money from Christus St. Vincent Regional Medical Center.




How much GEICO is refunding, plus 8 percent interest, to 25,267 auto insurance holders for a computer database error that caused the company to overcharge thousands of its Washington state customers.

$553 Million

That’s the size of the settlement for alleged price fixing practices between seven manufacturers of flat screen LCD panels found in monitors, laptops and televisions and several state attorneys general offices, including California’s, where the suit was first brought.



News & Markets Hawaii Supreme Court Rules ‘Known or Obvious Danger’ Defense Not Viable


he Hawaii Supreme Court has ruled the “known or obvious danger” defense is no longer viable under state law as a complete bar to an injured plaintiff’s premises liability claim. Michele R. Steigman sought to recover

damages after suffering a slip-and-fall accident while she was a guest of Outrigger Enterprises’ Ohana Surf Hotel. The case went to trial, and a jury found that Outrigger was not negligent. Steigman’s appeal to the Intermediate

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Court of Appeals resulted in an affirmation of the trial court’s final judgment. Steigman’s attorneys argued that the ruling goes against a comparative negligence law passed by Hawaii’s legislature in 1969 and since modified several times. The statue states: “Contributory negligence shall not bar recovery in any action by any person or the person’s legal representative to recover damages for negligence resulting in death or in injury to person or property, if such negligence was not greater than the negligence of the person or in the case of more than one person, the aggregate negligence of such persons against whom

‘We therefore hold that in Hawaii, the known or obvious danger defense is no longer viable as a complete bar to an injured plaintiff’s claim in the context of premises liability.’ recovery is sought, but any damages allowed shall be diminished in proportion to the amount of negligence attributable to the person for whose injury, damage or death recovery is made.” Therefore the court ruled the traditional “known and obvious danger defense” conflicts with that statute. “Steigman contends that the traditional known or obvious danger defense conflicts with the Legislature’s intent behind the comparative negligence statute. We agree,” the court stated in its ruling. “We therefore hold that in Hawaii, the known or obvious danger defense is no longer viable as a complete bar to an injured plaintiff’s claim in the context of premises liability.”




A++ (Superior) on our 50th Year!

Thank You. Thank you to our producers and employees for helping Philadelphia Insurance Companies earn an “A++” rating from the A.M. Best Company. Only about 3% of all U.S. insurance companies, have this rating. PHLY’s commitment to underwriting discipline and our partnership with the Tokio Marine Group, one of the strongest and most reputable global insurance groups, allows us to celebrate this achievement during our 50th anniversary. Thank you to more than 13,000 agents and brokers who work with PHLY to insure responsible and profitable risks. Your partnership allows us to be there for our customers when they need us the most. All of the 1,548 PHLY employees and everyone who’s worked at PHLY over the last four decades deserve a special thank you and congratulations. Your commitment and service is an invaluable part of our success and I’m proud to share this accomplishment with you. I would like to personally invite you to join us at one of our 13 agent summits in 2012 to learn the advantages of working with PHLY. Go to to register for a summit near you. Continuing Education credits will be offered at some locations.

James J. Maguire, Jr. Chairman & CEO, Philadelphia Insurance Companies


Philadelphia Insurance Companies is the marketing name for the insurance company subsidiaries of the Philadelphia Consolidated Holding Corp., a Member of the Tokio Marine Group. Coverage(s) described may not be available in all states and are subject to Underwriting and certain coverage(s) may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. | © 2011-2012 Philadelphia Insurance Companies, All Rights Reserved.


People Linda Hall

The board of directors of the National Insurance Producer Registry (NIPR) re-elected Alaska Insurance Director Linda Hall as NIPR president during its Dec. 13, 2011, meeting in Chicago. Hall has been a member of the NIPR board since 2003 and served as president since 2004. The other officers elected during the meeting were William Anderson, senior vice president of law and government relations for the National Association of Insurance and Financial Advisors, who was re-elected vice president and Kentucky Insurance Commissioner Sharon P. Clark, reelected secretary/treasurer. NIPR is governed by a 13-member board of directors, with six members representing the NAIC and six members representing industry trade associations (including three producer trade associations). The NAIC Chief Executive Officer serves as an ex-officio voting board member.

Stephen Bushnell

Steven Bushnell, a senior director at Novato Calif., basedFireman’s Fund Insurance Co., has been appointed to the US Green Building Council 2012 Board of Directors. USGBC announced the newly elected officers and new directors to its 2012 Board of Directors. At Firemans’ Fund, Bushnell is responsible for development of products and services for emerging industries. In 2006 he developed the first green building insurance coverage in the industry. Bushnell has spoken on the unique risks of green buildings and sustainable business at several conferences. The Arizona Insurance Council (AIC) has elected new officers for 2012. AIC is a non-profit, trade association dedicated to consumer education and partnership building on behalf of property and casualty insurers in Arizona. The AIC 2012 elected officers and the companies they represent are: Rick Jones, president of AIC and president of SCF Premiere Insurance; Tim Goeller, vice president of AIC and regional vice president - business insurance for State Auto Insurance; Michael Valluzzo, treasurer of AIC and sales and client services manager, AMICA Insurance; and Wanda Revells, corporate secretary of AIC and assistant vice president, western region sales & agency relations for Universal North America Insurance Co. Stephen V. Festa, senior vice president and chief claims officer for Reno, Nev.-based Employers Insurance Co. has been named vice chair to the board of governors of the California Insurance Guarantee Association (CIGA), a body that pays the claims of insolvent property and casualty insurance carriers. 12 | INSURANCE JOURNAL-WEST REGION January 9, 2012

Festa most recently served as the CIGA board’s secretary and treasurer. He first joined the CIGA board in 2009, representing Employers as an insurer member, and remains the only C-level claims executive to serve on the board. Operating under the California Insurance Code, CIGA provides a mechanism for the payment of covered property, casualty and workers’ compensation insurance claims of insolvent insurance companies. Festa has served as senior vice president and chief claims officer of Employers Insurance Co. of Nevada and Employers Compensation Insurance Co. since 2004. Festa has more than 25 years of industry experience. Employers Holdings Inc.’s subsidiaries are specialty providers of workers’ compensation insurance and services focused on select small businesses engaged in low-to-medium hazard industries. Mike Mathews has been named president and chief operating officer of San Diego, Calif.-based Atlas General Insurance Services. Mathews is responsible for executing Atlas’ long-term strategy of growth for its carrier partners and for providing service to its customers. Mathews has more than 20 years of industry experience with senior level positions at insurance companies, retail brokerages and general agencies. Prior to Atlas, he was vice president of marketing and business development at Arrowhead General Insurance Agency for their workers’ compensation division. Atlas also named Robin Perry as audit manager. Perry will be responsible for developing a new premium audit department for the company. Perry joins Atlas with more than 25 years of experience in premium audit management. Prior to Atlas, Perry worked as an independent contractor auditor for Professional Casualty Services Inc. in Boulder City, Nev. She also worked in premium audit as a field auditor in Southern California. RMIS has added two new members to the marketing team in Southern California. Jessica Gonzalez joined the team to build and better service San Diego. She brings more than 10 years of experience from Multi-State General Agency, where she promoted auto and home insurance. Also added was Michael Dionne, who will be building and servicing Los Angeles. His previous experience was mostly entrepreneurial, and Dionne is part of a 50-50 training program between RMIS and USLI, a Berkshire Hathaway company.



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News & Markets Judge Rules BP Not Negligent in Alaska Spill


federal judge ruled that BP was not negligent in the case of a 2009 oil spill and did not violate the terms of its probation from an earlier accident thus escaping further punishment. The decision is a victory for the oil giant

as it attempts to rebuild its image after taking the bulk of the blame for the largest U.S. offshore oil spill in the Gulf of Mexico in 2010. Judge Ralph Beistline, in the U.S. District Court of Alaska, in late December dismissed

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a petition from federal prosecutors that sought additional punishment for the company’s latest Alaska spill, and released BP from its probation. The decision came one month after hearings in court in Anchorage, where prosecutors sought to revoke the criminal probation imposed on BP in a 2007 settlement agreement, claiming BP violated probationary terms by continuing its pattern of sloppy management, ultimately resulting in another pipeline spill in 2009. Judge Beistline rejected that charge, say-

‘It is incumbent upon BP to make sure this does not happen again.’ ing that BP was not criminally negligent in the latest spill. “Things could have been done differently that may, or may not, have prevented this spill,” Beistline wrote in his decision. “But in the instant case, the court concludes, based on the evidence presented, that BP was following accepted industry practices at all relevant times and could not have reasonably expected a blowout …” However, he warned BP to prevent further spills, saying that “the court would view the entire matter differently” if a similar spill occurred. “It is incumbent upon BP to make sure this does not happen again,” Beistline concluded. Copyright 2011 Reuters. All rights reserved.

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Business Moves hospitals, physician practice groups, integrated delivery groups, outpatient clinics, long-term care facilities, blood banks and managed care organizations throughout the United States. Steven E. Kahl and his staff will continue to operate in their current location under the direction of James McFarlane, western regional manager of Itasca, Ill.-based Gallagher’s retail property/casualty brokerage operation.

Neff Risk, Cochrane Neff Risk and Cochrane and Co. are officially one. The combined company will operate under the name Cochrane and Company and be headquartered in Spokane, Wash. The resulting footprint of the merger will include new states for Cochrane and Co., as well as new products and markets for Neff Risk, with the offices in Arizona, New Mexico, and Montana operating as branch offices. Cochrane and Co. established in 1960 is a surplus lines wholesaler that is currently working with 1,700 retailer customers in the 14 western states, providing insurance for property and casualty binding business, commercial brokerage business, transportation including long haul truck, personal lines, garage, programs, surety, and professional liability. Arthur J. Gallagher, Kahl Arthur J. Gallagher & Co. has acquired Kahl Insurance Services LLC in Englewood, Colo. Terms of the deal were not disclosed. Kahl Insurance is a retail property/ casualty and risk management insurance brokerage focused on the healthcare industry. They offer risk management programs and services to their healthcare-provider clients including 16 | INSURANCE JOURNAL-WEST REGION January 9, 2012

Arrowhead, Brown & Brown The parent company of managing general agent San Diego, Calif.-based Arrowhead General Insurance Agency Inc. has entered into an agreement to be acquired by Brown & Brown Inc. The purchase price is $395 million, subject to adjustments for certain items such as Arrowhead’s working capital, debt and net tax operating losses. An additional payment of up to $5 million may be made three years after closing, depending on Arrowhead’s EBITDA during the last year of that period. Daytona Beach, Fla.-based Brown & Brown is acquiring Arrowhead from Spectrum Equity Investors, JMI Equity and a management equity holder group. The transaction is expected to close in January and is subject to customary closing conditions, including regulatory approval. The transaction will be a cash transaction and is not subject to financing conditions. Arrowhead, together with its subsidiary, American Claims Management Inc. (ACM), a third-party claims administrator, and its other subsidiaries, is expected to have total annual 2011 net revenues of approximately $105 million. As part of this transaction, Arrowhead and ACM will continue to operate in their current locations in the greater San Diego area. Alexander Anthony Insurance LLC, an Arrowhead subsidiary, will continue to operate in its Salt Lake City, Utah, location. Brown & Brown, through its subsidiaries, offers insurance and reinsurance products and related services.

