Insurance Journal

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PROGRESSIVE IRKS MASS. AGENTS Want Commish to Rein in Web Site

PENNSYLVANIA SUED Docs Seek Malpractice Subsidy

ILLEGAL DISCOUNTS IN R.I. Ex-Beacon Mutual Exec Indicted

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Business owners shouldn’t be experts in everything. Applied Underwriters® gives them the ability to concentrate on what they know best: their business. We do this by integrating casualty coverages, payroll and risk reduction services, all from one provider. Combine this with insurance carriers that have earned an A.M. Best Rating of A (Excellent), it all equals a client retention rate of over 90%. For more information call 1-877-234-4450 or visit www.applieduw.com.

© 2007 Applied Underwriters, Inc. A Berkshire Hathaway Company.

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Walter Curtis, Master Machinist.

Known for his laser-like precision on the milling machine.

Expects the same accuracy from his workers’ compensation provider.

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Inside This Issue January 12, 2009 • Vol. 87, No. 1 • East Region

EAST COVERAGE 8

| Pennsylvania Sued over Malpractice Fund Keystone State Docs Say Money Should Be Used to Defray Malpractice Premiums

8

| New Hampshire Sees Rise in Roadway Fatalities Deaths fromAuto Accidents Climbed Nearly 8% Last Year in the Granite State

8

N12 Special Report Top 100 Agency Profile Ohio-based The Hylant Group — Private, Independent and Free

NATIONAL COVERAGE N1 | Special Report: Contractors and Subcontractors Challenges Loom for Commercial Contractors in 2009 N4 | Washington Report FTC Probing Insurers Over Credit-based Homeowners Insurance Pricing N6 | Closer Look: Employment Practices Liability New Laws, Power Shift in Washington May Increase Workplace Risks N12 | SPECIAL REPORT: Top 100 Agency Profile Ohio-based The Hylant Group — Private, Independent and Free N16 | SPECIAL REPORT: Contractors and Subcontractors The Progressively Narrowing Coverage of Additional Insured Endorsements N19 | International Report Economy and Climate Change Top New Year Agenda

| Former Beacon Mutual Exec Faces New Charges in Rhode Island Ocean State Brings New Fraud Indictment for Improper Premium Discounts

41 The Year of The Policyholder How State Courts Bolstered Policyholders’ Rights in 2008

41 | The Year of the Policyholder Some States Saw Significant Pro-Policyholder Developments in 2008 42 | Progressive Draws Ire of Agents Head of Massachusetts Agents’ Group Demands Action from State Regulators 44 | Court: No Coverage for Document Theft in Professional Liability Bay State Court Defines Intellectual Property Exclusion

IDEA EXCHANGE

42 Agents Battle Progressive Agents in Massachusetts Want Commish to Rein in Their Online Competitor

N27 | Minding Your Business Developing a Sales & Marketing Plan, Part 2 40 | Estimating the Credit Crisis Insurance Losses Lawsuits Associated with Economic Crisis May Continue beyond 2009

DEPARTMENTS 43 46 N26 6 39

| | | | |

Business Moves Closing Quote MyNewMarkets Opening Note People

40 Estimating the Credit Crisis Insurance Losses Lawsuits Will Continue Beyond 2009

N21 | Spotlight: 2009 Insurance Industry Meetings & Conventions Directory

4 | INSURANCE JOURNAL-EAST REGION January 12, 2009

www.insurancejournal.com

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Idea Exchange Opening Note Publisher Mark Wells Chief Executive Officer Mitch Dunford

Reading Between the Whines

T

here are several near-constants in an insurance editor's life when a new year rolls around. There's the inevitable mistake of putting last year's date on this week's article. There's the added frustration of trying to contact sources over the holidays when nobody seems to be working. And, of course, there's the unavoidable debate over what have been the biggest insurance stories of the past year.

Rather than pull a few items out of thin air — a wholly unscientific method — we at Insurance Journal decided to do our own research, utilizing our online archives of insurance stories which we tout as the largest insurance article archives in the world. At least after Google.

When we took a look back at the five most-read stories of 2008 on our Web site, insurancejournal.com, we wanted to figure out what readers might consider the most important. Sure it’s a popularity contest based on how many people read the articles — but maybe it's better than six whiny, overworked editors trying to justify their existence by insisting that their favorites were also the readers' favorites. What we found is something we should have expected: The biggest stories of 2008 involve issues that will likely have a major impact on 2009. They were:

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal Vice President/Content Andrew Simpson | asimpson@insurancejournal.com Midwest Editor Sue Mckenna | smckenna@insurancejournal.com Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists Catherine Oak, Bill Schoeffler Contributing Writers Kenneth R. Auerbach, Mark Garbowski, Kevin LaCroix, Jeffrey O’Shaughnessy

SALES V.P., Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Eric Jeter (281) 655-0234 ejeter@insurancejournal.com

Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com

MARKETING

1.

2.

3.

4.

5.

“Liberty Mutual to Acquire Safeco Insurance in $6.2B Deal” “Insurance Producers Start to Move Business from AIG to Competitors “5 Execs Found Guilty of Fraud in Gen Re-AIG Trial” “Florida Blocks Allstate Insurance from Writing New Business in State” “AIG Woes Offer Double Benefit for Insurance Rivals”

What struck us about this list is how the most-read stories of 2008 are likely to be the defining industry issues of 2009 — three of them in particular. The most-read piece was a breaking news story from April announcing Liberty Mutual Group’s acquisition of Safeco Corp., a deal that created the fifth-largest property/casualty insurer and second-largest surety writer in the country. That acquisition, which fused Safeco into Liberty Mutual’s Agency Markets, created an organization with 15,000 independent agencies — a behemoth whose every move will likely have a significant impact on the entire independent agency system in 2009 and beyond.

And as one might expect, several of the top five stories involved the insurance company no one can stop talking about: AIG. Number two was an exclusive piece from our own Andrew Simpson in September detailing how – despite assurances that AIG insurance subsidiaries are sound – producers across the country had begun moving accounts from AIG affiliates. Number five was a Reuters piece detailing how AIG’s collapse and fire sale is shifting the dynamics of the insurance marketplace, and boosting the market grip of AIG’s competitors.

That dynamic — how the collapse of AIG plays out on the street level — will likely be another major force in the independent agency system nationwide in 2009, and the foreseeable future.

Every year in insurance news springs surprises. Nobody would have imagined the AIG crisis until it happened. Surprises aside, it's a sure bet that for this new year, among the most-read stories of 2009 will be ones involving Kenneth J. St. Onge the insurance giants Liberty Mutual and AIG East Editor and their ups and downs. kstonge@insurancejournal.com Happy reading in 2009.

Marketing Administrator Gayle Wells | gwells@insurancejournal.com Marketing/Design Assistant Ryan Graef | rgraef@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified and Ancillary Sales Manager Nicola Coghill | ncoghill@insurancejournal.com (619) 584-1100 x125 New Media Producer Chad Reese | creese@insurancejournal.com

DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Graphic Designer Jamie Bethell | jbethell@insurancejournal.com Graphic Designer Chris Johnson | cjohnson@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com

A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Admin./ Marketing Asst.

Kristina Delavega | kdelavega@insurancejournal.com Cover designed by: Eric R EgglyPointSeven Studios

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly 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 2009 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

6 | INSURANCE JOURNAL-EAST REGION January 12, 2009

FOR QUESTIONS REGARDING SUBSCRIPTIONS: please call 856-380-4176 or email subscribe@insurancejournal.com. You may subscribe or change your address online at insurancejournal.com/subscribe.

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

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At AmWINS, our job is to be forward thinkers and to never simply accept the preconceived.

Our years of experience with a wide range of markets and industries have given us the expertise to change and improve how things are done. The drive for innovation is how we’ve become a leading wholesale broker in such a short time. We’re just not good at following.

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East Coverage Snapshot

Pennsylvania Hospitals, Docs Sue over Malpractice Fund

By Martha Raffaele

P

ennsylvania hospitals and doctors are suing the state to obtain hundreds of millions in unspent dollars they say should be devoted to a state fund that helps doctors pay for medical malpractice insurance.

Industry associations representing both groups said the state owes doctors and other health care providers anywhere from $446 million to $616 million in reimbursements for bills paid into the fund known as MCare.

The lawsuits were filed in Commonwealth Court by the Hospital & Healthsystem Association of Pennsylvania and the Pennsylvania Medical Society.

The MCare subsidy lapsed earlier this year amid a stalemate between Democratic Gov. Ed Rendell and Republican lawmakers over expanding a state health insurance program for uninsured adults.

State cigarette tax revenue and surcharges paid by motorists cited for moving violations underwrite the subsidy, but the

Fatalities on New Hampshire Roadways Increased in 2008

By Beth LaMontagne Hall

F

atal motor vehicle crashes are on the rise for the second year in a row according to the New Hampshire Department of Safety.

The numbers released include all fatalities from Jan. 1 to Dec. 22, 2008. A fatality includes those who died at the scene, as well as people who were taken to the hospital with serious injuries and died within 30 days of the accident.

Last year, 138 people died in motor vehicle accidents, a 7.6 percent increase over the same period last year. The largest increase in fatalities was in drivers older than 71. In 2007, four people 71 or older died in a car accident, but this year, the number rose to 13.

Peter Thomson, coordinator of the New Hampshire Highway Safety Agency said the agency doesn't believe this is an alarming change. In 2006, there were

15 fatalities in this age group, so this year's numbers are not unusual, he said.

State safety officials are concerned about the rise in motorcycle fatalities, which have been trending upward for the last five years.

In 2008, 30 people died in motorcycle accidents, up from 25 last year. Thomson said there has been an upward trend in motorcycle fatalities since the early part of the decade.

After a spike in deaths in 2005, the state implemented a driver safety program for motorcyclists.

There were some areas that saw a decrease in fatal car crashes, including accidents involving minors.

The number of children passengers and pedestrians killed in accidents was down, as was the number of 16- and 17- year-old drivers killed.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. IJ

8 | INSURANCE JOURNAL-EAST REGION January 12, 2009

lawsuits claim that the state has not transferred all of the cigarette tax revenue into the insurance fund, leaving it without enough money to pay future liabilities.

MCare began in 2003 when premiums surged by double-digit percentages annually, although they have stabilized in recent years. The program pays medical malpractice awards and settlements above $500,000 and subsidizes the premiums providers pay for coverage. Doctors have argued that the subsidy is vital

to retaining the state’s complement of physicians, particularly those in high-risk specialties such as obstetrics and gynecology who pay higher malpractice premiums.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. IJ

Ex-Beacon Mutual VP Faces New Rhode Island Indictment

A

former vice president at Rhode Island’s dominant workers’ compensation insurer, who was indicted two years ago for conspiracy and insurance fraud, is facing a new indictment.

David R. Clark, the former vice president for loss prevention and underwriting at Beacon Mutual Insurance Co., was indicted by a grand jury on a single count of insurance fraud.

He is accused of failing to disclose to the state Department of Business Regulation that more than a dozen companies were receiving discounted premiums to which they were not entitled.

The companies are not accused of any wrongdoing, said Attorney General Patrick Lynch.

The 59-year-old Clark was first indicted in October 2006 on five felony counts. Lynch spokesman Michael Healey

said that prosecutors sought a new indictment to streamline their case against Clark and drop overlapping charges.

Clark’s lawyer, Thomas Briody, said his client looked forward to clearing his name.

“Mr. Clark has committed no crime,” Briody said. “The state’s new indictment does nothing to change the facts that surround this investigation.’’

Beacon Mutual is a nonprofit independent corporation created by the state to provide workers’ compensation insurance to employers.

The indictment was part of a wider probe of Beacon and its practices. A 2006 committee report said Beacon gave improper price breaks to certain companies that hurt other policyholders.

Copyright 2009 Associated Press.

All rights reserved. This material may not be published, broadcast, rewritten or redistributed. IJ www.insurancejournal.com

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It Figures

Declarations Drunk Driving Crackdowm

$7.5 Million Amount sought by a Pennsylvania woman in a lawsuit filed against shoemaker Crocs Inc. Kerry Burdick said her 6-year-old son injured his toe on an escalator while wearing a foam clog made

by Crocs -- a danger she claims the company knew about. A document Crocs filed in a separate case says more than 200 people worldwide have reported similar incidents. The company says its shoes aren't to blame, but it will add safety warning tags to its shoes this year.

$3.1 Million Amount of gift from Boston-based Liberty Mutual Group to create a professorship in property and casualty insurance law Boston College Law School. The gift is the largest in the 79-year history of the school.

3,000 Number of traffic tickets issued during a two-day driving crackdown

by Virginia law enforcement authorities last month on Interstates 64 and 66. Speeding accounted for 2,400 tickets issued, but troopers also cited 374 motorists for reckless driving and issued 276 tickets for seatbelt violations. Four were charged with drunken driving.

5 Number of workers at a North Bergen, New Jersey towing company charged in a scheme through which they took money to tow cars and report them as stolen to insurance companies. The arrests capped a two-month investigation by numerous law enforcement agencies. Charges include theft, conspiracy, arson-for-hire and aggravated assault.

1 Percentage drop in New Jersey's 2009 workers' compensation insurance premiums, a decline that will save the state’s business an estimated $33 million. Although rates gave fallen, the maximum workers compensation benefit for injured workers will increase to $773 a week in 2009 – a 4 percent increase over last year. Rates are set by the state’s Department of Banking and Insurance based on a filing by the Compensation Rating and Inspection Bureau, a workers' compensation rate service organization.

www.insurancejournal.com

“It’s a wakeup call” — Rhode Island State Sen. Leonidas Raptakis (D-Coventry), commenting on a report that ranked the Ocean State among the three worst in the nation when it comes to policies that curb drunk driving.

Raptakis plans to introduce several new pieces of legislation to crack down on drunk driving.

The Value of Trust “Insurance is based on trust – trust that you're getting the right product at the right price, trust that the money you give an agent or broker will go to pay your premiums, trust that if anything happens, you will be covered. We will continue to aggressively pursue those who violate that trust and make sure consumers receive the full protection of the insurance law.”

— New York Insurance Superintendent Eric Dinallo, commenting on a report that his agency revoked 75 agents’ licenses in the first half of 2008, and issued fines of more than $530,000.

Luring Business “We have seen higher submissions and higher win rates.”

— Mike Foley, chief executive of Zurich North America Commercial, maintaining that Zurich's strong financial position is helping it lure business away from competitors that have taken a beating from investment losses. Foley declined to name rivals that may be losing business.

