INSURANCE REGULATION Agents, Industry Must Work Together
FBI INVESTIGATION Brooke Under Microscope
CREDIT BASED PRICING Feds Challenging Insurers
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Inside This Issue
January 12, 2008 • Vol. 87, No. 1 • Midwest Region
MIDWEST COVERAGE 8
| FBI Launches Investigation of Bankrupt Brooke Corp. Feds Pursue Additional Investigation
| AAA Michigan: 2 Million Residents Traveled During Holidays Number of Travelers Down Slightly From 2007
8 Brooke Corporation
10 | Study: Deadliest Hotspots for Teen Crashes on New Year’s Holiday Allstate Lists Cities Highest on List for Crashes
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
10 | Former North Dakota Workers’ Comp Director Convicted Sentencing yet to Come in High Profile Case 40 | Getting People to Commit to Something Bigger Than Themselves Sometimes a Little Adversity Goes a Long Way 42 | California Wildfires May Take Longer to Settle Claims Numbers Not Readily Available
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
40 Getting People to Commit New Look at Overcoming Adversity Through Dedicated Company Teamwork
N27 | Minding Your Business Developing a Sales & Marketing Plan, Part 2 46
Closing Quote: Eye on Industry Regulation PIA Head Encourages Agents to Work Together
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
FBI Continues Investigation into Records of Bankrupt Insurance Franchise
DEPARTMENTS 6 9 9 N26 39 44
| | | | | |
Opening Note It Figures Declarations MyNewMarkets People Business Moves
42 California Wildfires New Rules Allow Homeowners to Postpone Settlements, Delaying Loss Payments
N21 | Spotlight: 2009 Insurance Industry Meetings & Conventions Directory
4 | INSURANCE JOURNAL-MIDWEST REGION January 12, 2009
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Idea Exchange Opening Note
Independent Agents: State Regulation Big Issue in 2009
he New Year always brings out great hope for a new beginning, a fresh start and greater resolve for the coming year. But with all the financial and economic turmoil of the second half of 2008, independent agents could find it harder to be upbeat about 2009. National Association of Professional Insurance Agents President Kenneth Auerbach, however, has a different take on the coming year (see page 46, Closing Quote, “Eye on Insurance Industry Regulation”). “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,” PIA President Auerbach said. Auerbach points out that the advocates of federal regulation of insurance are perversely pointing to insurance (the only financial services sector that has largely been insulated from the worst of the financial carnage), saying the market meltdown proves ‘While it is clear that insurance should be federally regulated. that our nation is “That’s a little like a drunk who caused a bad traffic moving through a accident saying that the other drivers who remained sober nasty recession, need to start drinking and driving,” he quips. independent insurAuerbach points out that that the economic crisis ance agents should proves insurance should not be brought into the federal be mindful of their system, because federal regulators failed so miserably in position relative to their responsibilities and obligations to supervise bankthe other sectors of ing, securities and capital markets for financial soundness financial services. Our industry’s fiscal and the public good. He reminds agents that the National Conference of house is in good Insurance Legislators (NCOIL) and other organizations order.’ also say the solvency and soundness of the industry are proof of the importance of maintaining state regulation of insurance. Finally, he encourages independent agents to work together not only on this issue but on others as the industry faces the challenges of a new federal administration and the economic crisis both here and abroad. “It’s a good time to be an independent agent …” Auerbach says. Who can argue with that positive message???
Publisher Mark Wells Chief Executive Officer Mitch Dunford
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Midwest Coverage Snapshot
FBI Launches Investigation of Bankrupt Brooke Corp. F ederal authorities have launched an investigation into the finances of bankrupt Brooke Corp. The court-appointed special master for the Overland Parkbased banking and insurance services provider, Albert Riederer, told The Kansas City Star for a story published on Dec. 12 that FBI agents recently carted off “a substantial number of banker’s boxes’’ worth of documents. Riederer said the bureau had made an informal request for the documents before he was appointed special master and
that he and his team of lawyers and accountants were cooperating. “I can tell you that they’ve asked for access to virtually all of the records of the company,” Reiderer said. FBI spokeswoman Bridget Patton confirmed the agency was investigating but declined to comment further. Before filing for Chapter 11 bankruptcy protection in October, Brooke was one of the nation’s largest franchisers of property and casualty insurance agencies with 900 locations and almost 600 employees.