Additionally, certain Brown & Brown subsidiaries offer risk management, third-party administration, and other services. SIAA, CoVerica Strategic Insurance Agency Alliance Inc. (SIAA), a national alliance of over 3,900 independent insurance agencies, announced that master agency partner CoVerica Agency Alliance, formerly SIG Agency Alliance, has expanded into California. CoVerica’s territory in California will include the northern Los Angeles and Sacramento areas. CoVerica in California will be managed locally by Bill Kinney, president and CEO of Kinney and Co. of Pasadena, Calif. Kinney has experience serving a multi-cultural and ethnically diverse customer base. He has served on a number of advisory boards for insurance carriers over his 33 year career. Arthur J. Gallagher, Transwestern Transwestern General Agency Inc. in Salt Lake City, Utah, has been acquired by Arthur J. Gallagher & Co. Terms of the transaction were not disclosed. Transwestern is a managing general agent and wholesale insurance broker providing excess and surplus, property/ casualty, professional business liability and other specialty insurance products and services to their independent insurance agent and broker clients primarily in the Intermountain Western United States. They specialize in insurance coverage for high-net worth individuals and the transportation industry. Jeffrey Burgener and his associates will continue to operate from their current location under the direction of Joel Cavaness, president of Risk Placement Services Inc., a subsidiary of Arthur J. Gallagher & Co., according to a statement by the companies. Arthur J. Gallagher & Co., is headquartered in Itasca, Ill., has operations in 16 countries.


News & Markets Reno Air Race Officials Mull Options After Crash


formal announcement will be made in January concerning the future of the National Championship Air Races after a Sept. 16, 2011, crash killed 11 people and injured more than 70, organizers said. The future of the races has been in doubt since a P-51 Mustang crashed and killed 10 spectators and the pilot, Jimmy Leeward. Others were sent to the hospital with critical injuries.

At least two suits have been filed by spectators, or their families. A suit was brought in late November 2011 by a law firm on behalf of Gerry de Treville of Ukiah, Calif., a spectator who lost his eye when a vintage plane crashed during the Reno National Championship Air Races. The suit claims the air racing organization was negligent and the aircraft was too dangerous to fly so close to spectators. The family of Craig Salerno, 50, of Friendswood, Texas, a dispatcher for Continental Airlines and father of two, is also suing race organizer Reno Air Racing Association, pilot James Leeward’s racing team and corporation and two enterprises that modified the plane to increase its speed. The Reno Air Racing Association hasn’t made a decision on the fate of the event, spokeswoman Tara Trovato said, and a January news conference is planned to announce the next steps in the process

confronting its board. Among other challenges, the board must secure licenses from the Federal Aviation Administration and Reno-Tahoe Airport Authority, and deal with $1 million in losses caused by cancellation of the 2011 event after the crash as well as insurance costs. “There’s been tremendous support from the public to continue holding the air races, but there are so many different hurdles the organization needs to get through to hold it in the future,” Trovato told The Associated Press. Michael Houghton, president and CEO of the races, said public support to continue the 47-year-old competition is strong. “That’s not just the desire of our organization, but that’s the desire of hundreds of people in this community and of people in aviation,” he said. An FAA spokesman said organizers must develop a comprehensive plan each year that includes requirements for pilot and aircraft qualifications, and a detailed course layout. Airport authority spokesman Brian Kulpin said the association’s 10-year special event license to hold the air races at RenoStead Airport expires June 30, 2012, and it has not yet sent a 2012 proposal to the authority’s board. Kulpin noted the National Transportation Safety Board, which is expected to issue a report on the crash, will hold a Jan. 10 hearing in Washington, D.C., to examine the safety of air races and air shows. Houghton has accepted a request to testify at the hearing. “So there are a lot of factors going on. There’s a lot of things to consider in coming months but no proposal at this point,” he said. The competition is like a car race in the sky, with planes flying wingtip-to-wingtip as low as 50 feet off the sagebrush at speeds sometimes surpassing 500 mph. Pilots follow an oval path around pylons, with distances and speeds depending on the class of aircraft. Copyright 2011 Associated Press. All rights reserved.



News & Markets Consumer Group Hammers Mercury Rate Increase Filing in California By Don Jergler


an “open competition” state in which competition regulated the marketplace. A major provision of Prop. 103 dealt with personal automobile insurance, requiring personal automobile insurance rates to be determined using the following factors in decreasing order of importance: insured’s driving safety record, number of miles driven annually by the insured, and number of years of driving experience the insured has had. The proposition also pre-

California consumer group is challenging a rate hike bid by Mercury Insurance because the group claims the company is trying to pass along the costs of its political campaigning. But the insurer says those costs are not included in the rate hike. Santa Monica-based Consumer Watchdog says the costs involve millions of dollars in political contributions for a 2010 campaign the group viewed an “anti-consumer” proposition on the California ballot. Mercury Insurance is seeking permission from the California Department of Insurance to raise automobile insurance rates by 6 percent. Consumer Watchdog has filed a formal vented rates from being challenge to Mercury’s rate increase request, determined based on a person’s claiming that Mercury is attempting to history of insurance. “illegally include campaign expenses for the The upcoming Nov. 6 ballot may have failed 2010 ballot measure, Prop. 17, in its two initiatives on it that would alter Prop. proposed rate hike.” The group noted the 6 103. Consumer Watchdog’s Insurance Rate percent hike totals roughly $89 million in Public Justification and Accountability increases. Act, and the 2012 Auto Insurance Discount But Mercury says the requested hike is to Act, backed personally by Joseph and the cover increased expenses, and that political American Agents Alliance. The latter initiaexpenses are being passed along not to contive has qualified with enough signatures sumers, but to Mercury shareholders. and is awaiting approval. Signatures are still This is the latest in a battle that is likely being collected for the Consumer Watchdog to intensify as the Nov. 6 election nears, initiative. as both Consumer ‘It’s pretty obvious what’s The main Watch Dog and Mercury Chairman going on here: Mercury wants focus of Consumer Watchdog’s initiaGeorge Joseph may to raise rates on everyone tive is to require both have initiatives this year and then promise health insurance on that ballot they discounts to some drivers companies to file strongly support. for rate increases Consumer through its discriminatory like auto insurers Watchdog and ballot initiative next year.’ do now. Joseph have However, it’s not just about health insurbeen battling for a few years over voter ance. Among the proposed act’s 900 words propositions that each side has introduced is language that prohibits “unfair pricing” that would modify or add to California’s not only for health, but for auto and home Proposition 103. insurance based on prior coverage and credit Prior to the passage of Prop. 103 in 1988, history. insurance companies were not required to The initiative proposes to accomplish file rates for approval except for health and these ends by: “(1) requiring health insurlife insurance, and the state was considered 20 | INSURANCE JOURNAL-WEST REGION January 9, 2012

ance companies to publicly disclose and justify their rates, under penalty of perjury, before the rates can take effect; (2) prohibiting unfair pricing for health, auto and home insurance based on prior coverage and credit history; and (3) requiring health insurance companies to pay a fee to cover the costs of administering these new laws so that this initiative will cost taxpayers nothing.” The 2012 Auto Insurance Discount Act is being sponsored by the American Agents Alliance, not Mercury. AAA says the initiative’s new law “will allow consumers to receive a discount for their years of continuous automobile coverage regardless of the company where they seek insurance.” The persistency initiative is similar to Proposition 17, which was on the California ballot in 2010. The Proposition 17 campaign was sponsored largely by Mercury General Corp. It was opposed by most newspaper editorials and by Consumer Watchdog. The insurance industry outspent the proposition opponents and the initiative was narrowly defeated, 52 percent to 48 percent. The latest persistency initiative is being supported personally by Joseph, who called the initiative he’s backing “pro consumer” because it would allow portable persistency as opposed to the singular choice of loyalty programs that lock consumers into one carrier. In other words, someone with auto insurance at one insurer can move to another auto insurer and get credit for being previously insured by the first insurer. But Consumer Watchdog does not like the idea of basing auto insurance rates on whether a person previously had insurance or charging more to those without insurance history. Consumer Watchdog is also bashing Joseph for spending $8 million AAA’s 2012 ballot initiative. The proposed initiative is nearly identical to Mercury’s failed 2010 measure, Prop. 17, which would have allowed insurance companies to increase premiums on good drivers who had a prior lapse in insurance coverage or simply had not been continued on page 22


News & Markets Mercury, continued from page 20

driving for a time. their rates. It’s Consumer Watchdog’s contention that “In 2009 and 2010, Mercury Insurance Mercury is passing along to its customers spent $16 million on its deceptive but unsucthe expense of the Prop. 17 campaign, and cessful initiative campaign promising to give the group pointed to Mercury’s rate filling, ‘discounts’ to consumers, which Consumer which does not list the political expenses Watchdog and others pointed out would as an exempt item, a specific item that an actually raise millions of drivers’ premiums,” insurance company is not the group stated. calculating in its rate filing in But Joseph ‘None of the political its argument for its increased said that Mercury contributions, including is not passing expenses for the year. contributions to Prop. along the cost “It’s pretty obvious what’s 17, came out of the going on here: Mercury of the Prop. 17 wants to raise rates on insurance companies.’ campaign to its everyone this year and then consumers, but promise discounts to some drivers through to its shareholders. The reason the political its discriminatory ballot initiative next year,” contributions were not included in the filing Consumer Watchdog Executive Director is because Mercury General, a holding corpoDoug Heller said. ration, paid for the campaign. The campaign Under California law, insurers must wasn’t contributed to by Mercury Insurance reduce the administrative costs they pass itself, Joseph said. on to policyholders by deducting political “None of the political contributions, campaign and lobbying expenses from including contributions to Prop. 17, came


out of the insurance companies,” Joseph said. “It’s not there because the insurance company never participated. Therefore they are not passed along to the policyholders. It’s on the holding company’s ledger, which is paid for by our stockholders. That just reduces the money our stockholders get.” Joseph, who added that “Mercury General doesn’t need the insurance commissioner’s approval to do anything,” accused Consumer Watchdog of “behaving like some of the politicians in Washington,” and “making inferentially false statements and changing the subject.” But putting the political expenses on the holding company’s ledger means the expenses still must be reported, because, Heller noted, Mercury General is holding company that does mostly business in California. “Mercury wants its policyholders to cover the costs of the insurance company’s political attacks,” Heller added. “And that is not allowed in California.”