Wrong Route “We are disappointed the FTC chose this route, despite the industry's good faith efforts to work cooperatively to find a sensible, secure, and cost effective alternative to provide the data the FTC says it needs to conduct its study. The use of a 'compulsory process' does not allay our serious concerns about the handling and protection of massive amounts of consumer data."

— David Snyder, American Insurance Association vice president and assistant general counsel, commenting on the Federal Trade Commission's decision to order insurance companies to provide consumers' personal information in connection with a study of credit-based insurance scores and homeowners insurance.

Madoff Effect "The litigious environment that prevails means that it's inevitable that financial institutions who invested clients' assets in Madoff's funds will face actions from disgruntled clients seeking to recover lost monies.”

— Paul Towler, head of the financial and professional practice at Lloyd's broker Jardine Lloyd Thompson Limited (JLT), on the effect on the financial institutions’ insurance market from Bernard Madoff’s Ponzi scheme.

January 12, 2009 INSURANCE JOURNAL-EAST REGION | 9

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Special Report Contractors and Subcontractors

Construction Insurance Brokers Say Building Backlog is Saving Commercial Sector ... For Now But Challenges Could Lie Ahead in 2009 Even With Government Stimulus Package

By Andrea Ortega-Wells

C

ommercial construction insurance brokers from the northeast to the west coast, from Texas all the way to North Carolina, say the market and their business right now are not as bad as might be expected from reading daily news reports.

But 2009 could bring a different story, so some are pinning their hopes on a federal stimulus package to boost construction.

Henry Lombardi, president and CEO of New York-based Allied North America, follows the construction and insurance industries very closely. Since 1979, Allied has served only the construction industry.

“We focus all of our energies, innovations and technology on helping contractors meet their needs and deal with the risks that are inherent to their business, be it insurance, safety, or loss control,” says Lombardi. Even with some heavy economic pressure on both the insurance market and Allied’s core client base, the company expects to exceed $100 million in commissions for 2008.

Lombardi has concerns about what will happen to the construction industry in 2009. “It’s going to be a tough year,” he said.

“Not that any year is easy,” he added, but 2009 in particular will be challenging.

“Contractors in general are going through some tough times,” he said. “Contractors are concerned what revenue will be, how the state and local governments will get the funding to build the infrastructure.”

For now, Lombardi says, commercial contractors have enough “work in process” to keep them up and running for another six www.insurancejournal.com

to nine months. As that works runs off, contractors will have to bid for new work, but the financial crisis threatens the dollars available to fund such projects, Lombardi said. Many of Allied’s civil works contractors are taking a wait-and-see approach, he said. Those contractors are hopeful President-elect Barack Obama will fulfill a promise to shell out funds to states for infrastructure projects.

“The new president has stated he will put forth a tremendous amount of money, $600 billion to $700 billion of infrastructure work, to stimulate the economy,” Lombardi noted. Such funding will help contractors continue to work and generate new revenues, depending on when those funds become available, he added.

Lombardi says regardless, Allied will continue to stay focused on its business model, continue to operate prudently and will continue to use technology to ensure it is there to help its contractor clientele with insurance, loss control, even financing. But given the uncertainty in the market, he anticipates somewhat of a flat year in 2009.

“We recognize there will be challenges,” he said. “It’s going to be a tough year but I think any company that has prudent managers and people who understand that you have to change … I think they’ll be OK.”

Heidemann of San Diego-based Barney & Barney has seen the California housing market tumble, but says commercial construction is still fairly good, at least for now.

Barney & Barney’s construction practice — which consists of 25 insurance professionals and generates about $5 million in construction revenue for the agency — grew in 2008 as well. But like Allied, Heidemann expects the firm will see a slow down in 2009 on construction-related revenues.

“We primarily insure commercial contractors and some developers. We do have some residential contractors as well but most of the book is focused on the commercial infrastructure side,” Heidemann explained.

“We are not expecting any growth, however, we do expect to pick up and add a few clients.”

Even so, he says “we expect to be relatively flat on the construction side.”

Commercial construction is beginning to be affected by the credit crunch but the impact won’t be as great as on residential construction. “There are still a lot of projects out there and there’s still some financing available.”

However, competition for projects for commercial contractors in public works is a lot fiercer, Heidemann said. “Some of the residential contractors have moved into public works so there’s a lot more bidders, more competition for that work. So we are seeing a shrinkage for most clients on what

‘Contractors in general are going through some tough times.’

From the Golden State Construction Practice Leader Paul

continued on page N2 January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1

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Special Report Contractors and Subcontractors Insurance Brokers, continued from page N1

their projections are for 2009.”

California’s budget woes could also impact future work for commercial contractors. “If the state doesn’t resolve its budget crisis that would certainly impact the public works projects in place,” Heidemann said. “So it’s hard to predict what the end of ‘09 will look like. A lot of our clients still have a substantial backlog and that will take them toward the end of ‘09, and then it remains to be seen what the future will hold.”

Heidemann says he hears talk about the possible hardening of the market, but that’s not something he has seen yet. “We’ve seen some flat renewals and in some cases, some reductions, and in some cases a few slight increases because of loss history,” he said.

He’s confident the market will harden, but is not sure when. “Whether it will happen in 2009 remains to be seen,” he said.

Down South For Dallas-based regional broker McQueary, Henry, Bowles & Troy (MHBT), the commercial construction industry is still going strong.

“We are fortunate; the Dallas-Fort Worth area is still a little isolated from it all. The construction industry is still going strong,” said Jeremy Sandusky, an MHBT agent in the firm’s construction unit. “However, in the last couple of weeks we have started to hear our clients are slowing down.” MHBT’s target construction market is typically heavy commercial construction projects and large commercial contractors and subcontractors.

The MBHT construction unit has begun beefing up its prospecting to address a potential downturn in business. “We are qualifying more prospects a little better; we are working a little smarter, keeping the pipeline full with prospects; and we are watching collections and audits,” Sandusky said. “You don’t want to get caught with a construction company that is having some hard times and they are not able to pay their audits or their premiums. That’s something we are watching pretty closely, making sure people don’t

get too far behind which is very important.” While MBHT watches over financials all the time, it’s more important in today’s tough economy, Sandusky said. “It’s something we always watch but we are even watching it closer now.”

As a way to generate additional revenue for its construction unit, MBHT also offers constructionrelated value-added services on a fee basis. “That’s something we are moving more towards, being more of a risk management consultant,” Sandusky said. “If we don’t write their insurance but they want our services then that’s something we are looking more at … attaching a fee to our value-added services.”

Given its success, MHBT has no plans to branch out into other sectors of the construction insurance industry. “We are pretty happy where we are at,” Sandusky said. “We have been very successful … We are big on what works and sticking to your core competencies; if that works, there’s no reason for our unit to go after stuff that we’re not used to going after.”

Southeast Looks Good In the southeastern states, commercial construction companies still have some business on their books, at least for the next couple of years, says Joey Huckaby, vice president of Columbia, S.C.-based Huckaby & Associates.

“Commercial construction in the southeast — with the exception of areas that are already really developed like Atlanta — all through South Carolina, North Carolina and Georgia — you have a lot of open space and the population is growing in those states. So you still have the need for building the Wal-Marts, the Targets and shopping centers,” Huckaby said. “The projects that you are seeing going away very fast

‘We are seeing a shrinkage for most clients on what their projections are for 2009.’

N2 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

are the high rise condos on the coast of South Carolina and North Carolina.”

Even if commercial construction begins slowing, Huckaby has an option: the changing labor force has opened the door to selling other coverages, including employment practices liability insurance, to construction firms, Huckaby added.

“You’ll find more construction firms, amazingly, willing to hear you talk about employment practices liability,” he said. “We’ve new laws in every state and federal laws with regard to immigration that put a lot of the onus back on the business owner to actually comply.” In addition, downsizing a work force leads to exposures as well, he added.

“Say you had 100 guys on drywall and now you have to cut it back to 50, well that’s 50 potential lawsuits. They didn’t see that before when we were in the construction boom,” Huckaby said.

“There’s a lot of fear with force reduction and immigration laws right now that you find construction accounts, even though times are tough with their revenue, you find they are finding time to hear about or even add EPLI coverage that maybe they weren’t as interested in before,” he said. “The change in immigration laws and force reductions over the next few years really brings EPLI to the front.”

When it comes to pricing for commercial contractors in the southeast, Huckaby says he sees no sign of a hardening market. “No signs whatsoever in the states we operate in,” he said. “There’s a lot of talk … but not one sign that it’s about to start hardening.” IJ www.insurancejournal.com

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National Coverage Washington Report

FTC Probing Insurers Over Credit-based Homeowners Insurance Pricing

U

.S. regulators have asked nine major insurance companies, including Allstate Corp. and Travelers Cos. Inc., to provide information about how they set prices for homeowners’ coverage.

The Federal Trade Commission said it ordered the companies to provide data about credit-based insurance scores.

An FTC study on automobile insurance released in 2007 found that the scores allowed insurance companies to determine who was likely to be high risk and to charge those people more.

The study found AfricanAmericans and Hispanics tended to have lower insurance scores than whites and Asians and, because of this, tended to pay more for auto insurance.

The other companies queried

about the study for homeowners insurance were Chubb Corp., State Farm Mutual Automobile Insurance Co., Fire Insurance Exchange, Nationwide Mutual Insurance Co., United Services Automobile Association, Liberty Mutual Holding Co. Inc. and American Family Mutual Insurance Co. The FTC said the insurers subject to the order have roughly 60 percent of the homeowners insurance market in the U.S. The affected companies have until April 24, 2009 to respond.

Insurers say the FTC order is unnecessary, costly and risks consumers’ privacy.

“We are disappointed the FTC chose this route, despite the industry’s good faith efforts to work cooperatively to find a sensible,

N4 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

tools that enable insurers to prosecure, and cost effective alternavide sound pricing models. We’re tive to provide the data the FTC says it needs to conduct its study,” confident the FTC, just as they found in their auto study, will said David Snyder, American learn the same thing in this latest Insurance Association (AIA) vice examination,” added president and ‘The use of creditSnyder. assistant general The AIA says the counsel. “The use based insurance FTC has demanded of a ‘compulsory scores benefits a information “far process’ does not vast majority of beyond what is allay our serious consumers and is needed, and often concerns about the handling and pro- one of the tools that data insurers do not enable insurers to even collect, to comtection of massive plete their study of amounts of conprovide sound homeowners insursumer data.” pricing models.’ ance and creditThe FTC study based insurance scores.” in 2007 was completed without The FTC order itself can be asking for information from insurfound at: www.ftc.gov/os/2008/ ers, the AIA says.

12/P044804facta.pdf. IJ “The use of credit-based insurance scores benefits a vast majority Reuters contributed to this story. of consumers and is one of the

www.insurancejournal.com

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REVIEW YOUR RISK

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Closer Look Employment Practices Liability New Employment Laws, Power Shift in Washington May Increase the Risk of Workplace Charges What Insurance Professionals Need to Know to Protect

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s the economy continues to falter and a new Administration takes over in Washington, the workplace is being seeded with new legal hazards for business owners that could lead to an increase in employment charges and lawsuits.

Escalating layoffs, new worker-protection legislation and the expected removal of damage caps in employment litigation will create a more challenging climate for employers.

The cost of defending against an employment complaint may increase and damages awarded to workers could soar to even higher levels.

Employment practices liability insurance (EPLI) — already a must for businesses and institutions of any size — will be even more critical. Now is the time for agents, brokers, risk managers and others to educate their customers about the changes underway and developing trends in the workplace.

Employers should be prepared for a range of employment claims, including allegations of discrimination, wage-and-hour violations, charges of unfair labor practices and retaliation issues. Class action suits and actions stemming from alleged systemic discrimination are also expected to increase.

EPLI More Available and Affordable Even though EPLI often makes sense from a cost-benefit standpoint, many small and mid-sized businesses still do not purchase

N6 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

coverage. They understand the need — a study by The Hartford Steam Boiler Inspection and Insurance Co. found that 92 percent believed they would face an employment-related claim or lawsuit sometime in the future. Many mistakenly believe, however, that the coverage is expensive or onerous to obtain.

The reality is that EPLI has evolved from a high-priced option to an affordable necessity.

EPLI coverage is now available in business owner policies or other commercial package policies. Today there is a much wider range of EPLI products available and a separate application and additional underwriting information may not be required. Policies may include specialized EPLI claim services and legal representation.

Outsized Risks for Small Businesses Small businesses in particular face big risks from employment claims. Many don’t have internal resources, such as in-house legal counsel and a professional human resources staff, to establish risk-management policies and procedures. They may not have policy manuals or perform thorough background checks. Even when they do, groundless allegations can be made at any time and are often costly to defend.

The statistics are sobering. From FY 2003 through FY 2007, nearly 395,000 cases were filed with the Equal Employment Opportunity Commission (EEOC). Total paycontinued on page N8 www.insurancejournal.com

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Closer Look Employment Practices Liability

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more aggressive. President-Elect Obama also will appoint new federal court judges and President-Elect Obama Pledges Support possibly U.S. Supreme Court justices who could have a long-lasting impact on employThose numbers may rise as new laws and ment law in the United States. policies are enacted in the next Congress.

What should employers be concerned Support is expected from the highest levels about? A key issue involves a of government. Several critichange to the landmark cal bills were sponsored or An amendment Americans with Disabilities co-sponsored by Presidenteffective Jan. 1, Act (ADA). An amendment Elect Barack Obama. Many effective Jan. 1, 2009, broadwere passed by the House, 2009, broadens the ens the definition of “disbut failed to win enough definition of ‘disability,” expanding the pool votes in the Senate. With the ability,’ expanding of people who can make a new Congress, they have a the pool of people claim under the ADA. greater chance of becoming Employers may be comlaw. who can make a pelled to make many more The federal agencies claim under the accommodations for workresponsible for workplace Americans with ers. regulations, including the Disabilities Act. With some limited excepEEOC, Occupational Safety tions, disabilities will now and Health Administration include conditions that can be treated, such (OSHA), Department of Labor Wage and as diabetes or carpal tunnel syndrome.

Hour Division, and the National Labor Previously, “partial” disabilities or impairRelations Board are expected to become outs reached almost $520 million.

N8 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

ments that could be treated with medication or devices, such as hearing aids, had been exempt from the ADA. Worker-Friendly Bills Abound Another bill banning discrimination on the basis of genetic data has been passed and is expected to go into effect in November 2009. Other proposed measures would make it easier to establish unions; eliminate caps on punitive and compensatory damages; modify the statute of limitations on some discrimination lawsuits; expand workers’ rights; and establish new federally protected classes, such as sexual orientation.