AAA Michigan: 2 Million Residents Traveled During Holidays
n estimated 2 million Michigan residents — almost the same number as last year traveled 50 miles or more from home during the Christmas holiday and New Year’s period, according to AAA’s latest travel survey. Nationwide, AAA predicted a slight decline in travel. Most travelers went by car, truck or van to their destinations this year (88 percent), while fewer traveled by air (7 percent). Lower gas prices provided additional incentive for travelers to hit the roadways this holiday. Michigan motorists paid $1.34 less for a gallon of gas ($1.699 as of December 16), compared to last year. According to AAA’s Leisure Travel Index (LTI), which is based on available rates this holiday, Americans paid lower hotel and higher car rental rates throughout the holiday season.
However, travelers saw different trends in airfares depending upon the week of travel. For Americans traveling during the week of Christmas, rates for AAA Three Diamond hotels were down an average 3 percent compared to last year. On average, travelers renting a vehicle during the week of Christmas paid 2 percent more than a year ago. New Year’s offered a significant decline in hotel costs with rates for AAA Three Diamond hotels 16 percent less than a year ago. Car rentals rates were 8 percent higher than last year for the same period. In the 2007 holiday period, there were 11 traffic fatalities reported by the Michigan State Police. Of the 11 fatal crashes, five involved alcohol. Lack of restraint use was a factor in three of the 11 fatalities. IJ Source: AAA Michigan
8 | INSURANCE JOURNAL-MIDWEST REGION January 12, 2009
Founded in Phillipsburg, Kan., in 1986 by Robert Orr, the company set out to provide insurance services for small-town banks to sell to their customers. It later expanded into lending as it began selling its Brooke agency franchises, eventually moving to Overland Park and going public in 2003. After filing for bankruptcy, the company planned to stay in operation while it sold its insurance business to two Kansas businessmen. But the deal fell apart, as did the company. Its demise has left thousands of insurance agents across the country in limbo. In addition, many lenders have been left holding Brooke’s bad loans. A number of banks and other lenders have filed lawsuits against the company, including The Bank of New York Mellon, claiming Orr and company officials diverted millions of dollars for their own benefit and then attempted to destroy the evidence. Lawyers for Orr have denied he did anything wrong, noting that he too lost millions of dollars and his ownership of the company while trying to save it. Brooke franchisees borrowed money from Brooke to set up their businesses, executing promissory notes in return. Brooke then bundled those notes and sold slices of them to investors, with The Bank of New York Mellon serving as indenture trustee for the notes. Among the investors were United Bank and Trust of Marysville, Kan., which claims it lost $5 million; Citizens Bank &
Trust Co. of Chillicothe, Mo., which claims it lost $9.5 million; and First United Bank of Crete, Ill., which claims to have lost $13 million. The Bank of New York Mellon recently filed an amended lawsuit claiming more than a halfdozen instances of Brooke or its divisions diverting money meant to be deposited with the bank. In one instance, the bank alleges that Aleritas Capital Corp., Brooke’s financing arm, diverted at least $3 million beginning in January 2008. The amended lawsuit also claims that Orr told representatives for two investor banks in September that he had misappropriated money meant for the securitization. “Orr’s justification was that he and the Brooke Parties were owed the money and would take it by any means,’’ the complaint states. The lawsuit also says Brooke and Aleritas employees e-mailed their concerns to company officials and the bank, including internal e-mails allegedly showing Orr directing the diversions. Attorneys for the bank declined to comment or identify the employees. IJ Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. www.insurancejournal.com
It Figures 750 A St. Louis company has recalled 750 pounds of sausage products that may be contaminated with a bacteria that can cause a potentially fatal illness. The U.S. Department of Agriculture said the sausage products were produced on Dec. 18 and sold at the T. Piekutowski European Style Sausage retail counter in St. Louis on Dec. 18 and 19. According to the Associated Press story, the recalled items include various sizes of Krakow sausage wrapped in unmarked butcher paper with no label. The products were custom-wrapped at the company store and do not bear the company number or USDA inspection mark.
$8.6 Million The U.S. government wants a federal judge in Illinois to trim his $8.6 million judgment over a former Scott Air Force Base doctor’s failure to properly treat a woman’s case of flesh-eating bacteria. Federal Magistrate Judge Philip Frazier in East St. Louis ruled last month in favor of 36-year-old Jean Phillips. Phillips was the wife of an Air Force captain stationed at Scott in 2002 when she sought treatment from Dr. Daniel MacAlpine for a rash on her right arm. MacAlpine thought Phillips was an addict looking for prescription drugs and told her to go home and take Motrin. But the rash turned out to be so-called flesh-eating bacteria that Frazier says cost her the use of her right arm. At this writing no ruling has been issued on the settlement amount.