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Minding Your Business Trends for 2012 Soft Market Here to Stay, Merger Activity, Financial Pressures and More


n order to be proactive, one needs to understand and exploit current and future trends. So what will 2012 be like for insurance agents and brokers? The following is a list of major industry trends that need to be factored into the business plans of agents and brokers. Soft Market Is Not Going Away By Catherine Oak The hard market was firmly in place from about 2000 through 2003. Prior to this almost a whole generation had lived under soft market conditions! The current soft market has been in various lines and Bill Schoeffler in various regions for a number of years. It hit most lines across the country since 2007 and it seems to have no real end in sight. It was predicted to end in 2009, but it hasn’t. The current trends will continue. Property/casualty insurance companies and the reinsurance markets are still financially sound. Capacity is there mostly because of the reduction in demand due to the economic turndown. So, it seems that the soft market will be around for another year, or more because of the overall economic uncertainty and weaknesses. As agency owners know, a continuing soft market means a lot more work quoting, usually for less commission dollars due to lower premiums. In order to keep revenues up, agencies will need to sell more — either cross-sell or to new customers. Value-added services should be offered and a fee charged, to increase

tingency structure will continue to change. If it does, it is a good assumption that most carriers will make up the difference through higher commission rates or other bonus plan arrangements. In addition to adding new revenue Financial Squeeze streams, agencies will need to become more With the continuation of the current soft productive. This will be done through either market and weak economy, profit margins automation or streamlining will continue to drop, the work that is currently for most agency owners. Profit margins will Other revenue sources continue to drop for being done — or both. systems will be are also threatened. most agency owners Paperless necessary. Insurance comThere has been a in 2012. panies will be pressured to realignment of comfollow the lead from agenpensation to national cies and become more automated, as well. brokers, which eventually will trickle down to the “smaller” independent agenAgency Ownership and M&A cies. Eliot Spitzer’s past actions resulted in A new twist in the mergers and acquisisome national brokers not accepting contintion (M&A) marketplace is that the national gents, although a couple brokers have since brokers are now focusing on the middle reversed this decision. The impact was not market arena and have specific capital to too significant on them, since due to their do so. Aside from Brown & Brown and A.J. size they were able to negotiate higher comGallagher, which have been there already, mission rates or some other sort of compenthere are some new players in the middle sation. market, such as Hub, USI and Marsh. These Most national brokers also charge fees for national brokers are acquiring to keep growclient services, such as for loss coning and adding volume. The pace is eventutrol, claims management, HR conally unsustainable, but will continue through sulting or risk management. This 2012. In fact, the reason they are in this arena is to add to the top line revenue is that the larger firms have already been beyond just sales commissions. bought up or do not intend to sell. Independent agencies Today there is also a lot of capital still still have contingency agreecoming into the marketplace, via new broments in most cases. This kerages starting up from players that have is not expected to left agencies, especially those having sold to change. However, banks. These new buyers have the cash to due to the push pay sellers a large down payment and offer for national an earn-out based on performance or growth. regulations, Private equity players wanting to get into the consumer insurance business are also looking for good disclosure platform agencies, to expand and become interest players in certain regions, such as Assured groups and the Partners. profit motivation There are also players, like Integro and of insurance compaEPIC, in the game. Firms like NFP (National nies, there is a strong potential that the concontinued on page N2 enue. Many agencies have been giving away these value-added services for free. People don’t appreciate free, nor do they see the value.



Minding Your Business Trends, continued from page N1

Financial Planners) and CBIZ that have been players in the benefits and financial services arenas are looking at also getting into the property/casualty insurance marketplace and have the capital to do so. There still continues to be no shortage of buyers of independent agencies, if the agencies are good firms. Capital Gains Taxes in 2012 It is not much of as prediction to say that taxes will go up. Congress and President Obama temporarily extended the Bush tax laws. It is probable that the current federal capital gains rate will go from 15 percent back to 28 percent, or higher, when the tax law runs out. Personal income taxes will most likely go up, especially for the higher income brackets. Owners that are contemplating selling the business have two choices. First, sell before the tax rates go up after 2012 to lock in the

low tax rates. For those that are not quite ready to sell, but choose to sell now, this will require the acceleration of preparing the agency to sell and realigning one’s financial goals and expectations. The second option is remain an owner for

now and sell after 2012. Because of the higher vice role. Many firms today are adopting the tax rates, anyone selling their business after account executive role to ease the burden of 2012 will need to grow the business by more the workloads of the owners and non-owner than the tax increase in order to net the same producers with large books. The account amount of after tax proceeds executive approach costs the they would have received Understand how agency less money and probefore the tax increase. current trends vides the service staff more Since the soft market is for advancement in the will affect your room expected to continue and 2012 organization. Account execuindependent will be equally as difficult tives usually still have service agency. on everyone economically, staff to delegate day-to-day growth will continue to be service work on an account. difficult for any agency. The process of finding a suitable buyer can take fourt to six National Healthcare months from start to finish. A merger might No one knows for sure the impact of the be also a good option to selling for some, see current legislation and the affect on the the next trend. value of firms with these books of business, if indeed the reform does come into effect, or parts of the legislation are reversed. There is Options for Small to Mid-sized Agencies still much uncertainty what the implementaMany small to medium sized firms cannot tion will result in due to the ambiguities in individually maintain the number of quality the language of the bill that was passed and markets they need to compete today with the complexity of the system. larger firms. Consolidators, networks and clusters provide that service, so the agency can compete on equal footing with the “big Presidential Election in 2012 boys.” What will the impact on the insurance Clusters vary in size, style, capability and industry and the United States be under a appearance. Generally speaking, the indinew Republican president or another four vidual agency can maintain some, if not all years with President Obama at the helm? No their autonomy. These entities can also be a one knows for sure, but it will most likely way for new people opening their own agenimpact regulation and tax laws no matter cies to own their own firms. Some cluster which party is in place. organizations even provide perpetuation for their members within the group or umbrella A Final Thought entity. These are some of the key trends important for agency and brokerage owners to The Producer Dilemma pay attention to for the coming year. There Most agency owners will agree that it is may not be much an owner can do about the very hard to find good, loyal, hard-working external threats to their agency. It is far easiinsurance producers. Producers that are avail- er to be proactive in the areas that are within able don’t produce. The ones that do produce one’s control. are unaffordable or they want ownership in Understanding how current trends will the agency. impact the firm is the first step. Managing Perpetuation plans are held in abeyance the agency in a way that exploits these when it is hard to find these good producer trends will then allow the firm to succeed. players, especially with any management talent. The lack of good producers is a perennial Schoeffler and Oak are partners at the international conproblem and will remain so from now on. sulting firm Oak & Associates, providing services for mergThere needs to be a shift in perception for ers, acquisitions, management and financial consulting. the traditional producer role to be split into a E-mail at Phone: 707-935-6565. pure sales role and an account technical serWeb site:



The Competitive Advantage If an Agency Were a Person M ost agencies are managed from the perspective of the shareholders and executives. But what would an agency want if it were a shareholder?

1. Good health. The By Chris Burand foundation of agency health is the balance sheet. The most important measure on the balance sheet is the agency’s trust ratio. Many agencies would dearly appreciate a cash infusion that restores its trust monies. Trust monies are like hearts. Quite often a person with severe heart problems will not know they have heart damage until they wake up in a hospital, if they are lucky. I find few agency owners recognize the damage they’re doing to their agencies by spending money that does not belong to them. When trust monies are short, an agency can still operate and may not feel any health problems on a daily basis, until the day they effectively have a heart attack. That day will present itself as the day it cannot pay its companies or its employees. It may present itself at the time of a valuation or sale, when the owners learn their agency has diminished value because the heart of the agency is damaged. It may present itself, especially if insurance companies come to their senses, when they cannot get a new company contract or even lose a contract. 2. Positive harmony. If an agency were human, it would

differentiate between positive and negative harmony and recognize harmony is a physical, not an emotional, phenomenon. Negative harmony occurs when waves are created at a frequency that can collapse a bridge. In an agency, negative harmony occurs when agency executives acquiesce to poor performance. They attempt to create harmony by avoiding conflict. This may seem positive on the surface, but it can destroy an agency because the underlying issues are not being addressed. Positive harmony involves addressing the tough issues. In the counseling world, these are called critical conversations. If agencies were people, they would have these critical conversations because when all producers produce and when all producers, including the executives, are held accountable for their results, the best kind of harmony is created. Great harmony is when everyone is truly doing their jobs and working as a team. 3. Work ethic. Everywhere I go I hear people lamenting the loss of a work ethic. Beyond the fact that older generations have lamented the poor work ethic of younger generations since at least the time of Socrates, an agency would dearly appreciate it if some agency owners jumped off the band wagon and got back to work. Agency owners have had to work hard to get where they are. Unfortunately, all that counts to your agency is what you have done for it recently. The agency’s companies, producers, employees, and partners

are appreciative of what owners have done in the past, but they are mostly interested in what you are doing for the agency today. 4. Focus the business. Many agencies have lost focus on what they are. This is clear when they have three times more company/ broker appointments than they need, when they have multiple producers who are failing, and when they dabble in health insurance. With so many balls in the air, they cannot focus on true success. They can only survive from one day to the next. Spreading resources and relationships too thin is not good strategy. True business success is not achieved by trying to be all things to all people. 5. Focus sales. An agency would also want its producers to stop trying to sell to anyone and everyone. This strategy may still work in really small towns. However, due to today’s cost structure and coverage complex-

ity (i.e., E&O exposures and customer needs), it is no longer possible to sell to anyone and be great. It may not even be possible to be good. It does not matter if the agency is large or small. Large agencies are going to have difficulty selling to small clients and small agencies are going to have difficulty selling to large clients. The waste involved in trying to sell to anyone is phenomenal. Agencies know, even if their humans do not, the way to greatness is focusing on the customers that fit the agency’s strengths best. 6. Focus the owner(s). If an agency were human, it would also want the agency owner to stop trying to wear all the hats in the agency. Many agency owners try to be a producer, CEO, CFO, COO, head of marketing, carrier relationships and HR, and chief cook. Sometimes this is due to necessity. However, more often it is because the agency owner is a control freak. continued on page N4



The Competitive Advantage Person, continued from page N3

An agency knows that humans need to get past these emotions, focus on their strengths, and hire people with complementary strengths to fill the gaps. For example, if the agency owner is a great sales leader, it often makes great sense to hire a person to man-

age operations. It is extremely difficult for one manager or leader to be a good cop and a bad cop. Simultaneously, it is not realistic to expect everyone to always get along and for everyone to always do their job without oversight or to make all the sales calls necessary without prodding.

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7. Choose sales or marketing, not both. Too many agencies waste resources dabbling in marketing and selling, but most are too small to spend valuable resources in both areas. Many agencies lose money because they are spending so much marketing money to accentuate sales but they are not cutting producersâ&#x20AC;&#x2122; compensation to help pay for it. With margins so thin, this cannot last. Similarly, it is extremely expensive to employ producers to sell if they cannot or will not sell. An agency knows the best path is to focus on its strengths. 8. Procedures. An agency would want procedures for both processing business and for sales. An agency would also make sure everyone followed the procedures. Of course, this would get rid of any cowboy cultures, but it would be a great place to work for those who want to develop their personal skills, are not afraid of accountability, and want to make serious money. 9. Hire a great professional advisor. An agency would not assume its attorney knows enough about accounting or insurance agencies to write contracts without additional expert opinion. Many agencies would greatly appreciate having a CPA and an industry consultant cross check all agency contracts.