One of the most contentious pieces of legislation is the Employee Free Choice Act. The EFCA makes it easier to establish unions; requires unions and employers to agree to binding arbitration if they cannot reach a collective bargaining agreement in a timely manner; and increases penalties on employers engaging in unfair labor practices. continued on page N10

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Another union-related bill expands the definition of a “supervisor,” making more people eligible to be part of collective bargaining units.

Some proposed legislation would expand workplace protections.

A sampling of proposals includes expanding the Family and Medical Leave Act to include companies with fewer than 50 employees and mandating paid sick leave for employers with 15 or more employees. Others would make it harder to classify workers as independent contractors, rather than employees, and increase penalties for offenders.

Costlier, More Difficult Litigation Several of the workplace initiatives

would likely raise the cost and the likelihood of litigation. The Equal Remedies Act would eliminate the caps that Congress placed on punitive and compensatory awards under Title VII of the Civil Rights Act of 1964 (Title VII) and the ADA. This is particularly troublesome for small and mid-sized businesses, which could be faced with crippling judgments. The burden of proof could also shift, making it easier for employees to prevail in certain circumstances, such as gender-discrimination suits.

Other proposals take a new tack against long-running issues.

For example, an amendment to the Immigration and Nationality Act would prohibit denying back-pay or other monetary relief for unlawful employment practices against undocumented immigrant workers.

Finally, the Ledbetter Fair Pay Act would

overturn the Supreme Court’s controversial decision in Ledbetter v. Goodyear Tire and Rubber Co., effectively eliminating the 180or 300-day statute of limitations for filing a wage-related discrimination claim.

Change Workers Can Believe In While it is difficult to predict how many of these measures will prevail, particularly with the current economic crisis, employers are almost certain to face a more difficult legal landscape. Business and other interest groups will make their positions known on these issues, but the message for insurance professionals and their commercial clients is clear. Unless employers are prepared with formal employment policies, training programs and broad insurance protection, an employment charge or lawsuit could have significant consequences. IJ O’Shaughnessy is a vice president for The Hartford Steam Boiler Inspection and Insurance Co.’s Portfolio EPL program. Phone: 800-472-1866.

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Document work woorrkk progress w pr prooggrreessss an aand nd qqu quality ualiittyy Increase thee aat attention ttteennttioonn ttoo ssa safety affeettyy aand nndd de ddetail etaail Reduce your number of site visits Visually verify if project is on schedule Identify & Verify closure on “in process” construction defects Have you ever noticed how the attention to safety and detail increases when you are “around?”

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F.I.A. will be “around” photographically documenting every part of the construction process from beginning to end. Stop construction defects before any lawyer has a chance to get involved.

877-FIA-INC1 (342-4621) www.FIA-INC.com N10 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

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Private,

INSURANCE JOURNAL

TOP100 AGENCIES

Left: Mark Miller President, Ann Arbor Office Regional Vice President, Michigan & Illinois Right: Michael Hylant, CEO

Photos by Eric R. Eggly, PointSeven Studios

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, Independent and Free Ohio-based The Hylant Group Has 12 Locations But Only One Philosophy — Give Customers and Staff What They Need to Succeed

By Ted Huntington

N

o — they’re not quite one of the giant global insurance brocial investments experienced problems, Patrick took back the firm. kerage firms. No — they’re not a small “Main Street” retail In 1987, Mike Hylant’s older brother Steve opened Hylant’s Detroit, agency, either. The Hylant Group is somewhere in between Mich., office. In 1989, Mike moved to Cleveland to open Hylant’s the two (albeit the firm’s resources, revenue and product Cleveland office. Launching the Cleveland office from scratch, Mike line more closely resemble that of a giant broker). was able to grow the Cleveland office to become And, that’s just how the Hylant Group’s top execuHylant’s second largest operation — next to the Insurance Journal tives want to keep it: private, independent and free Toldeo office. Partially due to his success with the Top 100 Agency Profile to conduct business the way they desire.

Cleveland operation, Mike Hylant was tapped as RANKING: No. 7 the new company CEO. The Hylant Group is a family-run operation The Hylant Group’s mission is to balance itself founded in 1935. Three generations later, the firm Agency Name: between being a world-class brokerage firm and now boasts 12 locations and is ranked No. 7 on The Hylant Group remaining a private retail operation. “We enjoy a Insurance Journal’s list of the largest privately-held Headquarters: pretty good niche in the Midwest as a regional broproperty/casualty insurance agencies in the nation.

Toledo, Ohio ker with 12 offices. We are now encroaching on Based in Toledo, Ohio, Hylant has expanded to 11 Year Founded: other areas — a new Chicago office and we’re pushother locations throughout Ohio, Michigan, Indiana, 1935 ing into Nashville, too. We want to be a world class Illinois and Tennessee. One of the keys to the Additional Locations: agency’s growth and success is making sure each 11 other offices in Michigan, Indiana, regional broker that is a viable alternative to the major national brokers.” location operates with the same ideals. As CEO Illinois and Tennessee Hylant calls the firm “a tweener” — somewhere Mike Hylant explains, “We have 12 locations — and 2007 Property/Casualty between a firm with national resources and a local one philosophy.” That basic philosophy is to provide Premium: $691.1 million independent agency. The company is in a position Hylant’s customers what they need — and to pro2007 Property/Casualty to challenge major brokers for a share of their busivide Hylant’s staff with the resources they need to Revenue: $73.4 million ness, Hylant says. serve their customers.

2007 Total Revenue: One move that put them in this position was the Hylant is one of nine children — most grew up $100 million recent hiring of Mark Miller as regional vice presiin the family business. And now there’s a fourth Principal: dent of Hylant’s Michigan and Illinois operations generation of Hylants learning the ropes. Even Mike Hylant, CEO and president of the Ann Arbor office. Miller came though there are now more than 700 Hylant Number of employees: to Hylant from Marsh & McLennan. Miller, who employees, it is still very much a family-run opera700 began his career as a professional hockey player, tion.

Products Offered: hip-checked his way into the insurance industry Hylant’s first job out of college was as a casualty Property/casualty insurance servicwith Marsh & McLennan in 1993. After Marsh’s underwriter trainee with The Hartford in es, employee benefits, program Pittsburgh. He returned to Toldeo to serve as a administration, loss control, wealth problems surfaced a few years ago, he looked to make a move and found a home with Hylant. client executive with the family business. At the management, health care services “Hylant was interested in expanding its footprint. time the agency was going through a transition in They had seen opportunities in the large account arena, but they wantownership. Hylant’s older brother Patrick had bought the firm back ed to bring in people who had ‘been there-done that,’” Miller said. from Dana Corp., which had purchased Hylant in the 1980s. Dana Hylant sees the chance to challenge firms such as Aon and Marsh on Corp. owned Cherokee Insurance Co., and Hylant served as a major retail insurance agency for Cherokee. In 1985, when Dana Corp.’s financontinued on page N14

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Hylant Insurance, continued from page N13

some accounts, he says. Maybe not for the Fortune 100 or 200 businesses, but certainly for the Fortune 200 to 1,000. Miller brings to Hylant the ability to lead them into that rarified air and provides significant insight and depth regarding such accounts.

Diversification Hylant’s services stretch way beyond just those of an insurance agency. In addition to insurance programs, Hylant provides employee benefits, program administration services, loss control, wealth management and health care services. Hylant’s core business is risk management, property/casualty coverages, 401(k) offerings, managing general agency service and health disease management initiatives.

Hylant has regionalized its business with three regional vice presi-

Acquisitions and Organic Growth How did Hylant become one of the largest privately held agencies in the nation? Company executives attribute Hylant’s growth to a combination of smart acquisitions and organic growth. Some offices — ‘We want to be a world class regional broker that is a viable Chicago, for example — have been alternative to the major national brokers.’ totally grown organically. Other offices — Fort Wayne, Ind., for instance — dents who manage their area. All of Hylant’s corporate resources have were brought into the Hylant family. When acquiring an office, been allocated back into each region. The regional vice presidents Hylant looks for an operation that shares its same manner and culmanage their revenue generating operations, and each region has a ture. Once an agency has been acquired, considerable time is spent sales leader and talent managers who oversee personnel training and indoctrinating staff on Hylant’s policies and procedures. other necessary functions within each region.

Craig Markos, president of Hylant’s Columbus, Ohio, operation, Hylant has the resources and staff to be much more than an insurexplains, “The people we hire and the commitment we make to the ance agent to its clients. The firm uses a three-pronged approach to employees is a huge reason for our success.” According to Markos, its customer service. Markos explains: “We want to know where our who has been with Hylant for 17 years, the firm’s employees are clients have been and where they’re going in the future so we can trained to understand the agency’s goals. From there, they are given help them plan for the future. We want to provide solutions to help free rein to make decisions for themselves. “That flexibility allows us our clients reduce costs, reduce risks and improve their overall operto respond swiftly to clients’ needs.” ating efficiency.”

What sets Hylant apart from the competition? Hylant management The firm focuses heavily on hiring specialists in the particular has spent the last five years meshing its systems in order to deliver fields that it serves. This way, if a client requires the service of someone consistent feel to any one customer in any location. The firm has one with a particular specialty — whether it is P&C insurance, the ability to offer relevant value-added resources to all its clients — health care, 401(k) products or pensions — there is no need to seek no matter what their needs and where clients are located. that service outside the agency. “We might have a client executive “Maybe we will bring in resources from our Detroit office or from who is the leader on all fronts for an account, but they will not be Toledo in order to serve our customers’ needs,” Hylant said. “We bring experts in all the fields. Instead, they bring in experts from within in relevant resources to the individual needs of the client. We create the company when they are needed,” Markos said. “Consumers and custom platforms in order to service each customer. If we don’t delivbusinesses are more sophisticated now. They require their insurance er that type of service, then we are providing a disjointed effort.” broker to offer this type of expertise.”

Mark Miller president, Ann Arbor Office, regional vice president, Michigan & Illinois N14 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

Expanding Customer Base Acquisitions have played a major role in Hylant’s growth. In addition, the firm places a high emphasis on cross-selling between product lines.

The firm also uses its existing clients to help generate new clients.

“It’s called the ‘wedge’ sales process. To use a football analogy, this is akin to the ‘blocking and tackling’ of sales. This system helps to identify the ideal customers by understanding Hylant’s current customers and their customer relationships,” Hylant says.

Another important feature of Hylant’s organizational structure is the lack of profit centers. According to Miller, this enables Hylant to be more “nimble, more efficient, and quicker to respond” to clients’ needs. “If anyone knew the anguish that goes on with large brokers about revenue sharing and those types of battles, they would be appalled. A lot of the largest clients that are used to doing business with large brokers may not be getting the service they need.

Oftentimes, someone along the chain is unresponsive because they aren’t getting paid for their role in the process. It’s refreshing for me www.insurancejournal.com

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INSURANCE JOURNAL

TOP100 AGENCIES

to see the Hylant model work versus the large broker model.”

Hylant treats its clients as far more than insureds. The Hylant team closely examines the client’s operation. When selling insurance coverage, for example, they don’t simply tell the customer what coverages they will receive and the premium; they examine their existing policies, critique them and provide a real-world scenario explaining what will happen should a loss occur. “We take the policy contract and explain it to them as if we are their CFO,” Hylant says.

Hylant’s focus on customer service is illustrated by its relationship with The Ave Maria Foundation, an Ann Arbor, Michigan-based organization. Ave Maria came to Hylant two years ago when it was trying to purchase a facility in Florida. They found the Florida property market challenging, and looked to Hylant to open some doors for them.

Gordon Leipold, Ave Maria’s HR director, says his organization was impressed with Hylant’s knowledge of the property market and their ability to secure adequate coverage at competitive prices. Since that time Leipold says their Hylant client executive, Terri Mahakian, has proven to be far more than an insurance agent. “We definitely have a 24-7 relationship with Hylant. I have Terri [Mahakian’s] home and cell phone numbers. She is there for me. ... Hylant is the kind of business that works well when relationships work well. The Hylant people go out of their way to build and protect their relationships.”

Michael Hylant, CEO

Over the next five years Hylant would like to double the size of the operation, from $100 million in revenue to $200 million. Given the current economic conditions, Hylant realizes it will be challengDistinct Advantage ing to attain these goals organically. “Our rough playbook is to grow Hylant’s executives believe the firm’s status as a privately-held by 60 percent organically and 40 percent through acquisitions.” organization gives it several advantages over the publicly-traded Hylant is currently in process of expanding into Nashville by national brokers. Mike Hylant notes, “Being private for us is a very disacquiring another agency. Miller also predicts that within the next tinct advantage. We can invest in the business for the benefit of the decade Hylant will probably double the number of locations and customers … ahead of the sales curve.” expand its reach a little more west, south and east.

Miller adds, “At Hylant, we provide clients with objective risk manEven in the midst of the current economic crisis, Hylant’s execs agement advice and service that is 100 percent client-focused so that see opportunities for growth. Miller notes that a lot of the regional we’re not conflicted by Wall Street, the analysts or regulators.” and local brokers are struggling in today’s market and some agencies In addition, Hylant’s employee retention rate is well into the 90 will likely be available for an acquisition. In addition, the national percent range. This greatly enhances the client-agency relationship. brokers may be in cost-cutting mode.

“Our high employee retention rate equals a high level of confidence, By contrast, Hylant is currently investing in its business. It is looking for opportunities where clients may ‘Hylant is the kind of business that works well when relationships work well. be receiving the The Hylant people go out of their way to build and protect their relationships.’ not level of service they need from their competence and experience,” Hylant says. national broker. Hylant’s executives believe their firm may offer the Making the entire business process as simple as possible is imporkind of stability these businesses seek. tant. “We have to be cost competitive,” Miller says, “but if we can Three years ago Hylant commissioned a survey to ask clients if make the client’s life — as far as risk management goes — simple they would be willing to refer their representative to anyone else in and successful, then that’s a pretty good combination.” the business world. The results were astonishing. Ninety-eight percent of the respondents indicated they would be willing to refer Growth for the Future prospects to the firm. Hylant comments, “We must be doing someCurrently, Hylant writes about 60 percent of its business in P/C thing good.” lines but it is striving for more balance with other products such as While optimistic, Hylant knows the future will be challenging. employee benefits. In order to accomplish this, Hylant will rely on “We have met the enemy and it is us,” Hylant said. In other words, its current clients. “We must listen to our clients and their suggesHylant expects the only challenge that could potentially become an tions. We’d like to get to the point where regardless of the economic obstacle to reaching their objectives is Hylant — if they let that hapconditions, we have the capabilities to grow through any market pen. “We aspire to grow and be profitable, no mater what the market cycle.” cycle,” Hylant adds. IJ www.insurancejournal.com

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Special Report Contractors and Subcontractors

Facts About the Progressively Narrowing Coverage of Contractors and Additional Insured Endorsements

By Chris Boggs

T

he three most commonly used additional insured endorsements in construction relationships are the Insured - Owners, Lessees Or Contractors - Scheduled Person Or Organization (CG 20 10); Additional Insured - Owners, Lessees Or Contractors Automatic Status When Required In Construction Agreement With You (CG 20 33); and Additional Insured - Owners, Lessees Or Contractors - Completed Operations (CG 20 37).