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10. Expiration lists based on the competitionâ&#x20AC;&#x2122;s best accounts. An agency knows this is an efficient and effective way to develop business. With good systems and good producers spending all their time focusing on only writing 20 really good accounts, the agency will eventually write some great accounts. Producers would not be stuck calling on hundreds of prospects, many of which are not prequalified. Instead, producers could spend more quality time developing relationships and competitive advantages. Agencies see their peers becoming great and they do not want to be left behind. If you listen carefully to your agency, you will hear its message. Agency owners desiring greatness will listen. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail:

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hanging demographics and new economic realities are “We are very encouraged by what we see coming through the pipedriving more people away from homeownership in the lines from builders. Many of the builders are still in business. They suburbs and into rental properties and apartments in have not gone out of business. We have not lost very many customers. many areas around the country. This surge in rental It’s just that the exposures are way down. We’re seeing, where we demand is leading to an uptick in apartment construction, and openwould see returned premium audits in 2009 and 2010 to get payroll ing doors for insurance agents and brokers. exposures or sales exposures, in 2011, audits were pretty much less.” Gaeta says it’s nice to see some activity — even if insurance prices For one Dallas based insurance broker, the demand for multi-famicontinue to remain soft — in the construction industry. ly building projects has been like a mini-boom. “It’s soft but there’s activity so it’s a nice change from the rest of the “Our demand in Dallas for builders with some multi-family is up probably about 50 percent in our office,” said Anne Sheahen, a partner market, which is soft but there’s no activity,” he said. Sheahen doesn’t expect to see a huge surge or spike in construction at Hotchkiss Insurance Agency, an independent insurance agency headquartered in the Dallas area. While Hotchkiss Insurance Agency’s this year, but increases, especially in multi-family construction, are positive. Houston office hasn’t experienced the same surge in growth in multifamily construction as in Dallas, Sheahen says there’s been a slight The Move to Rent rise in apartment activity in that area as well. The boom in apartment living nationwide has been fueled by both The demand for apartment living is attracting more contractors shifting demographics and tough economic realities, says Douglas S. and builders to the multi-family construction arena, Sheahen says. Culkin, president and CEO of the National Apartment Association “We are seeing builders that were specialists in single-family develop(NAA). ments, moving to create joint ventures with those experienced with One-third of Americans rent their housing, and nearly 14 percent multi-family construction.” — 17 million households — call an apartment their home, according In a modern day construction industry where “flat” growth is the new “up,” contractors and their insurance brokers welcome the recent to NAA. “From the demographic standpoint, certain population segments rise in apartment building. “Our producers and staff here — we’re writing a lot of multi-family prefer renting, such as Echo Boomers who are starting to enter the housing market and Baby Boomers who are beginning to downsize,” construction,” Sheahen said. And that’s a good thing, she says. Culkin told Insurance Journal. Vito Gaeta, director of specialty construction program at NSM The apartment industry has changed to meet the Insurance Group, also sees more focus in the comrising demands of young professionals, empty-nestmercial construction industry on building apart‘We are very ers and single parents who want the conveniences, ments. encouraged by amenities, shorter commutes and financial freedom Gaeta says he sees apartment building activwhat we see coming that apartment living promises, Culkin said. ity along the northwest. “We’ve seen an uptick through the pipe“Today’s apartment communities are vibrant desin Washington and Oregon, but especially lines from builders.’ tination living communities, with gyms, park-like Washington for apartments,” he says. settings, multiple pools and proximity to upscale California is also seeing a rise in apartment conretail shops, restaurants and entertainment, and access to public struction, a trend driven mostly by the economy, said Jett Abramson, transportation,” he said. senior vice president and director of complex casualty for Bliss & In this decade, renters could become half of all new households — Glennon Inc. in Redondo Beach. that’s more than seven million new renter households. Additionally, “There are a lot of people that are leaving the single-family, custom Culkin says a leading researcher predicts that half of new homes homes that they built and bought four years ago,” Abramson said. built between 2005 and 2030 will need to be rental units to meet the Maybe those homeowners lost their homes in the recent financial cridemand. sis. Maybe they decided to rent to save money. Whatever the reason, “From an economic viewpoint, demand for rental housing at midthey have to live somewhere, he said. year 2011 reached a multi-decade high because people simply can’t Right now, Abramson sees the biggest demand for high-end, luxuafford the risks of homeownership,” he said. ry apartments — at least in Southern and Northern California where NAA conducted an online survey with independent research firm he sees a lot of apartment building activity occurring. Harris Interactive in November and found that people prefer renting “If you’re moving out of a nice, new home, moving back into the for many reasons, including: to avoid an unpredictable real estate apartment market, you probably want a nicer apartment,” he said. marketplace, susceptibility to foreclosure, and increases in their mortAt the same time, there’s a lot of low income housing going up all over California, he added. “That’s all driven by tax rebates, subsidized gage rates. People also prefer renting because it provides freedom from expensive maintenance and repairs, attractive amenities, and housing credits, etc.” greater mobility to pursue job opportunities. “Just last week here, just on my team, we bound five apartment Culkin says his association found growth in apartment living projects. They were all new construction,” he said. is projected to be highest in 2012 in San Francisco, which was the Although she remains cautious given the turmoil in the industry number one market in 2011; and Austin, which could surpass San the past few years, Sheahen sees the new construction in the multiFrancisco in 2012. They’re followed by San Jose, Oakland and Boston, family market as a positive development. “We really feel that we’ve at least turned the corner,” Sheahen says. continued on page N8



Contractors and Subcontractors Under Construction, continued from page N7

with the next tier being New York City, Dallas, Charlotte and Houston. Troy Wright, a producer for Watkins Insurance Group, an independent agency based in Austin, Texas, hopes lenders will ease up funding so more apartments can be built to meet the rising apartment rental demand in Austin. “In the Austin market rents are going through the roof because of the lending situation — because people couldn’t get money to build projects, there’s a shortage of rental space,” Wright said. “The key is getting the lenders to loosen the purse strings on the money,” he said. “That’s exactly what has caused, in my opinion, the lack of additional apartment space in the Austin area and is what’s causing rents to go through the roof. Had lenders made money available then people would have continued to build apartments, met the need, and the rents would have stayed more stable.”

where there has been new construction, it has been fairly limited,” Culkin said. “Most investors are interested in existing properties in major metropolitan areas, such as New York City, Los Angeles, San Francisco, Boston, Chicago and Washington, D.C. — well-located, good quality properties that will yield a quick return. It is more difficult to obtain financing in smaller markets such as Pittsburgh, Cleveland or Indianapolis because these projects carry more risk.” Hotchkiss’ Sheahen has seen traditional single-family builders, who were more volume builders, move into either multi-use construction —apartments with retail on the first floor — and also into apartment building. “You’ve seen it in Austin, but in Dallas — especially in 2011 — many of those builders have gone into joint ventures to build multi-family,” she said. Culkin agrees Dallas has been a hot spot for new apartment construction, and also cites Washington, D.C., and Orange County, Better Financial Backing Calif., as areas with a lot of new construcAn improved financial market for tion activity. project starts is one reason for the recent In line with the recent trend, the Commerce Department said recentgrowth in apartment building in some states. ly that construction starts in the multi-family sector in November The capital to build is back in the apartment market in increased 25.3 percent from the previous month. But despite the California, Abramson said. growth, Culkin believes new supply levels will be only slightly higher “A year and a half ago, if you wanted to build anything you had in 2012 than 2011. to go to the hard money market and pay enormous interest rates. Even so, the need for apartments has attracted commercial real Now, we’re seeing the commercial lenders get back into the development market space, and many of this has been on commercial estate developers into the apartment business, where greater demand development and apartment development. Not so much unattached exists more than any other sector, Culkin added. NSM’s Gaeta expects market competition to residential,” Abramson said. increase given the boom in apartment building in “People that we’re seeing now building the apartPeople who ments are the same clients that we’ve seen build some states. couldn’t get numerous apartments over the years. Now there’s People who have focused on commercial building money to start are going to flock to the next cool thing — apartment more availability of capital to actually build.” projects are get- building, Gaeta said. And “anybody that’s ever written From Wright’s point of view, things are beginning ting funding now. a residential homebuilder will try to write a commerto loosen up for some contractors in Texas as well. “People who couldn’t get money to start projects cial apartment builder because that’s where the money two and three years ago are starting to get some funding now. That is,” he added. “These guys are getting the funding, and quite frankly, have the ability to pay the premium.” is the key,” he said. Despite the improved lending environment for new apartment Hotchkiss’ Sheahen sees apartment building continuing on an upward path, even if at a slow and steady pace. construction, multi-family construction starts remain below prerecession levels, said NAA’s Culkin. “We definitely see a steady increase,” she said. “The builders that we “Although the failing housing market has led to renewed demand write that specialize in apartments and multi-family, mixed-use, have for rental housing, uncertainty in global financial markets has hincontracts in their pipelines. They’re expecting better results, even better than 2011.” And that’s a good thing. dered the availability for financing new rental construction and N8 | INSURANCE JOURNAL-NATIONAL REGION January 9, 2012

The Construction Market Evolution

By George Dale, Paul Jansen and Kevin Hastings


enry Ford once said that his customers could order his Model T cars in whatever color the customer wanted, as long as it was black! For many years, the relationship between contractors and their insurance company seemed to be mired in the same mentality. Many insurance companies are justifiably proud of their insurance contracts and ancillary services. They have spent quite a bit of time developing their product, obtaining internal and regulatory approvals and may even have had quite a bit of claims experience to help test whether the underwriting intent was well expressed or interpreted. However, today, contractors and trade contractors don’t have “Model T” needs

anymore. Surviving the current economic cycle has meant adaptation to new business models, new project delivery methods and above all else, the need to innovate in order to stay in business. Contractors’ Evolution Many current insurance programs have not kept up with the evolution of contracting. In residential building, for example, homebuilders are often subject to “right to repair laws” with mandatory alternative dispute resolutions to encourage early resolution of claims (a worthy insurance industry goal), yet their insurance policies require a formal “suit” in order to trigger coverage. Builders have express liability for as much as 10 years, yet their insurance policies are still based on traditional

“occurrence” ISO language that leaves it to interpretation and implication to find cover after the end of the policy term. Most recently, residential builders have started building on other entity’s property as a merchant builder or joint venture partners, thus reducing the size of each project. This makes the recent trend towards higher self insured retentions hard to swallow. On the commercial side, the insurance industry put a lot of energy and development time into creating consolidated insurance programs (OCIP/CCIP) based upon the theory that aggregating insurance coverage into one policy for a complicated project would result in economic savings and efficient claims/safety programs for all concerned. However, with the number of mega projects going down and workers’ compensation insurance January 9, 2012 INSURANCE JOURNAL-NATIONAL REGION | N9


Contractors and Subcontractors rates stabilizing, the call for CIPâ&#x20AC;&#x2122;s has gone down dramatically. The impulse of many in the insurance industry has been to wring hands and lament the horrible construction market; with very little resources being spent on new insurance product development for this market. Meanwhile, according to the U.S. Census Bureau, construction spending is estimated to approach $800 billion in 2011 and approximately 450,000 new homes will be built during this year. This is nowhere near the pre-economic turmoil levels, but still is quite a bit of activity. Commercial contractors are delivering projects in flexible ways. Contractors are engaged in a higher volume of smaller projects, some in states where workersâ&#x20AC;&#x2122; compensation is not a concern or due to monopolistic control, not a possibility. Stand alone projects are perhaps too small for traditional OCIP or CCIP structures and the cost of pro-

curing insurance, with smaller carriers with 2012 construction industry? Staying current inconsistent terms and conditions adds to requires the harnessing of intellectual capithe administrative burdens at the very time tal, excellent communication and technical where administrative knowledge; all geared overhead is under cost Many current insurance to seeking alignment pressure. programs have not kept between the risk appetite In addition to the of both the carrier and up with the evolution new structures of the contractor. This proof contracting. construction projects, vides opportunity for the there is still the poscarrier, contractor and sibility, seen now in the energy and certain broker community to seek risk allocations public works sector, that alternative project that are both fair, predictable and yes, even financing, such as public private partnertransparent. ships or design build will finally see the volResidential insurance products need to ume increase long predicted by many. The be flexible to allow builders to survive and traditional OCIP/CCIP models have a diffiunderstand their cost of risk when seeking cult time with these structures since profesnew financial partners. Clear parameters sional liability and operating liability are not regarding allocation of business risk vs. usually covered by these policy forms. insured risk need to be set forth in the contract, in plain, but industry specific language. Neither builders nor carriers should Insurance Product Evolution purposely allow ambiguous language so as to So, what does it take for the insurance product to keep up with the evolution of the employ legions of coverage counsel all seeking to impose their creative interpretations of what each side meant. Clear language is not difficult if the groundwork of properly allocating risk is fully developed. Commercial construction products need to be reconfigured. Smaller, more creatively financed projects need to be insured and long-term construction defect exposure must be dealt with, since it is just as much of a commercial issue as it is in residential. Insurance should not be a profit center for contractors and insurance carriers should not hide behind fortuitous court interpretations to evade the risk that they agreed to take. There is a great deal of insurance talent in the industry. There are carriers, brokers, managing general agencies and contractors who are not satisfied with the status quo and know that insurance should not drive the way that contractors do business. Insurance and contracting should be aligned and the ability to do so is all around us, if we have the courage to think in more colors than Henry Fordâ&#x20AC;&#x2122;s original offering. Dale, Jansen and Hastings are executives for Cove Programs, a London and Los Angeles-based insurance market focused on the needs of U.S. homebuilders. Website:



News & Markets Despite Losses, Insurers Not Hiking Prices Broadly By Ben Berkowitz


espite more than $100 billion in disaster losses around the world this year, insurers are not yet experiencing a broad and sustained increase

in pricing power, defying predictions from a year ago that even half those losses would be enough to turn the industry around. For investors, that means picking winners in 2012 will be harder than expected. Analysts say the key is companies with healthy capital levels and reserve strength; those that have already shown some pricing leverage; and the brokers, who are usually first to benefit in a cycle turn. Among the names that have been highlighted by some analysts are insurers like Travelers Cos. Inc., reinsurers like Allied World and Axis Capital and brokers like Marsh and McLennan and Aon Corp. “Winners will be those with reserve and capital strength, who strategically are well positioned for a quickly evolving market,” KBW analyst Cliff Gallant said in his annual sector preview. “We expect rate improvement to be modest, not uniform and not in any way a traditional hard market.” While 2011 will go down as a

breaking disaster year, the hurricanes and earthquakes were in many ways not what the industry would typically expect when it thinks about large catastrophes. There was a heavy concentration in the Asia-Pacific region, and the one hurricane that made a U.S. landfall did relatively less damage than forecast. “Those were some really big numbers through the year catastrophic loss-wise but they were sort of fringe losses; they didn’t hit the big pockets of capacity,” said Michael Korn of Integro Insurance Brokers in San Francisco. $150 Billion? That means that while prices have already risen substantially in some markets for some kinds of coverage, there is not the sector-wide hard market many had hoped for, where all insurers have pricing power over their customers. “Some have said $100 billion is the number, some have said $150 billion is the number that has to be drained from the market to cause the turn,” said Chris Schaper, president of the Montpelier Re Holdings Ltd unit Montpelier Reinsurance Ltd. “The industry is still in its assessment phase, if you will,” said Schaper, a chartered underwriter with more than 25 years’ insurance experience. “There’s no doubt that price movement is taking place,” he said, adding it could be another year before price rises fully work through the market. One of the problems, ironically enough, is that insurers are still making money, particularly because most of the disasters that have occurred have been in places where the risk is spread broadly among insurers. When they are profitable, they can afford to be somewhat more flexible on price to retain business. “Notwithstanding the fact that the

property and casualty insurers’ aggregate results have certainly declined … it is still a profitable industry,” said Integro’s Nick Conca, who runs the firm’s risk management practice. “There’s still an abundance of capacity in the P/C marketplace, there’s still a good amount of competition for what I’ll call garden variety risks.” To be sure, in some places rates are up sharply. Where there have been disasters, for instance in Japan and New Zealand, rate hikes in excess of 50 percent are common. Prices are also on the rise in Thailand, as the insured toll from devastating floods there passes $10 billion. Some experts believe the toll there could eventually hit $20 billion, making the 2011 flooding in Thailand one of the worst natural disasters in human history by insurance standards. Modest Rises But in markets where catastrophes did not strike, rate rises are more modest or in some cases nonexistent. Insurance brokerage Marsh, in a report last month, said only half of its U.S. property clients saw increases in the last six months. “While most of those rate increases were applied to programs with catastrophe exposure, accounts with little or no such exposure or losses were often able to secure rate decreases during the second half of the year,” the Marsh and McLennan unit said. There are regions of strength, though, in reinsurance. “As far as the sector goes, improvements are under way, they’re specific right now relative to certain lines of business,” Montpelier’s Schaper said. “For all the lines to escalate, it’ll take well into 2012 and you’re kind of looking more at January 2013.” Copyright 2012 Reuters January 9, 2012 INSURANCE JOURNAL-NATIONAL REGION | N11


Employment Practices Liability How to Protect Businesses from the Rising Trend of Employment Practices Lawsuits


usiness owners today face tough economic challenges. One of those challenges is the increasing risk of employment practices liability (EPL) lawsuits. According to a 2010 Chubb survey, some 30 percent of business owners will likely reduce their workforce in today’s tough economy, while another 20 percent of employers may be forced to outsource some job functions to reduce To watch a video interview of Catherine overall buisness costs. Padalino, vice president and employment “Both of those things really increase practices liability product manager for Chubb, employment exposures as you reduce visit: the workforce,” said Catherine Padalino, vice president and employment practices liability product manager for Chubb. “It cercompanies, there’s certainly a recognition tainly leads to increased exposure for wrongof policies and procedures. I think they do ful termination claims, for example.” a really good job with respect to managing In a recent interview with ClaimsJournal. proactively the termination exposure. But ... com Editor Denise Johnson at the PLUS from a demographic statistical standpoint, International conference in San Diego, when companies go to lay people off, the Padalino discusses how EPL risks differ odds are someone is going to be of a protectbetween large and small businesses, why ed class, be it of age, be it of a certain race, a EPL lawsuits are on the rise, and what busicertain national origin, just based upon the nesses can do to reduce their exposure to demographics of the organization. The area EPL claims today and in the future. that we see is a real increasing trend, particularly for the larger employers, is the age What’s the difference in how large verdiscrimination case. sus small employers view employment practices liability risk? Employment practices liability lawsuits Catherine Padalino: I think a lot of small are on the rise. Can this be attributed companies that we see have a much more to the recession? informal atmosphere. What that means is Padalino: Absolutely. There is no doubt they are like family. They really don’t expect that the economy has attributed to an that someone that’s worked with them in increase in claims. Employers are trying a close-knit environment, for example, that to navigate through a tough economy. if they do have to get downsized or leave They are not hiring new employees, and their position, they don’t think in a million in fact, they’re obviously laying people years that they’re going to be sued by this off. The unemployment rates are sticking employee. However, in this economy, what at double digits, and we don’t anticipate we are seeing is that that employee, as much that they’re going to go down significantly. as they may have enjoyed that atmosphere, is What happens from a claims standpoint is certainly going to bring a suit if they feel that that aggrieved individual is going to bring they have been wrongfully terminated. a claim. In years past, we saw a charge that The other thing that we see is in large might be mitigated or settled out rather N12 | INSURANCE JOURNAL-NATIONAL REGION January 9, 2012

quickly because that person went on and found another job, they were happier in their new job, and in fact, many times they were paid more in their new job. Well, now that job is so hard to come by they can’t find the next job. If they do find a job, they’re not making the same amount of money or perhaps don’t have the same opportunity they had in their old job. So they’re fighting and holding onto those claims. Those claims are going to trial a lot more. ... Certainly the economy leads to not just the lengthening of the case, but the severity of the case. All of those factors tie into an interest from a plaintiff attorney side, that the damages are going to be higher, and that there’s heightened interest in lawyers taking the cases as well. What types of EPL losses or exposures are tied to an employee’s use of social media? Padalino: Social media is such a hot topic in the employment arena. It doesn’t all tie to insurance per se, because there is productivity issues, there are copyright issues, invasion of privacy issues which can lead to employment suits. But where we see a real exposure, and something that the employers are navigating through today, is the issue for example of using as a recruiting tool or a hiring tool. As, for example, a profile picture is now evident on a Facebook, for example or a video resume comes across the desk. Years past, there was no way to determine, for example, the sex or race of that person. Now, if that person is not hired, they have an additional basis to bring a claim of discrimination. The other area that we’re seeing some additional interest … the National Labor Relations Board has come out with some guidance with respect to concerted activity. Whether you’re union or not union, you have every right in the workplace to effectively

complain about your workplace conditions without fear of retaliation. Now, use of social media has heightened that exposure again, whether you’re union or non-union, that law protects you and it’s something that they’re really looking at closely. We’re looking at social media policies, and really looking at the exposure. Another heightened exposure, is just the disparate treatment of individuals. “You looked at this Facebook page for me because I’m of a certain protected class, for example. You don’t look at everybody’s Facebook page.” That disparate treatment with respect to the enforcement of social media policies is something that we’re going to be keeping our eye on.

really is sizable and has increased over the last couple of years, not surprisingly. From a Chubb perspective, we look at a variety of different claims. Of course, the costs depend upon the sophistication of the claim that’s being made. But a single plaintiff charge can

cost tens of thousands of dollars, just to simply defend that charge. If it’s a lawsuit, for example, that number quadruples. If there’s a class action or any kind of mass activity, which includes groups of people, it’s easily 15 times as much as that.

Besides EPL coverage, how should businesses protect themselves from these types of lawsuits? Padalino: There’s a couple of ways that employers can protect themselves. First and foremost, aside from insurance, they should be reaching out to their general counsel, their outside counsel, for expertise with respect to those core anti-harassment and anti-discrimination policies. One of the things that we talk about a lot is social media. It’s great to have social media policies, but it comes back to the core premise that you don’t harass and you don’t discriminate within the workplace. That’s where those policies need to be vetted and updated on a regular basis with outside counsel. Another thing that employers can do is tap into the resources that are available. Insurance carriers, for example, provide an array of loss mitigation services. These loss prevention services might include expert consultants, they might include handbooks, they include websites. And most of the time those services come along for free with the policy. What are the typical cost expenses associated with an EPL lawsuit? Padalino: From an EPL standpoint, one of the statistics we look at a lot is the Jury Verdict Research data. Their 2011 data just came out. The average award for that was over $600,000. That doesn’t include the defense expenses that go along with it. It


Wow! How the Academy Has Changed! The Secret: Academy Memberships Academy memberships may be our bestkept secret; but this past year the Academy of Insurance introduced agencies, brokers hat do Barbara Dooley, Academy of Insurance memberships and “Insurance and insurance carriers the opportunity to become a member of the Academy. Members is Not Risk Management” have in common? pay a one-time subscription giving them All three were added to Insurance Journal’s 12-month access to essentially every course, Academy of Insurance in 2011. live or on-demand, offered by the Academy, Barbara Dooley joined the Academy of depending on the membership purchased. Insurance in mid-2011 as the online training Three membership levels are coordinator. Initially Dooley’s available: Gold, Platinum and time was split between the Executive. Each offers an increasing Academy and the IJ magalevel of member benefits up to and zine’s production team. But in including the option to have a class September, Dooley became a fullwritten and presented live just time member of the Academy. for the member. Platinum-level In her role as online training and Executive-level memberships coordinator, Dooley is responhave limited availability (because sible for day-to-day management of the benefits provided). Only 40 of Academy webinars. This Barbara Dooley Platinum-level memberships are includes: managing instrucavailable; and Executive-level memberships tor contracts; collecting and editing class are limited to 20. descriptions, for every class; placing each More detailed information class on the Academy’s website; coordinaton memberships is available ing practice sessions with each instructor; at: hosting/moderating every webcast; assuring that every student receives a copy of the class memberships. (audio, video and supporting documents) New Book! within three days of the class; and soliciting “Insurance is Not Risk feedback from students. On average, Dooley Management! The Insurance manages two webinars per week. Professional’s Guide to Risk Dooley has a versatile background that Management and Insurance” includes banking, sales and online campaign is the Academy’s fifth book. management giving her a well-rounded This latest Academy book skill-set. Some of her past work experience answers questions such as: Is includes providing financial solutions to “risk” the enemy or is it necmeet a wide variety of client specific needs, essary? What is risk manageachieving rigorous sales goals and ensuring ment? And, how does insurfull delivery of online campaigns by analyzance fit into the concept of risk management? ing online traffic reports. In her free time she Beyond simply answering these quesenjoys do-it-yourself (DIY) projects and blogtions, “Insurance is Not Risk Management” ging. Dooley’s blog can be found at www. expounds on the ubiquity of risk, defines By Christopher J. Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS



risk, discusses the theory of risk management, details the risk management process, delves into insurance and puts insurance in its rightful place within the overall concept of risk management. “Insurance is Not Risk Management” includes chapters covering insurance regulation, the unique contractual aspects of the insurance policy, negligence and legal liability theories, and the premium audit process and rules. Chapter 10 is the capstone chapter; it provides the reader with the guidelines necessary to read and understand ANY insurance policy. All experience levels can benefit from the concepts presented in this book. Even those who have not chosen insurance as a profession will find this book beneficial. This and all five Academy books covering topics such as workers’ compensation, business income, property and casualty insurance concepts, and misunderstood coverages can be found at: Yes, 2011 was a year of new additions; some we didn’t even mention. And 2012 promises to be just as exciting for Insurance Journal’s Academy of Insurance. During 2012 the Academy is launching a program designed to help employers assess the technical insurance knowledge of their employees; adding new books to our library; and potentially introducing a new subscription product for the true insurance professional. Welcome to 2012 and welcome to the Academy of Insurance. We look forward to serving and hosting you this year.

Insur ance Journal Academy of Insur ance

2012 First Quarter Schedule January 11 & 25 Messaging (2 part series) Bill Whitley The Bill Whitley Co.

February 16 Builders Risk/Contractor’s Equipment Terry Tadlock President, Coastal Plains Insurance

January 12 Understanding the Basics of Contractual Risk Transfer Christopher J. Boggs Director of Education, IJ Academy of Insurance

February 23 Secrets of Condos Property/Liability Christopher J. Boggs Director of Education, IJ Academy of Insurance

January 19 The Real Effects of Granting Additional Insured Status Christopher J. Boggs Director of Education, IJ Academy of Insurance January 26 The Proper Care and Feeding of Certificates of Insurance Stuart Powell VP Insurance Operations, IIANC February 1, 8 & 15 Becoming an Exceptional Producer (1 of 3) Frank Pennachio Co-Founder, The WorkComp Advisory Group February 2 & 9 Principles of Premium Auditing (2-part series) Christopher J. Boggs Director of Education, IJ Academy of Insurance

February 29 Myths, Lies and Legends Surrounding Kidnap and Ransom Coverage Chris Christian VP and Senior Broker, US Risk Brokers March 1 Privacy Fred Fisher Senior VP, E.L.M. Insurance Brokers

March 14 Customized Presentaions Equals More Wins and More $: Learn how to use DISC to win Business Kathy Ryan President & Founder, Pinnacle Coaching Group, LLC March 15 Workers’ Compensation- Employees, GC’s, IC’s Christopher J. Boggs Director of Education, IJ Academy of Insurance March 21 Preparing an Underwriting Submission Rita Hollada VP, The Insurance Professionals, Inc.

March 7 Insolvency Exclusions in E&O Joe Petrelli President, Demotech

March 22 Workers’ Compensation- Adding a State Christopher J. Boggs Director of Education, IJ Academy of Insurance

March 8, 15, 22 & 29 Practical Workers’ Compensation (4-part series) Christopher J. Boggs Director of Education, IJ Academy of Insurance

March 29 Workers’ Compensation- Experience Mod Worksheet Christopher J. Boggs Director of Education, IJ Academy of Insurance

March 8 Workers’ Compensation - Compensable Injury Illness Christopher J. Boggs Director of Education, IJ Academy of Insurance


Insur ance Journal Academy of Insur ance

A Sales Instructor Who Doesn’t Close? It’s True. Academy of Insurance Instructor, Whitley, Reveals What He Learned From Top Producers


trying to put you in a box.” ill Whitley has never worked in the Whitley’s first book, “Art of the insurance industry, yet he effectively Rainmaker,” introduced him to the insurteaches producers how to flourish in their business. Furthermore, he doesn’t teach clos- ance industry (and the insurance industry to him). ing techniques. That’s right, he “[The book] Art of the doesn’t believe in “closing” a deal Rainmaker really teaches how to — it’s all about the opening. develop a client attraction story,” Rather than focusing on closWhitley says. “To me, a clienting techniques, Whitley teaches attraction story is a real world producers how to open the example of a client that had a conversation with a properly challenge where you, your insight, constructed and presented sucor advice helped them avoid some cess stories. “If you know how difficulty or achieve some goal, to open, you don’t have to close,” Bill Whitley and they got great results.” Whitley says. “I would much rather open than close. Opening Top Producers is about how I can help you; it’s about the Four years ago “Art of the Rainmaker” value I can offer you. Closing is about me

Still ahead of the curve

Insurance Journal

Academy of Insurance For a list of all our upcoming webinars, visit

found its way into the hands of a large captive insurance company. Because of the power of the book, Whitley was invited to hold a seminar for 250 of its agents. Whitley, in preparation for the seminar, interviewed the carrier’s top 10 producers to learn their secrets of production success. “At the end of my interviews, I was just blown away with what I learned,” Whitley says. “I was so excited I called back and said ‘I want to change my seminar. Instead of calling it the ‘Art of the Rainmaker,’ I want to call it ‘Eight Secrets of the Top-Performing Agents.’ That seminar has been a big hit.” It also inspired his insurance-specific sales book, “Eight Secrets of the Top-Performing Agents.” What Whitley found is that all of the top producers he interviewed made a transition from simply quoting to advising clients in the best way to manage their everyday risk. “The eight secrets really are all about how to make that exact transition.” One of the secrets to making this transition, Whitley discovered, is the importance of stories and how to present them. “What you’re doing with that [story] is you’re really communicating the value of an advisor,” Whitley says. ‘Messaging’ Seminar in January In January 2012, Whitley is presenting a two-part seminar called “Messaging.” This Webinar covers how to position yourself as an advisor by developing and using a clientattraction story. The class dates are January 11 and January 25. Beware, Whitley gives homework. “In class number one, we teach producers how to develop their story; then everybody’s given a homework assignment. We ask everybody to work on their story. I ask the participants to submit their stories to me; I’ll pick three or four of them, and I’ll share on the next call exactly how I’d tell your story.” For more information, or to register for the seminar, visit


Insur ance Journal Academy of Insur ance

A Disciplined Approach to Underwriting


ow that 2011 is in the record books, various insurance company presidents soon will be disclosing and discussing their company’s year-end results. While the exact words may be different, don’t be surprised if they all sound something like: “The management team at Shifting Sands Insurance Co. is pleased with the 4 percent premium growth we experienced in 2011. However, our combined ratio of 109.6 percent, caused by higher than expected catastrophe losses, lower Chris Behymer amounts of favorable development on prior year accident years, and a challenging economy, is not in keeping with our goal of making an underwriting profit. In 2012, and beyond, will be to adjust our pricing on those lines and classes of business that are not performing as planned and to embrace a new era of underwriting discipline so we can continue to provide quality service and products to our valued business partners and policyholders.” The pricing issue is pretty easy to decipher, but what, exactly, is “underwriting discipline?” Underwriting is obviously not an exact science; and unfortunately insurance companies don’t know the ultimate cost of a particular policy until long after it has expired. For our purposes, “underwriting discipline” is nothing more than properly evaluating a risk and making rational, reasonable decisions on acceptability, pricing and coverage. Over the past eight years we, the industry, have become a bit sloppy in applying these principles. As a result, some companies need to apply some corrective action to get their house in order. So, what are the signs that a particular insurance company has entered the “era of underwriting discipline?” What Does the Insured Do? Although this seems to be an obvious question (it’s even on the application), in the haste to get a quote and sell the account, this important piece of the puzzle is sometimes missing. Take a distributor for example.

Would it matter to the underwriter if the insured was distributing silverware (i.e., knives and forks) or replacement parts for an airplane? Acceptability, pricing and terms vary greatly for such disparate accounts, and should because the loss exposure is so much greater for the airplane parts distributor than the silverware distributor. Questions and More Questions Directly related to figuring out what the insured does, expect the underwriter to ask you many more questions, for both new and renewal accounts, in an era of renewed “underwriting discipline.” Last year I witnessed an example exactly the opposite of “underwriting discipline.” An agent submitted an application on a contractor. The “disciplined” underwriter contacted the agent to request some basic information: payroll, receipts, and what, specifically, the insured did. The agent said, “Please close your file. I have already received a quote from two markets with the information I sent you.” Say what? How can two carriers quote a risk when they know so little about it? In the insurance world, it’s not what a carrier knows about an account that will hurt it, but what it doesn’t know. The Match Game Insurance Services Office (ISO) loss costs reflect an average rate for risks that exhibit average underwriting characteristics. In any class of business, there are accounts that deserve to pay less than the average rate and others that should pay more. This is Underwriting 101. Companies get into trouble when they charge below average rates for risks with above average loss potential. Long-term success in insurance requires that the rate (and ultimately the premium) charged matches the loss exposure presented. Disciplined underwriters must assure that risks with a higher probability of loss pay more. A Form by Any Other Name During competitive insurance markets carriers often enhance their policy forms to

provide more protection. Examples include adding hired and non-owned auto, increased crime coverage limits, blanket additional insured and waiver of subrogation endorsements — all at little or no additional premium. It is no secret that losses for these added coverages will eventually mount; when this occurs insureds should expect the introduction of endorsements designed to limit or exclude certain coverages along with the possibility of higher premiums and additional costs. It is important that such changes be communicated to policyholders before something unexpected happens. Great Expectations There are producers who have entered the insurance business in the past eight years and have never experienced the hardening of the market. They have “grown up” in insurance with the idea that every account, new or renewal, qualifies for a premium reduction. Several years ago an underwriter relayed the following story to me. She received a submission from a retailer for a general liability (GL) quote on a rather large schedule of apartments. The narrative read something like this: “See the attached ACORD forms and loss runs. The incumbent carrier is non-renewing due to a frequency of large losses. Please provide your most favorable pricing and terms as soon as possible. I need to be able to offer similar pricing and coverages in order to retain the account.” Okay, let’s review. The current carrier is electing to terminate the risk due to a number of large losses. For us to write the account, the agent requires us to do so with the same pricing and coverage. Uh, I don’t think so, Scooter! I don’t fault the agent for working hard for his client, which is what he is paid to do. But the reality is that writing a difficult, historically unprofitable risk requires some coverage and pricing adjustments to make it acceptable. Disciplined underwriters know that managing the expectations of agents — wholesale and retail — and insureds is challenging, but necessary.