Analysis of these forms reveals some intriguing facts.

First, the 11/85 edition of the CG 20 10

extended additional insured status to the scheduled entity not only during the operations but even after the operations were completed (as evidenced by the inclusion of “Your Work”). No one who works with contractor and construction clients is surprised by this statement; this has been a source of tension between insurance professionals and general contractors (and their lawyers) for some time. It is not unusual to still find a contract requiring the CG 20 10 11 85 “or its equivalent” being used. The lawyers and the general contractors have, to some extent, conceded that this option does not exist, yet the contrac-

tual language remains. These parties have agreed instead to accept equivalent protection. Newsflash, the CG 20 10 coupled with the CG 20 37 does not provide “equivalent” protection.

To exemplify how deep the root of this contractual language requirement goes, about 18 months ago I attended a contractors’ liability class sponsored and taught by a major national insurance carrier and designed for agents who insured general contractors. During the class, the instructor stated that the underwriters wanted to review the general contractor’s contractual risk transfer requirements as part of

Common Construction Industry Additional Insured Endorsements General Liability Form

07/04

10/01

CG 20 10

Who is an insured is amended to include … the person(s) or organization(s) shown in the Schedule, but only with respect to liability … caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured(s) ….

Who is an insured is amended to include … the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

CG 20 33

(Essentially the same as above.

The only difference is: the endorsement states that coverage ends when the work contracted is complete.)

(Essentially the same as above. The only difference is: the endorsement states that coverage ends when the work contracted is complete.)

CG 20 37

Who is an insured is amended to include … the person(s) or organization(s) shown in the Schedule, but only with respect to liability … caused, in whole or in part, by “your work” … performed for that additional insured …

Who is an insured is amended to include … the person or organization shown in the schedule, but only with respect to liability arising out of “your work” performed for that insured …

N16 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

Edition Date 07/98

Who is an insured is amended to include …

Such person or organization only with respect to liability arising out of your ongoing operations performed for that insured ...

03/97

10/93

11/85

Who is an insured is amended to include … the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

Who is an insured is amended to include … the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

Who is an insured is amended to include … the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” for that insured by or for you.

(Essentially the same as above. The only difference is: the endorsement states that coverage ends when the work contracted is complete.)

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the underwriting process. As part of that review, they wanted to confirm that the general contractor was asking for the CG 20 10 11 85. I immediately raised my hand and reminded the instructor that they, the insurer teaching the class, didn’t even offer that endorsement to their insureds. I continued on to what I thought was the next logical question, “How can you ask for something you won’t even offer?”

The answer was not at all satisfying or settling. Something like, “Yes, we know we don’t offer the endorsement but we still want to see the request. We’ll take equivalent wording.” (I’m paraphrasing, but this is essentially what was said.) There is no equivalent wording from ISO. There may be some proprietary company form that provides something equivalent, but that is limited to very few carriers (I’m aware of one or two). Surprisingly, there are some specialty carriers that still have the option to use the 11/85 edition, but it can be costly.

Second, the protection extended to

additional insureds was narrowed to apply only to “ongoing operations” when the 10/93 edition was adopted. This change in wording resulted in the removal of additional insured status once the job was done (no completed operations coverage). It was eight years before this loss of additional insured status was fixed with the introduction in 2001 of the CG 20 37.

Third, “arising out of,” was replaced by, “caused … by,” in the 07/04 edition of all three listed forms. This may seem minor, but it may have amounted to another narrowing of applied coverage (although not necessarily the intent of coverage).

Fourth, prior to 1997, ISO provided no specific way to extend additional insured

status to any entity without that entity being specifically scheduled. In 1997, ISO introduced the automatic additional insured edition of the CG 20 10 — the CG 20 33. Additional insured status was automatically extended when a signed contract required the subcontractor to name the general or upper-tier contractor as an additional insured. Underwriting opinion differs continued on page N18

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Special Report Contractors and Subcontractors Contractors, continued from page N17

tract is covered; however, the CG 20 37 regarding the use of this form, then and states that additional insured status is now. Some underwriters want to know or granted only when the entity is scheduled. even control to whom additional insured It can be very easy to forget to schedule the status is granted; others aren’t concerned. entity when on one form (the CG 20 37) it Wording in the CG 20 33 is essentially the is necessary to schedule, and on same as the CG 20 10 another (CG 20 33) it is not neceswith the only major difAnd errors and sary. This also creates a problem ference being the addiomissions probwhen a certificate of insurance tional wording stating lem is created (COI) is issued stating that addithat additional insured tional insured status is provided status ends when the when agents for both the operations exposure work contracted for is depend on this and completed operations claims. completed (no completed form to grant Care is required when an autooperations coverage is additional matic status endorsement and extended to the additionscheduled entity endorsement are al insured). insured status. required to comply with the conAn errors and omistract. Unless the underwriter agrees to sions problem is created when agents allow the entity to be scheduled on the CG depend on this form to grant additional 20 37 (completed operations coverage), issuinsured status: there is no automatic extening a certificate that states this coverage has sion providing completed operations coverbeen extended to the additional insured is age to the additional insured. a misrepresentation of the policy proviThe CG 20 33 says that any entity requirsions. ing additional insurance status via a con-

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Now, more than ever, individuals, entities and businesses require the protection that NAS’ Employment Practices and Tenant Discrimination Liability products can offer against risks inherent with difficult times.

NAS Insurance Services is an independent underwriting manager with full binding authority to underwrite on behalf of highly rated carriers. For over 30 years, NAS has remained a product-oriented company, ever on the leading edge of innovation with a constant commitment to the development of specialty products.

Reduction in Available Coverage In the past, adding an additional insured by use of the CG 20 10, CG 20 33 or CG 20 37 may have, although unintentionally, extended some coverage to the additional insured; affecting the limits available to the named insured. This coverage extension was apparently not intended when the forms were written, but rather created by the courts. The 07/04 edition of these endorsements appears to have corrected this unintentional coverage extension, limiting coverage to nothing more than the additional insured’s vicarious liability for the actions of the named insured.

A 2007 court case is used to explain the difference between the 07/04 forms and all previous contractor additional insured endorsements in part two of this series to be published in the Jan. 26 issue. IJ Boggs, CPCU, ARM, ALCM is associate editor of MyNewMarkets.com. Phone: 619-584-1100, ext. 137. E-mail: cboggs@mynewmarkets.com.

Employment Practices CompLex Cyber Liability Directors & Officers Healthcare Regulatory Business Interruption Social Services Technology Liability Tenant Discrimination writeNOW! products

16501 Ventura Blvd., Suite 200 Encino, CA 91436 www.nasinsurance.com LIC #0677191 N18 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

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International Coverage News & Markets

Economy and Climate Change Top New Year Agenda

By Charles E. Boyle

F

or the moment the economic recession is driving the global stagecoach, while climate change is riding shotgun, but it’s not as bad as it could be.

Reports from Europe point to the fact that the P/C industry’s exposure to the economic crisis is mainly secondary. Analysts expect a rise in fraudulent claims, and more lawsuits targeting financial advisors, banks, investment firms, directors and officers, as well as misrepresentations from policyholders trying to reduce premiums. Direct economic losses have mainly hit company investments, life insurers and those firms like American International Group that set up units to deal in dubious financial products.

Marsh’s London office issued a bulletin indicating that it “expects a sharp rise in the number of UK companies buying fraud insurance protection next year, as the world economy continues to deteriorate.” It also expects the number of insurance “claims notifications relating to fraud to grow in 2009.”

Dean White, a managing director in Marsh’s Financial and Professional Practice, explained: “Historically, when times are hard fraud increases; individuals come under increasing pressure to make ends meet and many businesses are struggling to stay afloat.

In such circumstances, unlawful practices which otherwise would have been viewed as unacceptable, such as the manipulation of accounts, false revenue booking, insider fraud and the selling of information to organized crime, may appear a lucrative option.

“Insurance claims notifications will continue to grow through 2009. Financial institutions will likely lead the league table of victims in terms of overall monetary value, but the scale and frequency of corporate, nonfinancial institution fraud and theft will show the sharpest increase.”

Lloyd’s analyzed the probable effects Bernard Madoff’s Ponzi scheme will have on the professional liability sector. His firm used the hoary technique of paying off old investors with the money coming into the fund from new ones. “The total amount that may have gone to what one banker called www.insurancejournal.com

‘money heaven’ is put at $50 billion,” Lloyd’s noted, “and the losers range from the world’s biggest banks to private individuals.”

The insurance industry’s exposure is based on the fact that much of the money Madoff lost wasn’t directly invested with him. A number of financial institutions, investment funds and money managers, who were in charge of their client’s portfolios, subsequently placed those funds with Madoff. These “feeder funds” are now prime targets for investors (and their lawyers) seeking to recoup some of their losses.

Paul Towler, head of the financial and professional practice at Lloyd’s broker Jardine Lloyd Thompson, explained that the alleged fraud committed by Madoff highlights the need for financial institutions and, in particular, hedge funds, to purchase appropriate professional liability limits.

He also indicated that the fraud could have

a huge impact on the financial institutions insurance market. “The litigious environment that prevails means that it’s inevitable that financial institutions who invested clients’ assets in Madoff’s funds will face actions from disgruntled clients seeking to recover lost monies. Investors will be seeking redress from fund managers on the basis that they failed in their duty of care and failed to carry out adequate due diligence. People have lost so much money; the lawyers will have a field day. Not only are fund management firms exposed but so potentially are their directors.”

As a result, Towler believes that the sheer scale of the fallout from Madoff could seriously affect the financial institutions insurance market’s dynamics, notably the availability and cost of both professional indemnity and D&O coverage. continued on page N20

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International Coverage News & Markets International Coverage, continued from page N19

The Association of British Insurers (www.abi.org.uk) issued a warning that; “people are increasingly putting their insurance cover at risk by cheating to get a better deal.”

The ABI said its members, which include most of the UK’s P/C insurers, “are uncovering a growing number of cases of ‘front end fraud,’

where the customer has lied or failed to disclose material information to get cheaper insurance.”

The ABI selected four of the most common deceptions, as follows: Fronting – where parents add their son or daughter to their motor insurance policy as an occasional named driv-

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er, when in fact they are the main driver. Not disclosing motoring convictions, ranging from a speeding conviction to drunk driving.

Forgetting about previous claims. Under-estimating alcohol and tobacco consumption when applying for life and health insurance.

As far as dealing with climate change, the insurance industry continues to take the lead in supporting efforts to study the phenomenon and to try and find solutions to moderate its effects. According to Munich Re’s report on natural catastrophes for 2008, which it described as “one of the most devastating years on record,” global warming played a significant role in producing the devastation wrought by major weather events.

Cyclone Nargis caused the greatest loss of human life - more than 135,000 people in Myanmar (Burma). In terms of insured losses, Hurricane Ike, one of the six hurricanes that reached the U.S. in 2008, was the most expensive with an estimated $15 billion in insured losses out of a total of $30 billion.

Torsten Jeworrek, a member of Munich Re’s Board of Management, cited the role played by climate change as an important element in rising catastrophe losses. “This continues the long-term trend we have been observing,” he stated. “Climate change has already started and is very probably contributing to increasingly frequent weather extremes and ensuing natural catastrophes.”

An article from Lloyd’s said: “This year’s climate change agenda has, if nothing else, highlighted that next year will be hard going for those wishing to set global agreement for action against climate change.”

The article pointed out that, even though the global economic downturn weighs heavily across the globe, “nearly 200 countries have underlined their determination to agree a target for a new treaty to combat global warming by the end of 2009.”

At the Climate Change conference, held in Poznan, Poland, in early December, 192 countries involved in the United Nations climate talks confirmed their commitment to reductions in global greenhouse gas emissions.

According to Lloyd’s, the cuts should be between 25 and 40 percent by 2020 (from 1990 levels).

The stagecoach is in for a rough ride. IJ www.insurancejournal.com

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2009 Insurance Industry Meetings and Conventions Directory Welcome to Insurance Journal’s 2009 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 www.InsuranceJournal.com/events. Meeting planners are invited to add new meetings, conventions and seminars to the database free of charge, all year long.