2012 Insurance Industry Meetings and Conventions Directory Welcome to Insurance Journal’s 2012 Insurance Industry Meetings and Conventions Directory. The information in this directory is taken from a larger database containing additional information on these and other meetings, including industry-related seminars, conferences and workshops. The online Insurance Journal events database can be found at Meeting planners are invited to add new meetings, conventions and seminars to the database free of charge, all year long. P/C Insurance Joint Industry Forum Jan 10 Waldorf Astoria New York, NY Insurance Information Institute Big ‘I’ Board of Directors Winter Meeting Jan 11-15 Waldorf Astoria Orlando Orlando, FL Independent Insurance Agents & Brokers of America 2012 California Wholesaler Industry Days Jan 11-13 Hilton Torrey Pines, La Jolla LaJolla, CA CIWA California Insurance Wholesalers Association Orange Empire CPCU Chapter Meeting Jan 12 Antonello Ristorante Santa Ana, CA Orange Empire CPCU Chapter Meetings PIANY’s MetroRAP 2012 Jan 18 Hilton New York City New York, NY Professional Insurance Agents of New York PCI Executive Roundtable Seminar Jan 22-24 Fairmont Scottsdale Princess Scottsdale, AZ Property Casualty Insurers Association of America

Larry Magill Rural & Small Agents Conference Jan 24-26 Ramada Hotel & Conference Center Salina, KS Kansas Association of Insurance Agents

2012 Leadership Conference Feb 6-7 Best Western GranTree Hotel Bozeman, MT Independent Insurance Agents Association of Montana, Inc.

Property Risk Insurance Specialist (PRIS) Certification Program Jan 25-27 Tempe Mission Palms Hotel Tempe, AZ IPA Academy

Claims Conference and Exhibit Show Feb 8-10 Savannah International Trade & Convention Center Savannah, GA National Association of Mutual Insurance Companies

NIIA 4th Annual Tradeshow Jan 26 Atlantis Hotel Reno, NV Nevada Independent Insurance Agents 49th Annual Joe Vincent Management Seminar Jan 29-31 Renaissance Austin Hotel Austin, TX The Independent Insurance Agents of Texas 2012 Windstorm Insurance Conference Jan 30-Feb 2 Buena Vista Palace Hotel Lake Buena Vista (Orlando), FL Windstorm Insurance Network Inc. All Industry Day at the Capital Feb 1 Red Lion Inn Olympia, WA Independent Insurance Agents & Brokers of WA

ABA Insurance Risk Management Forum Jan 22-25 Loews Miami Beach Miami, FL American Bankers Association N18 | INSURANCE JOURNAL-NATIONAL REGION January 9, 2012

The Virtual Insurance Marketplace Feb 8-10 Your computer anywhere Anywhere, CA Direct Connection Advertising & Marketing, LLC Professional Insurance Marketing Association (PIMA) 38th Annual Meeting Feb 9-12 Hammock Beach Resort Palm Coast, FL Professional Insurnace Marketing Association (PIMA) PLUS 2012 D&O Symposium Feb 9 Marriott Marquis Hotel New York, NY Professional Liability Underwriting Society Xactware User Conference 2012 Feb 16-17 Grand America Hotel Salt Lake City, UT Xactware Solutions, Inc.

MAIA’s 21st Annual Convention Feb 20-22 Amway Grand Plaza Grand Rapids, MI Michigan Association of Insurance Agents Houston Insurance Day 2012 Feb 21 Marriott Houston Westchase Houston, TX Independent Insurance Agents of Houston IIANC Spring Conference Feb 22-23 Greenville Convention Center Greenville, NC Independent Insurance Agents of North Carolina Insurance Day 2012 Feb 26-27 Marriott Town Center Hotel Charleston, WV Independent Insurance Agents of West Virginia , Inc. Commercial Lines Seminar Feb 29-Mar 2 Renaissance Chicago Hotel Chicago, IL NAMIC NAPSLO Mid-Year Leadership Forum Feb 29-Mar 3 Fairmont Scottsdale Princess Scottsdale, AZ NAPSLO AAMGA Automation & Technology Conference Mar 3-6 InterContinental Buckhead Hotel Atlanta, GA American Association of Managing General Agents Day at the Capitol Mar 7 Capitol Plaza Hotel Jefferson City, MO Missouri Association of Insurance Agents CPCU All Industry Day Mar 7 RBC Center Raleigh, NC Eastern NC Chapter of CPCU

24th Annual Combined Claims Conference (CCC) Mar 13-14 Long Beach Convention Center Long Beach, CA Combined Claims Conference (CCC)

Personal Lines Seminar Apr 11-13 Disney’s Yacht & Beach Club Convention Center Lake Buena Vista, FL NAMIC

PIA National Federal Legislative Summit Mar 21-22 Crystal City Marriott at Reagan National Airport Arlington, VA National Association of Professional Insurance Agents

Louisiana Surplus Lines Association 2012 Annual Convention Apr 11-13 Beau Rivage Casino Resort Biloxi, MS Louisiana Surplus Lines Association

Small Agency Conference Mar 22-23 Holiday Inn Columbia, MO Missouri Association of Insurance Agents

HAIP Region VIII Conference - 2012 Apr 12-14 Hilton Hawaiian Village Honolulu, HI Honolulu Association of Insurance Professionals

Los Angeles I-Day 2012 Mar 29 Burbank Marriot Burbank, CA IBA-BGP

PLRB 2012 Claims Conference Apr 15-18 Orlando World Center Marriott Orlando, FL Property Loss Research Bureau (PLRB)

PLUS 2012 Professional Risk Symposium Mar 29-30 Sheraton Chicago Hotel & Towers Chicago, IL Professional Liability Underwriting Society

PCI Human Resources Conference Apr 15-18 Hotel Clearwater Clearwater, FL Property Casualty Insurers Association of America

PLUS 2012 Medical PL Symposium Mar 29-30 Sheraton Chicago Hotel & Towers Chicago, IL Professional Liability Underwriting Society CEO Roundtables Apr 1-3 Westin Kierland Resort & Spa Scottsdale, AZ NAMIC

RIMS 2012 Annual Conference &amp; Exhibition Apr 15-19 Pennsylvania Convention Center Philadelphia, PA RIMS NHAIA Mid-Year Meeting Apr 17-18 Crowne Plaza Nashua, NH New Hampshire Association of Insurance Agents

2012 MIAA Annual Convention Apr 2-3 Wyndham Portland Airport Hotel South Portland, ME Maine Insurance Agents Association 2012 MIIAB/Trusted Choice Annual Convention & Exhibit Hall Apr 4-5 Hyatt Regency Minneapolis Minneapolis, MN Minnesota Independent Insurance Agents & Brokers

2012 TMPAA Mid Year Meeting Apr 20-May 2 The West Copley Place Boston, MA The Target Markets Program Administrators Association


2012 Insurance Industry Meetings and Conventions Directory PCI Joint Marketing & Underwriting Seminar Apr 22-24 Hotel Del Coronado Coronado, CA Property Casualty Insurers Association of America Society of Insurance Research Conference Apr 23-24 TBA Chicago, IL Society of Insurance Research Big ‘I’ Legislative Conference & Convention Apr 25-27 Grand Hyatt Washington Hotel Washington, District of Columbia Independent Insurance Agents & Brokers of America NetVU Conference Apr 26-28 Anaheim Convention Center Anaheim, CA NetVU FIWT 2012 Mid-Year Education Conference Apr 27-28 MCM Elegante Suite Abilene, TX Federation of Insurance Women of Texas B.I.G. Think Differently Convention May 4-12 Riverside Convention Center Riverside, CA Brokers Insurance Group 2012 Blue Ribbon Conference May 6-10 Mauna Lani Resort & Spa Kohala Coast, HI Insurance Brokers & Agents of the West AAMGA Annual Meeting May 6-9 JW Marriott San Antonio, TX American Association of Managing General Agents

Director’s Education Series: Boot Camp and Advanced Courses May 7-9 The Chase Park Plaza Hotel St. Louis, MO NAMIC NICB Special Investigations Academy - Basic and Specialized Tracks May 7-10 Sheraton Westport Chalet Hotel St. Louis, MO National Insurance Crime Bureau IIAO’s Annual Event May 9-10 Skirvin Hilton Hotel Oklahoma City, OK Independent Insurance Agents of Oklahoma 113th Annual Convention May 9-10 Kalahari Resort & Convention Center Wisconsin Dells, WI Independent Insurance Agents of Wisconsin NCCI’s Annual Issues Symposium May 10-11 Loews Portofino Bay Hotel Orlando , FL NCCI Holdings, Inc. San Diego I-Day 2012 May 15 Town & Country Convention Center San Diego, CA IBA San Diego ACORD LOMA Insurance Systems Forum May 15-17 Rosen Shingle Creek Orlando, FL Acord Loma Leadership Forum & PFMM Sessions May 22-24 Hilton St. Louis at the Ballpark St. Louis, MO NAMIC Young Agents Conference Jun 3-5 Hilton Promenade Branson, MO Missouri Association of Insurance Agents


111th Big ‘I’ Annual Convention Jun 4-6 Hilton Branson Convention Center Hotel Branson, MO Independent Insurance Agents of Arkansas FAIA’s 108th Anniversary Convention & Education Symposium Jun 7-9 Gaylord Palms Resort & Convention Center, Orlando Kissimmee, FL Florida Association of Insurance Agents 114th IIAC Annual Meeting Jun 7 St. Clements Castle Portland, CT Independent Insurance Agents of Connecticut, Inc. erence=CT&ActiveT 71st Annual Convention Jun 9-12 Omni Hotel Downtown Dallas, TX International Association of Insurance Professionals (IAIP) 2012 IIAM Annual Convention Jun 10-13 Sandestin Beach Hilton Hotel Destin, FL Independent Insurance Agents of Mississippi, Inc. IIAT Annual Conference & Trade Show Jun 13-15 Grand Hyatt San Antonio San Antonio, TX Independent Insurance Agents of Texas AIIA 116th Annual Convention & Trade Show Jun 14-16 Baytowne Whaf San Destin, FL Alabama Independent Agents Association, Inc. 115th IIANC Annual Convention Jun 16-19 Marriott Resort & Spa at Grande Dunes Myrtle Beach, SC Independent Insurance Agents of North Carolina

IIAV 114th Annual Convention & Trade Show Jun 17-19 Hilton Virginia Beach Oceanfront Virginia Beach, VA Independent Insurance Agents of Virginia AWIA Convention Jun 20-21 Holiday Inn Sheridan, WY Association of Wyoming Insurance Agents NAMIC Management Conference Jun 24-27 Vail Mountain Resort & Spa Vail, CO NAMIC 2012 IMCA Annual Meeting and Showcase Awards Jun 24-27 Ritz-Carlton Denver Denver, CO Insurance Marketing and Communications Association NIIA 66th Annual Convention Jun 24-26 Hotel Cosmopolitan Las Vegas, NV Nevada Independent Insurance Agents PLRB Eastern Regional Adjusters Conference Jun 26-27 Rhode Island Convention Center Providence, RI PLRB LAAIA 42nd Annual Convention Jul 10-15 Doral Golf Resort & Spa Miami, FL Latin American Association of Insurance Agencies Agricultural Risk Inspection School Jul 17-19 Hilton St. Louis at the Ballpark St. Louis, MO NAMIC Leadership Conference Jul 18-20 The Lodge of Four Seasons Lake Ozark, MO Missouri Association of Insurance agents

Independent Insurance Agents’ Association of Montana 81st Annual Convention Jul 18-19 Billings Hotel & Convention Center Billings, MT Independent Insurance Agents’ Association of Montana

South Dakota’s Annual Convention & Trade Show Sep 9-11 Deadwood Lodge Deadwood, SD Independent Insurance Agents of South Dakota

2012 TSLA Mid-Year Meeting Jul 22-25 Four Seasons Biltmore Santa Barbara, CA Texas Surplus Lines Association, Inc.

NAMIC’S 2012 Annual Convention Sep 16-19 Gaylord Texan Hotel & Conference Center Grapevine, Texas NAMIC

ACIC General Counsel Seminar Jul 25-27 The Cosmopolitan of Las Vegas Las Vegas, NV Property Casualty Insurers Association of America

NHAIA Annual Meeting Sep 17-19 Woodstock Inn Woodstock, VT New Hampshire Association of Insurance Agents

IIABAZ’s 78th Annual Convention & Trade Show Aug 22-24 Renaissance Glendale Hotel & Spa Glendale, AZ Independent Insurance Agents and Brokers of Arizona

IIAI’S 106TH Annual Convention and Trade Show Sep 19-20 Sheraton Hotel West Des Moines, IA Independent Insurance Agents of Iowa, Inc.