American Bankers Association www.aba.com ABA’s 2009 Insurance Risk Management Conference Jan. 25-28 Hyatt Regency Bonaventure Weston, FL

Independent Insurance Agents of Houston www.iiah.org Houston Insurance Day 2009 Feb. 19 Marriott Houston Westchase Houston, TX

Independent Insurance Agents of Virginia www.iiav.com IIAV Insurance Day on the Hill Jan. 28-29 Downtown Richmond Marriott Richmond, VA

AAMGA www.aamga.org AAMGA University East & Commercial Property Feb. 20-22 Warwick Hotel Philadelphia, PA

Nevada IIAA www.nv.iiaa.org Nevada 1st Annual Tradeshow Jan. 29 Green Valley Resort-Spa-Casino Las Vegas, NV

Michigan Association of Insurance Agents www.michagent.org MAIA’s 18th Annual Convention Feb. 24-26 Soaring Eagle Casino and Resort Mt. Pleasant, MI

Professional Insurance Agents of NY, NJ & CT www.pia.org PIANY’s MetroRAP Jan. 30 New York Marriott at the Brooklyn Bridge Brooklyn, NY

Professional Liability Underwriting Society (PLUS) www.plusweb.org PLUS Foundation Shots for Charity Feb. 24 Sky Rink Chelsea Piers New York, NY

ProgramBusiness.com www.programbusiness.com Peak Performance Ski Conference 2009 Jan. 21-24 Four Seasons Resort Jackson Hole Teton Village, WY

Independent Insurance Agents & Brokers of New York Inc. www.iiabny.org IIABNY Capital Event 2009 Feb. 2-3 Crowne Plaza Albany, NY

Professional Liability Underwriting Society (PLUS) www.plusweb.org PLUS D&O Symposium Feb. 25-26 Marriott Marquis New York, NY

Independent Insurance Agents of Houston www.iiah.org IIAH CIC Commercial Casualty Institute Jan. 21-24 Crowne Plaza Brookhollow Houston, TX

MyNewMarkets.com www.mynewmarkets.com MyNewMarkets LA Exchange Feb. 4 Sheraton Cerritos Hotel Cerritos, CA

American Conference Institute www.AmericanConference.com EPLI-Employment Practices Liability Insurance Jan. 21-22 The Helmsley Park Lane Hotel New York, NY

NAPSLO www.napslo.org NAPSLO Executive Leadership School Feb. 08-11 Darden School of Business Charlottesville, VA

Independent Insurance Agents of Texas www.iiat.org IIAT Joe Vincent Management Seminar Jan. 25-27 Austin, TX

IIA of Wisconsin www.iiaw.com Arizona Winter Getaway Feb. 9-11 Chaparral Suites Scottsdale, AZ

Insurance Information Institute www.iii.org The Property/Casualty Insurance Joint Industry Forum Jan. 13 The Waldorf-Astoria Hotel New York, NY Independent Insurance Agents & Brokers of America www.iiaba.net 2009 Big I Winter Board Meeting Jan. 14-18 The Westin Mission Hills Resort & Spa Rancho Mirage, CA California Insurance Wholesalers Association www.ciwa.net 14th Annual Wholesalers Industry Day Jan. 15-16 Hilton La Jolla Torrey Pines La Jolla, CA American Association of Managing General Agents www.aamga.org 2009 AAMGA International Seminar Jan. 17-24 Costa Rica, Costa Rica

Windstorm Insurance Network www.windnetwork.com Tenth Annual Windstorm Insurance Conference Jan. 25-28, 2009 Rosen Centre Hotel Orlando, FL www.insurancejournal.com

ACT, AUGIE, & IVANS Meetings Feb. 11-14 Renaissance Tampa Hotel Tampa, FL

NAPSLO www.napslo.org 2009 Mid-Year Educational Workshop Feb. 26-March 1 Renaissance Esmeralda Resort Indian Wells, CA AIMS Society www.aimssociety.com AIMS Society PRO-to-PRO (22nd Annual) Feb. 26-28 Doubletree Hotel - Downtown Nasvhille, TN Combined Claims Conference www.combinedclaims.com 21st Annual Combined Claims Conference March 2-4 Westin Hotel Long Beach, CA Independent Insurance Agents of Houston www.iiah.org IIAH CIC Life & Health Institute March 4-7 Sheraton North Houston Houston, TX

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2009 Insurance Industry Meetings and Conventions Directory

National Conference of Insurance Legislators www.ncoil.org NCOIL 2009 Spring Meeting March 5-8 Hyatt Regency Washington on Capitol Hill Washington, DC

GAMA International www.gamaweb.com LAMP 2008 March 21-24 The Rio All-Suite Hotel & Casino Las Vegas, NV

Independent Insurance Agents of Houston www.iiah.org IIAH CIC Commercial Property April 22-25 Crowne Plaza Brookhollow Houston, TX

PIA of Virginia PIA of Virginia/DC Young Professionals Conference March 6-7 Great Wolf Lodge Williamsburg, VA

C5 www.C5-online.com D&O Liability Insurance March 24-25 Grange City Hotel London, England

Insurance Club of Pittsburgh www.insclubpgh.com Pittsburgh I Day April 23 Pittsburgh Hilton Downtown Pittsburgh, PA

Professional Liability Underwriting Society (PLUS) www.plusweb.org PLUS Medical Professional Liability Symposium March 24-25 Sheraton Chicago Hotel & Towers Chicago, IL

FIWT www.FIWT.com Mid Year Education Conference April 24-25 Holiday Inn Wichita Falls Wichita Falls, TX

IIABA Maine IIABA Maine Annual Convention March 30-31 Wyndham Portland Airport Hotel South Portland, ME

Target Markets Program Administrators Association www.targetmkts.com Target Markets Mid-Year Meeting April 27-29 Baltimore, MD

Peter J. Crosa & Co. www.sshca.net Soft Selling Hardened Claims Adjusters March 9 Los Angeles, CA Peter J. Crosa & Co. www.sshca.net Adjuster Busters: 10 Steps to Building Relationships with Adjusters March 9 Los Angeles, CA AMS Users’ Group www.amsug.org AMS Users’ Group 33rd National Conference March 12-15 Gaylord National Washington, DC Insurance Industry Charitable Foundation www.iicf.org IICF Club 100 Dinner March 12 Cicada Restaurant Los Angeles, CA NAIC www.naic.org NAIC 2009 Spring National Meeting March 14-17 Manchester Grand Hyatt San Diego, CA AAMGA www.aamga.org 2009 AAMGA Automation & Technology Management Conference March 14-17 Crowne Plaza Hotel Mission Valley San Diego, CA Professional Insurance Agents of NY,NJ & CT www.pia.org PIA of CT Annual Convention March 16-17 Foxwoods Resort Casino Mashantucket, CT PIA of Texas Texas Insurance Professionals Convention Cruise March 16-21 Galveston, TX PIA of Connecticut PIA of Connecticut Annual Convention March 16-17 Foxwoods Resort Casino Mashantucket, CT

PIA National PIA National Federal Legislative Summit (FLS) April 1-2 Crystal City Marriott at Reagan National Airport Arlington, VA PIA National PIA National Board, Committee & Affiliate Meetings April 2-5 Crystal City Marriott at Reagan National Airport Arlington, VA Independent Insurance Agents of Virginia www.iiav.com IIAV ACSR Real Time Event April 3 Wyndham Richmond Airport Hotel Richmond, VA Pennsylvania Surplus Lines Association www.pasla.org Annual Meeting April 8-9 Wyndham Gettysburg Hotel Gettysburg, PA Louisiana Surplus Line Association www.lsla.bizland.com LSLA 2009 Annual Convention April 15-17 Paragon Casino Resort Marksville, LA Risk and Insurance Management Society www.RIMS.org RIMS 2009 Annual Conference & Exhibition April 19-23 Orlando, FL Professional Insurance Agents of NY,NJ & CT www.pia.org PIA of NY Long Island RAP April 21 Leonard’s of Great Neck Great Neck, NY

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IIABA www.iiaba.net Big “I” Executive Committee Meeting April 28-29 Marriott Wardman Park Hotel Washington, DC IIABA www.iiaba.net Big “I” Legislative Conference & Convention April 29-May 1 Marriott Wardman Park Hotel Washington, DC Professional Liability Underwriting Society (PLUS) www.plusweb.org PLUS Professional Risk Symposium - EPL, E&O and Fiduciary April 29-30 Manchester Grand Hyatt San Diego, CA IIABA www.iiaba.net IIABA Board of Directors Meeting May 2-3 Marriott Wardman Park Hotel Washington, DC Insurance Brokers Association of Alberta www.ibaa.ca IBAA Annual Convention May 3-6 Fairmont Jasper Park Lodge Jasper, Alberta IBA West www.ibawest.com 23rd Annual Blue Ribbon Conference May 3-7 Mauna Lani Bay Hotel & Bungalows Kohala Coast, HI www.insurancejournal.com

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PIA of North Dakota PIA of North Dakota Convention May 3-5 Ramkota Inn Bismarck, ND Insurance Brokers & Agents of San Diego www.ibasandiego.com San Diego “I” Day May 5 Town and Country Resort & Convention Center San Diego, CA IIA of Wisconsin www.iiaw.com 2009 IIA of Wisconsin Annual Convention May 6-7 Marriott Madison West Middleton, Wis Arizona Captive Insurance Association www.azcia.org AzCIA 6th Annual Conference May 6-8 InterContinental Montelucia Resort & Spa Paradise Valley, AZ Professional Insurance Agents of Indiana Inc. www.indianapia.com 2009 PIA of Indiana Convention May 14-15 Hilton Indianapolis North Hotel Indianapolis, IN PIA of Kentucky PIA of Kentucky Annual Meeting May 14-15 Hyatt Regency Hotel Louisville, KY West Coast Casualty Service Inc. www.westcoastcasualty.com West Coast Casualty’s Construction Defect Seminar May 14-15 Disneyland Hotel and Resort Anaheim, CA PIA of Indiana PIA of Indiana Annual Convention May 14-15 Indianapolis, IN Insurance Industry Charitable Foundation www.iicf.org IICF Annual Western Division Gala Dinner May 16 Four Seasons Hotel San Francisco, CA AAMGA www.aamga.org AAMGA Annual Meeting May 16-20 Boca Raton Resort & Club Boca Raton, FL Acord www.acord.org ACORD/LOMA Insurance Systems Forum May 17-19 Walt Disney World Swan and Dolphin Lake Buena Vista, FL www.insurancejournal.com

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Independent Insurance Agents of Virginia www.iiav.com IIAV ACSR Tribute Day May 20 Capitol & Governor’s Mansion Richmond, VA

The AMS Users’ Group Inc. www.amsug.org AMSUG June Committee/Board/Leadership Conference June 11-14 Hilton Dallas/Southlake Town Square Southlake, TX

PIA of Puerto Rico PIA of Puerto Rico & the Caribbean Annual Meeting May 21 Puerto Rico PIA of Oregon/Idaho PIA of Oregon/Idaho Convention May 31-June 2 Sunriver Resort Sunriver, OR

California Insurance Wholesalers Association www.ciwa.net CIWA Summer Forum & Annual Meeting June 11-12 The Meritage Resort Napa, CA Utah Association of Independent Insurance Agents UAIIA Convention June 11-13 Zermatt Resort Midway, UT

PIA of Nebraska/Iowa PIA of Nebraska/Iowa Convention June 3-4 The Cornhusker Marriott Lincoln, NE

PIA of Washington/Alaska PIA of Washington/Alaska Convention June 12-14 Suncadia Resort Cle Elum, WA

IIAT www.iiat.org IIAT 112th Annual Conference & Trade Show June 4-5 San Antonio, TX PIA of New Jersey/New York PIA of New Jersey & PIA of New York Joint Annual Conference June 7-9 Trump Taj Mahal Casino Resort Atlantic City, NJ Delaware Association of IA&B Delaware Association of IA&B Annual Convention June 9-11 Rehoboth Beach, DE

NAIC www.naic.org NAIC 2009 Summer National Meeting June 13-16 Hilton Minneapolis and Minneapolis Convention Center Minneapolis, MN Vermont Insurance Agents Association www.viaa.org Vermont Insurance Agents Association 103rd Annual Convention June 14-16 Basin Harbor Club Vergennes, VT

Michigan Young Agents www.miyac.org 2009 Michigan Young Agents Council Spring Conference June 10-12 Soaring Eagle Casino Mt. Pleasant, MI

IIA Mississippi www.msagent.org IIA Mississippi June 14-17 Sandestin Beach Hilton Destin, FL

Utah AIIA www.iiau.org Utah AIIA’s 90th Annual Convention June 11-13 Zermatt Resort Midway, UT

Independent Insurance Agents of Virginia www.iiav.com IIAV Annual Convention June 14-16 Williamsburg Lodge Williamsburg, VA

Professional Insurance Agents of Tennessee www.piatn.com PIA of Tennessee Annual Convention June 11-13 Park Vista Hotel Gatlinburg, TN

Association of Wyoming Insurance Agents Association of Wyoming Insurance Agents Convention June 17-19 Cody, WY

IIAA of Arkansas www.iiaar.org IIAA of Arkansas Annual Convention June 11-13 Hiltons of Branson Landing Branson, MO

Florida Association of Insurance Agents www.faia.com FAIA’s 105th Anniversary Convention & Education Symposium June 18-20 Rosen Shingle Creek Resort & Golf Club Orlando, FL

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2009 Insurance Industry Meetings and Conventions Directory

Alabama Independent Insurance Agents www.aiia.org AIIA Annual Convention June 18-21 The Village of Baytowne Wharf Sandestin, FL

Independent Insurance Agents of Houston www.iiah.org IIAH CIC Commercial Casualty July 15-18 Moody Gardens Hotel Galveston, TX

AAMGA www.aamga.org AAMGA University Weekend Aug. 14-16 The Scottsdale Plaza Resort Scottsdale, AZ

IIAB Louisiana www.iiabl.com IIAB Louisiana 107th Annual Convention June 21-24 Sandestin Beach Hilton Destin, FL

IIABA www.iiaba.net IIABA Midwest Young Agents Conference July 16-18 Kalahari Resort Wisconsin Dells, WI

Independent Insurance Agents of Houston www.iiah.org IIAH Ruble Graduate Seminar Aug. 19-21 Hilton Galveston Resort Galveston, TX

IIA Nevada www.niia.org IIA Nevada Annual Convention June 21-23 Harrah’s Lake Tahoe Lake Tahoe, NV

Texas Surplus Line Association www.tsla.org 2009 TSLA Mid-Year Meeting July 19-22 Four Seasons Resort Whistler Whistler, British Columbia

Society of Insurance Trainers & Educators (SITE) www.insurancetrainers.org 2009 SITE Annual Conference June 27-July 1 Hyatt Regency Albuquerque Albuquerque, NM

IIAA Montana www.iiamt.org IIAA Montana 78th Annual Convention July 22-23 Crowne Plaza Hotel Billings Billings, MT

Independent Insurance Agents and Brokers of Arizona Inc. www.iiabaz.com IIAB Arizona’s 75th Annual Convention & InfoXchange Aug. 27-28 Renaissance Glendale Hotel & Spa Glendale, AZ

PIA of Virginia/DC PIA of Virginia/DC Annual Convention & Trade Show June 28-30 Hotel Roanoke Roanoke, VA

Missouri Association of Insurance Agents Leadership Conference July 22-24 Osage Beach, MO

IMCA www.imcanet.com Annual Meeting and Showcase Gala June 28-July 1 Hyatt Olive 8 Seattle, WA PIA of Arkansas PIA of Arkansas 64th Annual Convention July 8-10 Embassy Suites Rogers, AR PIA of Mississippi PIA of Mississippi Convention July 9-13 Perdido Beach Resort Orange Beach, AL National Conference of Insurance Legislators www.ncoil.org NCOIL 2009 Summer Meeting July 9-12 Boston Park Plaza Hotel & Towers Boston, MA Association of Certified Fraud Examiners www.acfe.com 20th Annual ACFE Fraud Conference and Exhibition July 12-17 Bellagio Las Vegas, NV

PIA of Georgia Annual Agents’ Convention & Trade Show July 25-29 Ponte Vedra Beach, FL PIA of Louisiana www.piaoflouisiana.com PIA of Louisiana’s 66th Annual Convention July 25-28 Moody Gardens Hotel Galveston, TX Independent Insurance Agents & Brokers of America www.iiaba.net, www.trustedchoice.com Trusted Choice Big “I” National Championship July 26-30 Dornick Hills Golf & Country Club Ardmore, OK Florida Surplus Lines Association www.floridasurpluslinesassociation.com FSLA Annual Convention July 30-Aug 1 Boca Raton Resort & Club Boca Raton, FL PIA of Wisconsin PIA of Wisconsin 60th Annual Convention Aug. 5-7 Radisson Hotel and LaCrosse Convention Center LaCrosse, WI Vermont Captive Insurance Association www.vcia.com VCIA 2009 Annual Conference Aug. 11-13 Sheraton Hotel and the UVM Davis Center South Burlington, VT

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Independent Insurance Agents & Brokers of Oregon www.iiabo.org 81st Annual IIABO Convention & Trade Show Aug. 30-Sept. 1 Sunriver Resort Sunriver, OR PIA of Minnesota PIA of Minnesota Education Day/Trade Show/Annual Meeting Sept. 1 MN IIABA www.iiaba.net IIABA Big “I” Fall Leadership Conference Sept. 8-13 Hilton New Orleans Riverside New Orleans, LA IIABA www.iiaba.net IIABA Big “I” Education Convocation Sept. 9-11 Hilton New Orleans Riverside New Orleans, LA AAMGA www.aamga.org 18th Annual Under Forty Organization Meeting Sept. 10-12 Kingsmill Resort & Spa Williamsburg, VA IIABA www.iiaba.net IIABA Young Agents Leadership Institute Sept. 11-13 Hilton New Orleans Riverside New Orleans, LA IIABA www.iiaba.net IIABA Board of Directors Meeting Sept. 12-13 Hilton New Orleans Riverside New Orleans, LA

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National Risk Retention Association www.nrra-usa.org 2009 NRRA Conference Sept. 16-18 Renaissance M Street Hotel Washington, DC

National Insurance Conference of Canada www.niccanada.com National Insurance Conference of Canada Sept. 30-Oct. 2 The Westin Ottawa, Ontario

Independent Insurance Agents of Virginia www.iiav.com IIAV Young Agents Annual Conference Oct. 22-23 Fredericksburg Hospitality House Fredericksburg, VA

PIA of Kansas PIA of Kansas 14th Annual Convention Sept. 17-18 Wichita, KS

Independent Insurance Agents of Houston www.iiah.org IIAH CIC Agency Management Institute Sept. 30-Oct. 3 Crowne Plaza Brookhollow Houston, TX

Texas Surplus Line Association www.tsla.org 2009 TSLA Annual Meeting Nov. 8-9 Four Seasons Austin, TX

PIA National PIA National Fall Governance Meetings & Annual Meeting Oct. 1-4 Hilton San Diego Resort San Diego, CA

Professional Liability Underwriting Society (PLUS) www.plusweb.org PLUS Annual International Conference Nov. 11-13 Sheraton Chicago Hotel & Towers Chicago, IL

IIAT www.iiat.org IIAT Small Agency Conference Oct. 4-5 Fort Worth, TX

Independent Insurance Agents of Houston www.iiah.org IIAH CIC Personal Lines Institute Nov. 11-14 Crowne Plaza Houston - Reliant Park Houston, TX

PIA of Michigan PIA of Michigan Annual Meeting Sept. 17 MI NAIC www.naic.org NAIC 2009 Fall National Meeting Sept. 19-22 Gaylord National Resort and Convention Center on the Potomac Washington, DC IIA South Dakota IIA South Dakota’s Annual Convention & Trade Show Sept. 20-22 Ramkota Hotel and Convention Center Sioux Falls, SD PIA of Montana PIA of Montana Annual Convention Road Show Sept. 21-24 Billings and Missoula, MT IIA Iowa www.iiaiowa.org IIA Iowa’s 103rd Annual Convention Sept. 23-24 Sheraton Hotel Des Moines, IA IIAB Washington IIAB Washington 2009 Business Expo & Conference Sept. 24-26 Semiahmoo Resort Blaine, WA PIA of Ohio PIA of Ohio Agency Management and Profitability Conference Sept. 24-25 Columbus, OH Professional Insurance Agents Association of Ohio www.ohiopia.com PIA of Ohio Agency Management and Profitability Conference Sept. 24-25 Hilton Columbus / Polaris Columbus, OH Alliance of Insurance Agents & Brokers www.agentsalliance.com 2009 Alliance Convention & Expo Sept. 24-27 JW Marriott Palm Desert, CA

www.insurancejournal.com

American Association for Long-Term Care Insurance www.aaltci.org National Long-Term Care Insurance Producers Summit Oct. 5-8 Atlantic City, NJ NAPSLO www.napslo.org 2009 NAPSLO Annual Convention Oct. 7-10 Orlando, FL

AAMGA www.aamga.org AAMGA Mid-Year Meeting Nov. 12-14 Marco Island Marriott Marco Island, FL IIA of Connecticut www.iiac.org IIA of Connecticut 2009 Annual Convention Nov. 19 Aqua Turf Plantsville, CT

IIAB South Carolina www.iiabsc.com IIAB South Carolina Annual Convention Oct. 11-13 Grove Park Inn Asheville, NC

National Conference of Insurance Legislators www.ncoil.org NCOIL 2009 Annual Meeting Nov. 19-22 Royal Sonesta Hotel New Orleans New Orleans, LA

IIA North Carolina www.iianc.com IIA North Carolina Annual Convention Oct. 11-14 Hilton Head Marriott Resort & Spa Hilton Head, SC IIA Ohio www.ohiobigi.com IIA Ohio Big “I” Annual Meeting & Trade Show Oct. 13-14 Hilton Columbus at Easton Columbus, OH FIWT www.FIWT.com 65th Annual Convention with Golf Tournament and Trade Show Oct. 22-25 Omni Corpus Christi Corpus Christi, TX

NAIC www.naic.org NAIC 2009 Winter National Meeting Dec. 5-8 Hilton Hawaiian Village and Hawaii Convention Center Honolulu, HI IIABA www.iiaba.net IIABA Southern Agents Conference Dec. 11-13 Ritz-Carlton Buckhead Atlanta, GA

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New Markets The following markets were selected from the MyNewMarkets database of 25,000 coverages and programs. To find additional markets, or to submit markets, go to www.MyNewMarkets.com.

Vacant Property Market Detail: Insurance Specialty Construction Group (www.insurancespecialtygroup.com) offers a vacant property program designed to cover general contractor’s inventory on-hand when written in conjunction with their new starts. Features of this program include the option of both blanket and new starts coverage forms; with wind coverage available in most areas. Additional coverages available include coverage for model homes and their contents, soft costs, flood and earth movement. Minimum premiums begin at $1,000 and deductibles start at $1,000.

Available Limits: $750,000 to $5 million.

Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted.

States: Ala., Ariz., Calif., Fla., Ga., Ill., Ind., Kan., Md., Mich., Minn., Miss., Mo., N.J., N.M., N.C., Ohio, Ore., Pa., S.C., Tenn., Texas, Utah, Va. and Wash.

Contact: Heidi Henn at 678-742-6300 or e-mail hhenn@isgins.com.

Not-For-Profit Senior Living Market Detail: Bunker Hill Insurance Agency (www.bunkerhillinsurance.com) offers the underwriting expertise and high-level service to agents searching for a market for their retirement apartments, not-for-profit skilled nursing homes and assisted living facilities.

Bunker Hill can provide programs with claims-made or occurrence liability coverage, prior acts (nose) coverage, property, automobile liability, and umbrella liability. Bunker Hill offers in-house claims expertise.

Minimum premiums begin at $30,000.

Available Limits: As needed.

Carriers: American International Group. “A” rated by A.M. Best. Admitted.

States: All. Contact: Melanie Hinton at 800-645-7707 or email mhinton@bunkerhillinsurance.com.

Medical Facilities Market Detail: Partners Specialty Group (www.psgins.com) gives agents access to an established health care carrier offering com-

mercial general liability (on the ISO form), professional liability and employment practices liability with sexual abuse coverage for various types of medical facilities around the country. Primary limits of $1 million/$3 million with a sub-limit for sexual misconduct is available. Capacity also allows for excess/umbrella coverage up to $15 million.

Defense expense is outside the limits.

Supplementary payments include disciplinary proceedings coverage and reimbursement for lost earnings. Risk management services are part of this program. Minimum premiums and deductibles begin at $5,000.

Top 10 Most Unusual Searches on MyNewMarkets.com in 2008 1. Exotic Snake and Reptile Breeding Operation 2. Circus Arts Instructor Liability 3. Tailgate Party Bus Operation 4. Sand Rail (Dune Buggy) Operation 5. Dating Service Operation 6. Snow Machine Rentals 7. Tourist Trolley Operator 8. Air Traffic Control School 9. Halfway House Operation 10. Timberland Coverage Available Limits: $1 million to $15 million.

Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted and non-admitted.

States: All except N.M. and Pa. Contact: Michael Cardenas, RPLU at 310-5864742 or e-mail mcardenas@psgins.com.

Surety and Fidelity Bonds Market Detail: Gilbert Trujillo Insurance Services (www.1bondsinsurance.com) offers a broad range of fidelity and surety bond markets. Difficult risks and renewals can be handled with a minimal amount of additional information. They also handle preferred bonds. GTIS has a market for nearly any kind of bond; and they promise to deal only with the agent, not the client.

Available Limits: As needed.

Carriers: Unable to disclose. Rating not pro-

N26 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009

vided. Admitted and non-admitted.

States: All. Contact: Gilbert Trujillo at 623-695-3334 or email gtrujillo9@cox.net.

Campgrounds & Dude Ranches Market Detail: Hull & Co. Inc. (www.hullco.com) has availability of a new program to insure those risks that cater to outdoor lovers.

Target classes include: campgrounds & RV parks, dude & guest ranches; fishing & hunting lodges; resorts & lodges; outfitters & guides; hunting preserves; trap, skeet & sporting clay; rod & gun clubs; shooting ranges; snowmobile tours; ATV tours; whitewater rafting tours; consulting foresters; and many more. Excess limits and accident policies are available.

Available Limits: Not provided.

Carriers: Unable to disclose. Rating not provided. Admitted and non-admitted.

States: All. Contact: Jodie Faulkner at 303-218-3084 or e-mail jfaulkner@hullco.com.

Contractors General Liability Market Detail: London American Risk Specialists (www.londonamericantx.com) brings agents a commercial general liability market for residential and commercial general contractors. Work done on the GC’s behalf by sub-contractors is covered in this program.

Program allows the option for use of uninsured and underinsured sub-contractors.

Roofing contractors, artisan contractors and general contractors are the program target classes. New ventures are eligible.

Occurrence, sunset or claims made forms are available for use. Minimum premiums begin at $750 for artisan contractors and go up to $4,000 for roofing contractors. Deductibles begin at $1,000.

Available Limits: $1 million to $2 million.

Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted.

States: All except N.H. and N.Y. Contact: Chris Chiodetti at 713-977-7726 or e-mail cchiodetti@londonamericantx.com. IJ www.insurancejournal.com

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Idea Exchange Minding Your Business

Developing a Sales & Marketing Plan Part 2: Designing the Plan

By Bill Schoeffler and Catherine Oak Oak

T

he first part of this two part series described the selfanalysis of the agency’s book that must precede the development of an effective sales and marketing plan.

This is accomplished by reviewing each producer’s book for the type and size of accounts and analyzing what industries or other niches exist.

Producers also needs to evaluate their primary areas of expertise. What have they successfully written before and what centers of influence do they have? They also need to determine if their past experience and success will still be valid in 2009. The first part allows the sales force to understand the current composition of their clients, take a look at their products skills, and identify areas to exploit. The next step is for key sales players in the agency to brainstorm ideas of where they want to go now and how to get there.

Setting the Goals Compiling the individual producer goals creates the sales and marketing plan parameters. Using the data already collected, each producer can then set goals based on his or her sales ability, resources, time and expertise. Producers need to set goals that can make them stretch. The goals should include how much new business will be written and what specific types of business will be approached. The plan needs to take personal goals into account, too.

Their plan should show the starting point and the finishing point of their goals. It is up to the producer and sales manager to define and revise the path that is followed. Adjustments might include ways for the producer to improve the hit ratio, targeting larger accounts and/or how to create a new program to exploit a producer’s talent. These steps or adjustments should be organized into action plans.

Action Plan Development Action plans state the current issue, the future goal and then list a few key tasks or milestones along the way. The action plan needs to clearly define the person responsible for each step and the timeframe to complete the task. These action steps are the step-by-step directions for the sales and marketing plan. Keep in mind that the end result should be fixed. However, the path to reach that goal can be revised and altered along the way based

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Schoeffler

on what seems to work best. The sales and marketing plan should be an ever-changing document.

Monitoring the Plan; Tracking Progress The overall plan and action steps are only as good as their monitoring and management. Tracking progress and holding people accountable ensure reaching the end result. The focus needs to be on the goals set, while being flexible on the path followed. Therefore, performance is evaluated by an understanding that the path is not straight. There will be some setbacks and changes will need to be made along the way.

Monitoring needs to be done by the sales manager and this role is extremely important; more so today than before. Each producer needs to be prepared to describe his or her past results, project what is in the pipeline for the future and describe what has been working and what improvements are needed. The sales manager’s role is to work with the producer to make any adjustments necessary to keep going in the right direction. This would include joint calls and even helping producers take new approaches based on market woes, such as contractor producers moving to road construction versus home building.

Adjustments to the sales and marketing plan can include coaching, mentoring, outside training, telemarketing, advertising, promotion, development of new programs, products or services, or perhaps even new staff. An action plan should be created when these adjustments are necesProducers sary. That way the producer and the agency agree on the steps, responsineed to set bility, timeframe and expected goals that can results.

make them stretch.