IIABO 2012 84th Annual Convention & Trade Show Aug 26-28 Sunriver Resort Sunriver, OR Independent Insurance Agents & Brokers of Oregon

PIA of Ohio Agency Management and Profitability Conference Oct 2-3 Renaissance Columbus Downtown Hotel Columbus, OH Professional Insurance Agents Association of Ohio, Inc. IIA of IL Convention Showcase Oct 3-5 Crowne Plaza Springfield, IL Independent Insurance Agents of Illinois

Big ‘I’ Fall Leadership Conference Sep 5-9 The Westin Peachtree Plaza Atlanta, GA Independent Insurance Agents & Brokers of America PLRB Central Regional Adjusters Conference Sep 5-6 Renaissance Schaumburg Convention Center and Hotel Schaumburg, IL PLRB PCI Investment Seminar Sep 9-12 Kiawah Island Golf Resort Kiawah Island, SC Property Casualty Insurers Association of America

PCI Information Technology Conference Oct 7-10 Fairmont Scottsdale Princess Scottsdale, AZ Property Casualty Insurers Association of America 2012 Annual Convention Oct 7-9 The Resort at Glade Springs Daniels, WV Independent Insurance Agents of West Virginia, Inc.


2012 Insurance Industry Meetings and Conventions Directory 2012 NAPSLO Annual Convention Oct 8-11 TBA Atlanta, GA NAPSLO National Association of Professional Surplus Lines Offices, Ltd.

PCI Annual Meeting Oct 28-31 St. Regis Monarch Beach Hotel Dana Point, CA Property Casualty Insurers Association of America

SNL Insurance M&A Symposium Oct 10-11 Union League Club New York, NY SNL Center for Financial Education

114th Annual Convention Oct 28-30 Westin Savannah Harbor Savannah, GA Independent Insurance Agents & Brokers of South Carolina

IIAN 105th Annual Convention Oct 10-12 Younes Convention Center Kearney, NE Independent Insurance Agents of Nebraska Insurors of Tennessee 119th Annual Convention Oct 13-16 Hilton Nashville Downtown Nashville, TN Insurors of Tennessee 42nd SIR Annual Conference Oct 14-17 Marriott City Center Pittsburgh, PA Society of Insurance Research Annual Business Meeting & Networking Event Oct 14-16 Dolce Hotels & Resorts Seaview Galloway, NJ Independent Insurance Agents & Brokers of New Jersey, Inc.

PLRB/LIRB 2012 Large Loss Conference Oct 29-31 Washington Marriott Wardman Park Washington, DC PLRB 12th Annual TMPAA Summit Meeting Oct 29-31 Hyatt Regency Scottsdale Scottsdale, AZ The Target Markets Program Administrators Association 2012 TSLA Annual Meeting Nov 4-5 Four Seasons Hotel Austin, TX Texas Surplus Lines Association, Inc. PCI Legislative & Political Conference Nov 7-9 The Drake Hotel Chicago, IL Property Casualty Insurers Association of America

Massachusetts Association of Insurance Agents Annual Convention & Trade Show Nov 8-11 Marriott Copley Place Boston, MA Massachusetts Association of Insurance Agents 2012 Mid-Year Convention Nov 8 Aqua Turf Plantsville, CT Independent Insurance Agents of Connecticut, Inc. =CT&ActiveTab=STATE&ActiveState=CT 2012 IIAI Convention Nov 11-13 The Westin Hotel Indianapolis, IN Independent Insurance Agents of Indiana, Inc. PLRB Western Regional Adjusters Conference Nov 13-14 Omni Dallas Hotel Dallas, TX PLRB Insurance Brokerage Summit Nov 13-14 InterContinental Chicago, IL SNL Center for Financial Education

FIWT 2012 Annual Convention Oct 18-21 Westin Park Central Dallas, TX Federation of Insurance Women of Texas



MyNewMarkets Dentists Market Detail: AFPD Inc. offers (www. offers errors and omissions coverage for dentists. The company represents Medical Protective, a Warren Buffett/ Berkshire Hathaway Co. Medical Protective has been insuring dentists since 1899 and offers coverage for all states and dental specialists and can also provide AFPD access to coverage on non-standard markets under the appropriate circumstances. Policies in New York are written through MedPro Risk Retention Group. E&S/Non-Standard policies are written through National Fire & Marine. Available limits: Minimum $5,000, maximum $2 million Carrier: Medical Protective, MedPro Risk Retention Group, National Fire & Marine States: All states except Hawaii, Ky., La., Miss., Utah, and W.V. Contact: Customer service at 800-870-7750

Rental Equipment & Party Goods Market Detail: Ascinsure (www.ascinsure. com) provides coverage for the contractor, homeowner, tool, tent and party markets as well as general rental companies. The Ascinsure Rental Equipment and Party

Goods facility has hundreds of insureds nationwide, and holds the pen for its rental program. Ascinsure has 25 years of experience in insuring the rental and party industries. Available limits: Minimum $5,000 premium, maximum $2 million Carrier: Fireman’s Fund States: All states Contact: Chuck Weisenborn at 877-372-0517 or email:

Temporary Staffing Firms Market Detail: Cooper & Mcloskey Inc. ( offers: E&O and EPLI in one policy; defense costs outside the limit of liability; occurrence form for both E&O and EPLI; no deductible for E&O coverage; and duty to defend. Insurer will appoint skilled counsel to defend covered claims. Coverage also includes personal injury coverage for emotional distress and mental anguish; medical and professional temporary employees carved out of the bodily injury/property damage (BI/PD) exclusion; placement of independent contractors; and placement of architects and engineering professionals. Available limits: As needed

Carrier: Unable to disclose, admitted and non-admitted available States: Alaska, Ariz., Calif., Hawaii, Ill., Nev., N.Y., Ohio, Ore., Texas, and Wash. Contact: Customer service at 415-433-7700

Shopping Centers Market Detail: Preferred Concepts (www. coverage for shopping centers includes boiler and machinery, commercial general liability, property, umbrella, and auto commercial-standard. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Customer service at 646-218-3224

High Net Worth Clientele Market Detail: Marsh Private Client Services ( 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 e-mail:

Advertisers Index E: East, M: Midwest, N: National, SC: South Central, SE: Southest, W: West Agency Ideas N13 Amwins Group, Inc. W2, SC2, SE7, E7, M7 Applied Underwriters W48, SC44, SE38, E40, M40 Arrowhead General Insurance Agency W3 Builders & Tradesmen’s Insurance W7, SC7 Catlin US W21, SC15, SE38, E3, M3 Century National W13 CID Insurance W19, SC13 Great American W47, SC43, SE2, E2, M2

ISU Group W10, SC12, SE12, E12, M12 JM Wilson SE14, M14 M.J. Hall & Company, Inc. W18 McClelland & Hine SC18 Monarch E & S Insurance Services W15 Pacific Gateway Insurance Services W17 Partners Specialty Group N10 W5, SC5, SE5, E5, M5 Philadelphia Insurance Companies W11, SC11, SE11, E11, M11

Quirk & Company R. E. Chaix Tejas American General Agency Universal Service Agency, Inc


W14 N4 SC3 N13



Closing Quote even in the chaos of the financial crisis of 2008, the current state-based insurance regulatory system proved resilient and effective in both ensuring company solvency and protecting consumers. In fact, many experts would agree that the states outperformed their federal counterparts. As other financial services companies were failing and seeking government assistance, property/casualty insurers continued to be well-capitalized and neither sought, nor required, federal funding and were able to continue to protect their policyholders. This shouldn’t be surprising. The hallmarks of the state-based system of insurance regulation are solvency oversight and consumer protection. State regulators actively resolve consumer complaints each year, while also supervising all aspects of the business of insurance by establishing and enforcing strict solvency and investment standards and limiting unrelated activities of insurance affiliates. Moreover, in the rare event of an insolvency, the state guaranty system provides an additional layer of protection for consumers. The states have also done much to foster competition. There are currently thousands of insurance companies of all sizes and varieties offering financial protection to Americans in a multitude of different markets. This isn’t to say that the state-based insurance regulatory system is perfect. Far from it. Most states employ some form of rate regulation as a central feature of their systems. It is the last vestige of price regulation found in financial services, and in many cases it distorts markets and harms consumers. or months now, Director Michael McRaith and his staff Director McRaith comes from Illinois, the only state with no at the Federal Insurance Office (FIO) have been doing something rare for a federal agency — they’ve been listening. rate regulation. He has seen this system work, so we are hopeful In meetings, requests for comment, and even a symposium the Treasury study will recognize the need for change in other states. at the Department of the Treasury’s historic Cash Room, difNot all states are the same, and like many others, we are ferent groups representing different views of the insurance concerned with the lack of efficiency and uniformity in the industry — companies, trade associations, consumer advostates, and we believe that much can be done to modernize and cates, and regulators — have had the opportunity to tell streamline insurance regulation. As much as state regulators McRaith what they think about how our industry is regulated and what could be done to improve and modernize the focus on ensuring consumer protections, burdensome and duplicative regulations needlessly add to the costs facing those same system. consumers. After months of listening, we’ll find out what the FIO Which brings us back to the FIO study … and listening. heard, and more importantly, what they think. Under the As it crafts recommendations for modernDodd-Frank Act, which created the office, izing insurance regulation in the U.S., we at the FIO is required to report to Congress Burdensome and NAMIC believe it is essential for the FIO to this month on the broad issue of how to duplicative regula- consider what is the best structure for all modernize and improve the system of tions needlessly add constituents, including consumers, taxpayregulation for insurance. to the costs facing ers, insurance companies, agents, and others consumers. affected by the insurance underwriting process. No Small Stake NAMIC is committed to identifying areas for Obviously, the National Association improvement and coordination to strengthen the insurance regof Mutual Insurance Cos. (NAMIC) members have no small ulatory system, increase competition, and protect the nation’s stake in the matter. Of the thousands of companies providpolicyholders. It is our goal to help the FIO recommend actions ing property/casualty insurance coverage in this country, we that will promote as much efficiency in the state system as posrepresent more than 1,400 of them, from the very smallest to sible without jeopardizing its effectiveness. the largest. At NAMIC, we believe any discussion of insurance regulatory modernization should start with the recognition that, Chamness is president/CEO of the National Association of Mutual Insurance Cos.

The Sound of Feds Listening


By Charles Chamness




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Applied Experience. Applied Intelligence.

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Contractors / Subcontractors  

Contractors / Subcontractors; Employment Practices Liability Insurance; 2012 Insurance Agents & Brokers Meetings / Conventions Directory

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