Know the Terrain Just like a traveler on a trip, the agency’s sales and marketing plan must be aware of and respond to the terrain. Clients’ needs, insurance companies and the marketplace in general are all out of the control of the agency. The agency needs to understand what is happening and be proactive, or at least respond quickly to these factors.

Market Analysis Agents need to have a clear understanding of what carriers can do for them and how this fits into the overall agency plan.

Insurance companies, it seems, will either be unmoving or totally change things, usually cycling through both approaches. continued on page N28 January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N27

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Idea Exchange Minding Your Business Sales & Marketing Plan, continued from page N27

Run a list of all of the carriers with volumes, commission rates (or commissions), loss ratios and contingents received. Analyze how the agency’s book of business stacks up with the existing markets and their products. Compare all the carriers and their products against what the agency has with the top 10 industry groups the agency writes.

Some of the questions that should be asked include: Will volume commitments be met and how will this be done? Are there new markets the firm should seek out? Is the volume spread too thick or too thin? Is the agency maximizing profit sharing agreements?

List in the sales and marketing plan the five most important markets (not necessarily the largest) and the agency’s volume with them.

Write realistic agency production goals next to those numbers. Next, list one or two markets that the agency does not have, but the agency could use. Write down the dates producers will approach them (create action plans by carrier). Finally, list two or three markets the agency has outgrown and should eliminate.

future opportunities with the regional vice Target Clients president or branch manager and the main An agency can have the greatest products underwriter assigned to the agency. Inform and sales force, but unless producers are tarthem about the current status of the agency geting the clients, these assets are moot. Make and its future plans. Find out where the comsure the agency’s capabilities, strengths, prodpany stands now and its plans for the future. ucts and centers of influence match up with the targeted clients. If a new group of clients is Discuss how the agency and the company can do more business together in the future. to be targeted, then create an action plan with the steps required, timeframe The overall plan Summary and who is responsible.

Be proactive not reactive. Firms and action that incorporate an annual planIt’s a Sales Tool steps are only ning process are more efficient, The beautiful thing about a more profitable and highly valued well-written sales and market- as good as its ing plan is that it does not need monitoring and businesses. The choice is yours.

Take the time to plan ahead and to only be used internally. It can management. be successful or be at the mercy be shared with prospects, of the winds of change. IJ clients and insurance companies. Such a plan helps the firm look organized and efficient and makes the agency manageSchoeffler and Oak are partners at Glen Ellen, Calif.-based ment and sales force feel directed and on task. Oak & Associates. The firm specializes in financial and manTake the sales and marketing plan directly agement consulting for independent insurance agents and broto insurance company representatives. Set an kers. Phone: 707-935-6565. E-mail: bill@oakandassociates.com. annual meeting to discuss agency goals and Web site: www.oakandassociates.com.

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East Coverage People

Jim Johnstone

Ronald Miller

James Seward

Ann Cummings

Russell Johnston

Jim Johnstone has joined Westbrook, Conn.-based The Gowrie Group of Cos. as a producer in the Boat/Yacht department. Jim brings deep marine and sailing industry expertise that will enable Gowrie to broaden its reach into the boating market and the Rhode Island community served by Gowrie's Newport office. Jim's sailing industry and racing pedigree can be matched by very few. For the past 14 years Jim has been a key sales manager and production manager for J/Boats Inc. Prior to working at J/Boats, Jim spent 3 years working and racing on Shamrock V, a classic J-boat.

W. Ronald Miller has joined Brooklandville, Maryland-based HMS Insurance Associates Inc. and will assume responsibilities for business development, focusing on the Washington DC and Northern Virginia marketplace. Miller, formerly a vice president with a national insurance brokerage, has managed the insurance and surety bonding needs of large construction enterprises as well as other commercial risks and will assist HMS in maintaining and enhancing its strong presence in the MidAtlantic Region.

New York State Senator James Seward (R-Milford) has been named president of the National Conference of Insurance Legislators (NCOIL), an organization of state legislators whose main area of public policy interest is insurance legislation and regulation. Most legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country. The election slate also included the following officers for 2009: Kentucky Rep. Robert Damron as president-elect; North Dakota Rep. George Keiser as vice president; New Mexico Sen. Carroll Leavell as secretary; and Indiana Sen. Vi Simpson as treasurer.

In addition, the following committee chair appointments were announced: Financial Services & Investment Products: Assemblyman Joseph Morelle (N.Y.); Retirement Issues: Sen. Ann Cummings (Vt.); International Insurance Issues: Sen. Vi Simpson; Life Insurance & Financial Planning: Sen. Ralph Hudgens (Ga.); Natural Disaster Insurance Legislation (Subcommittee): Sen. Joseph Crisco (Conn.); NCOILNAIC Liaison: Sen. Neil Breslin (N.Y.); Property-Casualty Insurance: Rep. Charles Curtiss (Tenn.); State-Federal Relations: Rep. Greg Wren (Ala.); Workers' Compensation Insurance: Rep. Susan Westrom (Ky.) New York-based specialty insurance holding company The Navigators Group Inc. has appointed Reina Gregorio president of its Professional Liability division.

Gregorio previously ran the domestic professional liability business of XL Insurance. She has over 27 years of insurance experience. Gregorio will be based in Navigators'

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New York City office. The Navigators Group, Inc. is an international specialty insurance holding company with insurance company operations, underwriting management companies and operations at Lloyd's of London.

The New York Insurance Association (NYIA) recently elected officers and directors for the group, a trade association for property/casualty insurers. New officers who will serve one-year terms are Cecilia Norat, American International Group Inc., chair; Richard Zick, Utica First Insurance Co., first vice chair; Jeffrey Rice, Wayne Cooperative Insurance Co., second vice chair; and Marlene Benton, Fulmont Mutual Insurance Co., treasurer. The following were elected to three-year terms as board members: Benton; Mark Prechtl, Chautauqua Patrons Insurance Co.; Thomas Ruane, Security Mutual Insurance Co.; and Richard Zick, Utica First Insurance Co. Tim Ryan has been named chief operating officer for the newly merged Lockton Northeast, which combines the Connecticut and New York operations for the privately held insurance brokerage. In connection with the merger, Gary Giulietti, Bill Husic and Gary Mathieson will serve as senior executives.

Two recent mergers have brought a number of new executives into Short Hills, New Jersey-based insurance brokerage Bollinger Inc. Michael M. Rossi III, has been named senior vice president of the South Jersey Region of Bollinger Inc. Rossi served previously as principal owner of Vineland, New Jersey-based AIS, which merged with Bollinger in Dec. 2008. As part of a second merger, John Betz, David Kimball, Shelley Levine and Frank Lyon will join Bollinger as executive vice presidents in Bollinger’s new Greenwich, Connecticut office. All four had founded BK International Insurance Brokers, which merged with Bollinger in December. Kimball will act as chief operating officer of the branch.

American International Group Inc. (AIG) has named Russell Johnston president and chief executive officer of AIG Environmental, a unit of AIG Commercial Insurance and the nation’s leading Pollution Liability insurance provider. Johnston assumes management responsibility for AIG Environmental from Joseph Boren, who has left the company. Johnston joined AIG in 1990 serving in senior management positions within AIG’s Risk Management Group, most recently as president of AIG Risk Management.

In addition, Kimberly Hanna has been named executive vice president and chief operating officer of AIG Environmental. Hanna joined AIG’s Canadian operations in 1996 and in 2000. She most recently served as senior vice president and chief underwriting officer for AIG Environmental. IJ January 12, 2009 INSURANCE JOURNAL-EAST REGION | 39

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Idea Exchange D&O

Estimating the Credit Crisis Insurance Losses

By Kevin LaCroix

O

n Nov. 5, 2008, the insurance information firm Advisen issued an updated forecast of insurance losses likely to arise from the credit crisis, estimating aggregate directors and officers (D&O), and errors and omissions (E&O) losses of $9.6 billion, up from the firm’s February 2008 $3.6 billion forecast. Advisen’s aggregate $9.6 billion forecast falls within a broader range of estimated combined D&O and E&O losses of from

LaCroix

and further litigation seems highly likely. It has become increasingly difficult to define what is and what is not “credit crisis-related.”

The absence of definitional clarity makes predictions particularly precarious. The very attempt to quantify credit crisis-related losses implies a categorical precision that may no longer exist.

The Uncertainty of Events to Come Any estimate of the insurance industry’s overall credit crisis-related exposure necessarily incorporates assumptions about the number and seriousness of lawsuits yet to be filed. The estimate also includes certain assumptions about how much longer the new lawsuits will continue to emerge.

Advisen suggests that the lawsuits will continue to accumulate into 2009; I believe they will continue to emerge well beyond the end of 2009. But any attempt to estimate insurance losses entails certain assumptions about the lawsuits yet to come, and the magnitude of the losses estimated will vary materially depending on the assumptions used.

These considerations suggest a number of competing considerations, some of which might imply larger overall insurance losses, $6.8 billion to $12.1 billion.

The arrival of some of which cut the other There are several considthe harder way, and some of which that erations that make any market could present attempt to quantify be delayed but will have an uncertain impact.

For that reason, it is particuthe insurance industry’s could be even larly difficult now to try to credit crisis-related expomore disrupestimate the insurance indussure particularly challengtive when it try’s overall exposure from the ing. arrives. credit crisis related litigation.

That said, the insurance industry’s overall What We Measure losses are going to be very large, and that Both the credit crisis and the associated whatever the loss projection might have litigation have expanded and evolved since been in February 2008, developments since the problem emerged in early 2007. What that time suggest that the number almost began as a subprime meltdown has now certainly has increased. become a generalized downturn affecting The insurance industry has not yet reactthe broader economy. The economic turmoil ed fully to these developments. To be sure, has produced its own associated litigation, 40 | INSURANCE JOURNAL-EAST REGION January 12, 2009

companies in the financial sector are now seeing D&O insurance price increases and a more challenging underwriting environment. In addition, several factors could indicate a hardening market ahead, including in particular the losses associated with Hurricane Ike and other catastrophic events, as well as the marketplace disruptions involving AIG and the investment losses that have accumulated at other leading carriers.

All of that said, other than with respect to companies in the financial sector, there is little present evidence of a market turn. For most companies, conditions remain competitive, and both pricing and available terms and conditions remain attractive.

Companies generally are unlikely to experience a hard D&O insurance market until insurers are reporting substantial calendar year losses across their D&O portfolio.

Losses associated with claims in a particular accident year may not be fully developed until years later. An insurer recognizes a loss only when the claim is paid or a reserve against the ultimate amount is finally established. The lag time to the ultimate loss in the professional liability insurance lines can be as long as three years or more. The lag time creates a risk – all too often realized – of loss underreporting.

Hard Times Coming As a result, the arrival of the harder market could be delayed but could be even more disruptive when it arrives. The carriers that are the slowest to recognize the changed circumstances will be the ones that experience the most disruptive impact.

Of course, if AIG’s travails and other carriers’ investment portfolio woes produce a shortage of insurance capacity, the hard market’s arrival could be accelerated. IJ LaCroix (klacroix@oakbridgeins.com) is an attorney and partner in OakBridge Insurance Services’ Beachwood, Ohio, office. www.insurancejournal.com

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East Coverage News & Markets Lifelines in the Storm: Pro-Policyholder Developments in 2008

By Mark Garbowski

I

n light of the enormous losses and cascading failures triggered by the financial crisis, companies across the full spectrum of U.S. industry will be looking to their insurance policies for loss mitigation.

Fortunately, developments in several states bolstered policyholders' ability to defeat insurance companies' overbroad interpretation of various coverage defenses. State courts and legislatures limited insurance companies’ ability to deny coverage on late notice grounds; affirmed policyholders’ right to consequential damages when an insurance company’s failure to fulfill its contractual obligations causes the death of a company; affirmed the right to insurance coverage for punitive damages under some circumstances; and strengthened policyholders’ hand in settlement negotiations conducted when the defendant’s insurance company has reserved its rights.

New York bolstered policyholders’ rights on three fronts in 2008. The first was the decision in Bi-Economy Market, Inc. v.

Harleysville Insurance Company of New York, et al. that allowed policyholders in New York to recover consequential damages from their insurance company, a right long enjoyed by policyholders in other jurisdictions. In BiEconomy, the state’s Court of Appeals held that "it is well settled that in breach of contract actions 'the nonbreaching party may recover general damages which are the natural and probable consequence of the breach’” and that “when an insured...suffers additional damages as a result of an insurer's excessive delay or improper denial, the insurance company should stand liable for these damages.”

The second New York development was the Elacqua v. Physicians’ Insurers decision ruling that an insurance company’s failure to advise a policyholder of a right to independ-

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prove fraud, including ent counsel violated New York’s deceptive the elements of materibusiness acts and practices law. ality and actual reliance Finally, the New York legislature passed on the misrepresentaand Governor Paterson signed a bill to relax Garbowski tion by the insurance – in certain circumstances – New York’s company. On the other hand, the insurance very strict rules that allowed insurance comcompany can rescind even if the material panies to avoid coverage when notice of a misrepresentation was made in an earlier claim or occurrence is late, even if the insurpolicy application for which the current polance company was not prejudiced by the icy was a renewal. Even if the renewal applidelay. New York has now joined the majorication did not include the misrepresentaty of states in imposing a prejudice standard tion, the insurance company can be entitled for late notice denials when the statute to rescission. applies.

In Washington, that state’s highest court Other states had significant Supreme ruled in October, in Mutual of Enumclaw Court decisions regarding insurance issues.

Insurance Co. v. T&G Construction Inc. and In January, the Texas Villas at Harbour Pointe Owners Association, Supreme Court rejected the that an insurance company is bound by the rule that prejudice is irrelefactual findings made as part of a reasonable vant to late notice and held settlement of an underlying liability claim that “an insured’s failure to when a coverage determination depends timely notify its insurer of a upon those same facts. claim or suit does not defeat The Washington Supreme Court detercoverage if the insurer was mined that a good faith settlement between not prejudiced by delay.” PAJ, the policyholder and an underlying Inc. v. The Hanover Insurance claimant establishes the policyholder’s damCompany. The next month, the Texas ages for insurance purposes. The court had Supreme Court ruled in Fairfield Ins. Co. v. previously ruled that Stephens Martin Paving, LP., that Texas this rule applied if the public policy does not bar insurance coverage for punitive damages under Several states insurance company some types of workers' compensation strengthened acted in bad faith. In and employer's liability insurance. The policyholders’ this case, the Court found that while the Texas hand against Washington Court clarified that this rule Legislature had made the policy deciinsurance applies even where the sion to prohibit insurance coverage of companies. insurance company had exemplary damages in certain limited not acted in bad faith, circumstances, it made no such policy and noted that several other state courts decision in the context of workers’ compenagreed. sation.

These developments strengthened policyIndeed, the Texas Supreme Court found holders’ hand in their negotiations to settle that the Legislature’s expressed intent is suits against them, in their resistance to that insurance coverage would exist for insurance company defenses against coverexemplary damages in the workers’ compenage, and in their recourse in the event of sation context. insurance company bad faith. In difficult Maine’s highest court issued an important economic times, every such boost to policydecision on insurance company efforts to holder rights can prove to be a lifeline. IJ rescind policies based on alleged misrepresentation in the policy application. To succeed in such an effort, the Court ruled, in Garbowski (mgarbowski@andersonkill.com) is a shareLiberty Ins. Underwriters, Inc. v. Estate of holder in the insurance recovery practice of Anderson Kill Faulkner, that an insurance company must & Olick. He practices in the firm’s New York office.

January 12, 2009 INSURANCE JOURNAL-EAST REGION | 41

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East Coverage News & Markets

Massachusetts Agents Want Regulator to Rein in Progressive

By Kenneth J. St. Onge

A

trade group for Massachusetts insurance agents has asked the state’s top regulator to force Progressive Insurance to take down its Web site, which agents say routinely gives inaccurate quotes—particularly when comparing Progressive’s prices to its competitors.

The complaint comes in a letter to Insurance Commissioner Nonnie Burnes from the Massachusetts Association of Insurance Commissioners. The letter follows an admission by Progressive that its Web site was mistakenly doubling the rates of several competitors—Commerce Insurance and Liberty Mutual.

It’s the second time in the seven months Progressive has been selling personal auto insurance online that the company has become a target of agents’ ire.

In August, the company admitted that its Web site was mistake-prone in some circumstances, and vowed to correct any problems.

Mancini

“It is safe to say that an independent insurance agent found to be providing inaccurate quotes, particularly for competing companies, would face a regulatory hearing and fine by the Division of Insurance,” wrote Frank Mancini, president of the Massachusetts Association of Insurance Agents. “We are not aware of any action taken by the DOI for the inaccurate quotes provided to Massachusetts consumers earlier this year by Progressive.”

Mancini is requesting that Progressive be forced to take down its Web site until the accuracy of its quoting system can be verified. Mancini has also said the compa-

42 | INSURANCE JOURNAL-EAST REGION January 12, 2009

It’s the second time in the seven months Progressive has been selling personal auto insurance online that the company has become a target of agents’ ire.

ny should be fined for every inaccurate quote It’s not the only problem the agents’ group has with Progressive. Agents say Progressive is selling six-months-only policies, which are supposedly against regulations in the Bay State, as well as altering deductibles and PIP coverage without informing purchasers of the ramifications of the changes. “The Progressive website and all of its faults is a disservice to Massachusetts consumers,” Mancini said. “The regulatory oversight of this marketing tool has been lax. We encourage the DOI to initiate a regulatory investigation, and require Progressive to respond to the unfair and deceptive acts it has perpetuated on Massachusetts consumers.”

In a statement, Progressive spokeswoman Cristy Cote said the mistakes were caused by human error in the design of the site. Cote also said that Progressive has sent apologies to the 21,000 consumers who saw incorrect quotes.

“To help remedy this situation, we notified both companies as well as the Massachusetts Division of Insurance and the Attorney General’s office, and we removed the comparison rating service from our Web site,” she said. “We will not re-install this service until we’re completely confident that it is delivering fair and accurate pricing information to Massachusetts consumers.” IJ www.insurancejournal.com

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East Coverage Business Moves CRC Insurance, TAPCO Underwriters CRC Insurance Services Inc., the wholesale insurance subsidiary of BB&T Corp. principal subsidiary Branch Banking and Trust Co., plans to acquire TAPCO Underwriters Inc. The transaction was to be completed Dec. 31.

Terms were not disclosed. TAPCO will operate as a division of CRC managing general agency, Southern Cross Underwriters.

Burlington, N.C.-based TAPCO Underwriters is a managing general agency specializing in high-volume, middle-market excess and surplus insurance lines. The 25-year-old company also operates regional offices in Clearwater, Fla., and Manassas, Va. Birmingham, Ala.-based CRC, with approximately $3 billion in premiums in 2007, says it is the largest wholesale property and casualty insurance broker in the nation.

TAPCO uses a proprietary underwriting technology model and call center to quote and bind a high volume of business on the phone in five minutes or less. TAPCO reported that last year placing more than $200 million in premiums.

ance market, decided on last year. HSB Group's President and CEO Douglas G. Elliot and his senior management team will remain with HSB Brown & Brown Florida-based insurance giant Brown & Brown Inc. went on a buying spree in the final weeks of the year in purchasing, among others, Gallagher Associates in Blackwood, New Jersey. Gallagher Associates, with revenues of $2 million, sells property/ casualty insurance in the southern New Jersey, Pennsylvania and Delaware region.

Brown & Brown also purchased Baker, Thomsen Associates Insurance Services of Newport Beach, Calif.; Insurance 1 Inc. and Alexander & Bolton Inc., of Alexandria, La.; and Charter Insurance Services, Inc. of Albuquerque, New Mexico, which has property/casualty revenue of $1.1 million.

Ironshore, Marine Re Bermuda-based Ironshore Inc. has acquired the assets of Marine Re Inc. The company said the current management and staff will be retained, Marine Re is currently in its ninth year of operation as a marine reinsurance market in North America. During 2008 it underwrote gross premium income of $35 million.

FTC: CCC Information, Mitchell The Federal Trade Commission has filed suit to block the merger of CCC Information Services Inc. and Mitchell International Inc., charging that the merger would hinder competition in the market for electronic systems used to estimate the cost of collision repairs, known as “estimatics,� and the market for software systems used to value passenger vehicles that have been totaled, known as total loss valuation systems. The FTC alleges that the merger, which is valued at $1.4 billion, would harm insurers, repair shops and, ultimately, U.S. car owners by reducing from three to two the number of competitors in the two related businesses. IJ

Munich Re, Hartford Steam Boiler Munich Re has agreed to acquire specialty insurer Hartford Steam Boiler (HSB) Group from American International Group for $747 million in cash. Munich Re said it would finance the purchase price from internal resources. Completion of the transaction is subject to regulatory approval, which is expected to be completed at the end of the first quarter of 2009.

AIG acquired HSB as a wholly owned subsidiary in 2000 for approximately $1.2 billion.

In 2007, HSB posted an after-tax profit of $158 million and the company's average combined ratio since 2003 has been 73.8 percent. The gross written premium income of HSB Group in 2007 amounted to $904 million.

The main unit within HSB Group is Hartford Steam Boiler Inspection and Insurance Co., which specializes in machinery and plant and equipment breakdown insurance, inspection, certification and engineering consulting services.

Munich Re said the acquisition is a further step in its strategy to grow in the U.S. insurwww.insurancejournal.com

January 12, 2009 INSURANCE JOURNAL-EAST REGION | 43

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Ad Index

East Coverage News & Markets

National Agribusiness Conventions American E & S www.aesbrokers.com American Reliable www.americanreliable.com Amwins Group, Inc. Applied Underwriters www.applieduw.com Applied Underwriters www.applieduw.com Astonish Results Burns & Wilcox Ltd www.burnsandwilcox.com5 CBIC www.cbic.com CDS Business Mapping www.riskmeter.com Contractors Conferences Forensic Imaging and Archiving, Inc. Great American Insurance Company www.greatamericaneld.com Insurance Innovators www.iiigroup.com NAS Insurance Services, Inc. www.nasinsurance.com National Alliance Production School Travelers Insurance Universal Service Agency, Inc www.universalbonds.com Westrope www.westrope.com

N28 N7 N5 7 48 2,3 N9 10

By Kenneth J. St. Onge

N3

A

N6 N4 N10 N8 N20 N18 N19 N11 N20 N17

East Agency Intermediaries, Inc. Connecticut Underwriters, Inc. www.ctunderwriters.com Global Construction Insurance & Risk Services

Mass. Court: Professional Liability Policy Excludes Document Theft

42 5 43

document management company that allowed a client’s sensitive documents to be taken is not covered by a professional liability policy with an intellectual property exclusion, the Massachusetts Supreme Judicial Court has ruled.

The case - which pitted Uniscribe Professional Services Inc. against its insurer, National Union Fire Insurance Co. of Pittsburgh, Pennsylvania - stemmed from a settlement reached between Uniscribe and the Los Angeles law firm Jones Day, from which documents were taken.

Uniscribe provides records management, document imaging and electronic printing services to law firms and corporations.

According to court records, Jones Day hired Uniscribe in 2002 to provide litigation support services in connection with the representation of its client, DirecTV. Three Uniscribe employees were assigned to work on the DirecTV case at the Jones Day office.

Jones Day would not allow documents related to the DirecTV litigation to be removed from its office and the employees signed agreements pledging to maintain the confidentiality of information entrusted to them

by Jones Day. But in September 2002, a Uniscribe supervisor authorized an employee working on the DirecTV project to bring his nephew to assist the Uniscribe employees in meeting Jones Day’s deadlines. The nephew worked for approximately 10 days and was paid cash by his uncle, who recorded the nephew’s hours as overtime. The nephew came across documents containing confidential trade secret information from DirecTV and sent that information to a Web site to help the “hacker” community.

In January, 2003, Jones Day notified Uniscribe of the disclosure. Uniscribe promptly notified National Union of the inci-

44 | INSURANCE JOURNAL-EAST REGION January 12, 2009

dent, indicating that Jones Day had written off a substantial legal fee for services it had performed for DirecTV and that Jones Day “may eventually look to [Uniscribe] to compensate them for this matter.”

National Union, through its claims handler, disclaimed coverage based on the intellectual property exclusion.

By November, 2004, Jones Day’s patience with Uniscribe’s efforts to resolve the coverage dispute with National Union had been exhausted. Jones Day informed Uniscribe by letter that it would no longer defer pursuit of its claims against Uniscribe and gave Uniscribe five days to consider a settlement proposal under which Uniscribe would pay Jones Day $1.5 million over a five-year period.

Uniscribe forwarded Jones Day’s letter to the insurer, which did not respond.

Given the time constraints on Jones Day’s offer and the anticipated costs of defending itself in litigation, Uniscribe negotiated a settlement agreement with Jones Day in which Uniscribe agreed to pay Jones Day nearly $1.2 million over five years.

Uniscribe had argued that its professional liability policy required National Union to indemnify and defend the company. But the insurer argued that its policy excluded claims arising out of misappropriation of trade secrets - also known as an intellectual property exclusion.

The decision affirms an earlier decision by a lower court which ruled in National Union’s favor. IJ www.insurancejournal.com

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January 12, 2009

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Republic-Vanguard Insurance Company 2394 E. Camelback Road Phoenix, AZ 85016

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Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, One South Station, Boston MA 02110, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

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Idea Exchange Closing Quote

Eye on Insurance Industry Regulation In Financial Turmoil, Agents and the Industry Must Work Together

Auerbach

By Kenneth R. Auerbach

I

t has been said that “a rising tide lifts all boats.” That also raises the question, what happens to the boat when the tide goes down? The answer is that when the tide falls — or when the waters get choppy — everybody in the boat has to work together to ensure that the boat and all of its occupants remain safe until the tide inevitably rises again.

Our nation’s economy has experienced a deterioration starting with the subprime mortgage mess, followed by a credit crunch, followed in turn by the collapse or bailout of major investment firms. Then, the U.S. government approved a $700 billion rescue plan, with a portion of the funds used to partially nationalize some of our largest banks.

On the day that I was inaugurated president of the National Association of Professional Insurance Agents, the Dow Jones Industrial Average stood at 11,027.51; as I write this, the Dow continues to fall to levels not seen in more than 25 years. This has created a depressed and disorganized market, where value has been lost and remaining values are eyed with skepticism.

We are witnessing the consequences of the failure by federal authorities to prudently regulate the activities of banks and securities firms, and failure to oversee or even know the private capital markets. The failures have been breathtaking in scope and destabilized our nation’s economy.

Good Time for Agents Despite the financial difficulties our nation faces, now is an especially good time to be an independent insurance agent.

While it is clear that our nation is moving through a nasty recession, independent insurance agents should be mindful of their position relative to the other sectors of financial services. Our industry’s fiscal house is in good order. The same cannot be said about banking and securities. Because insurance is prudently regulated by the states and insurers embrace financial soundness oversight and practice disciplines, our sector has remained stable. This is in stark contrast to the questionable activities permitted by federal regulators in the banking, securities and capital markets sectors leading to financial meltdown.

The effective and efficient supervision of our insurance industry by the state insurance regulatory system ensures the financial stability and soundness that protects

46 | INSURANCE JOURNAL-EAST REGION January 12, 2009

insureds, insurance consumers, state general revenues, the U.S. economy, carriers and agents alike.

The advocates of federal regulation of insurance are perversely pointing to insurance (the only financial services sector that has largely been insulated from Despite the the worst of the financial carnage) and say the market meltdown financial proves that insurance should be difficulties our federally regulated. That’s a little like a drunk who caused a bad traf- nation faces, fic accident saying that the other now is an drivers who remained sober need to especially good start drinking and driving.

The plain fact is that this ecotime to be an nomic crisis proves insurance independent should not be brought into the federal system, because federal regula- insurance agent. tors failed so miserably in their responsibilities and obligations to supervise banking, securities and capital markets for financial soundness and the public good. As our friends at the National Conference of Insurance Legislators (NCOIL) aptly suggest, the state insurance regulatory system should serve as a model for reforms to the federal regulatory system for banks and securities — not vice versa.

PIA supports state regulation of insurance and opposes those who want to dismantle the state regulatory system in favor of federal control. PIA applauds and joins NCOIL in its call for an all states authority summit to discuss the future of state insurance oversight, modernization that must take place, and collective efforts needed to reject federal intervention and takeover efforts.

Common Good As insurance professionals, all PIA members nationwide are all in the same boat together. To prosper — not merely survive — we must pull together for our common good.

The general tide of our economy may be receding at the moment, but our boat is strong and solid. That’s not to say that we will always have smooth sailing; no doubt, we will encounter some rough seas. But we are in a much better position to weather the turbulence because we are part of that oldfashioned sector of the economy that remained prudent while others were throwing caution to the wind. IJ Auerbach is the National Association of Professional Insurance Agents president. www.insurancejournal.com

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