$10 Million The Federal Emergency Management Agency (FEMA) has announced it will provide more than $10 million for flood-recovery projects in eastern Iowa. Projects in Lake Delhi, Iowa City, Anamosa, Bluffton and Cedar Falls will split the FEMA dollars. Among those receiving funding are repairs to damaged flood walls and drainage pipes at the University of Iowa at a cost of $1.13 million, and more than $2 million to the Lake Delhi Recreation Association to dredge sites in Delaware County left filled with sediment after summer rain.
$140,000 Add this to the growing list of Plaxico Burress’ problems: getting in a car crash and not having insurance on his nearly $140,000 MercedesBenz. The suspended New York Giants wide receiver was sued recently in Florida’s Broward County Circuit Court for rear-ending a car driven by a woman in May. Compounding the Super Bowl star’s defense, according to a document provided by the woman’s attorney, is the fact his car insurance lapsed three days before the crash. A letter from Allstate says Burress neglected to pay his premiums. www.insurancejournal.com
Declarations Lighting Up “We are hoping this will reduce the number of fire fatalities.” — Iowa State Fire Marshall James Kenkel comments on a new law that he and others hope will reduce the number of fatal fires in the state. The law requiring the sale of new cigarettes that are less likely to start fires went into effect Jan. 1, 2009. The state Legislature voted last year to approve the sale of the cigarettes that are less likely to cause of fire if they’re dropped, discarded or left near combustible materials. According to statistics from 2008, 10 people died in the state in fires caused by careless smoking. That’s twice as many than in 2007. The overall number of fire deaths this year is 48, up from 30 last year. The tobacco in “fire-safe” cigarettes is wrapped with two or three thin bands of less-porous paper that helps extinguish itself. Similar laws are in effect in at least 21 other states.
The Credit Game “Consumers are clearly indicating their preferences by choosing which bills they pay, when they pay them and how they would like to work out their delinquencies. Billers who take these cues from this research can gain a distinct advantage in this difficult economic environment.” — Robert R. Craig, executive vice president and general manager of eCommerce Services for Online Resources comments on a recent survey regarding the habits of Americans in selecting which bills to pay and when. Insurance bills rank as the second highest priority bill for Americans to pay on time, according to a new survey on the bill payment patterns of U.S. households. The third in a series, the survey of more than 1,000 nationally representative U.S. households finds that Americans are not only putting less money into savings, but are dipping into their savings to pay for everyday, necessary living expenses. Under growing constraints, consumers must continue to prioritize among their bills by creating a “delinquency budget.”
Go Green Not Covered “You got me with a new one here.’’ And, “It is nothing I have heard of.” — American Family spokesperson Ken Muth and Mark Schussel, a spokesman for Chubb Group of Insurance Cos., gave similar responses when asked by the Kansas City Star about insurance to cover homeowners who use solar panels or wind turbines. The idea was for the homeowners to be able to send any excess power back to utilities. But the Missouri Public Service Commission, which oversees the utilities, is requiring homeowners to buy insurance before they start feeding electricity to the grid. And it appears that no Missouri insurance companies sell the insurance. However, Brent Butler, government affairs director for nonprofit watchdog group Missouri Insurance Coalition, believes someone will offer the insurance if the judge rules in favor of the Public Service Commission. January 12, 2009 INSURANCE JOURNAL-MIDWEST REGION | 9
Midwest Coverage News & Markets
Study: Deadliest Hotspots for Teen Crashes on New Year’s Holiday
ome have called New Year’s Eve “amateur hour” on the roads. That couldn’t be more true for teen drivers, who, even if they haven’t been drinking, lack experience behind the wheel. A recent study by Allstate says that among the nation’s 50 largest metropolitan areas (a central city and its surrounding counties),
the deadliest hotspot for fatal teen crashes for New Year’s Eve and New Year’s Day is Jacksonville, Fla. Other hotspots include: Columbus, Ohio; Richmond, Va.; Birmingham, Ala.; Orlando; Phoenix; Las Vegas; Philadelphia; Sacramento, Calif.; and St. Louis. The Allstate Holiday Teen Driving Hotspots study found that each of the 10 deadliest hotspots has had the highest fatal crash rates for teen drivers over the New Year’s holiday over the past eight years.
Car crashes are the No. 1 killer of American teens. More than 5,000 teens die on American roads every year, according to the Insurance Institute for Highway Safety. The Holiday Teen Driving Hotspots study examines recent federal crash statistics, Allstate claims data on teen collisions, and U.S. Census Bureau statistics to score metro areas across the nation on rates of fatal crashes involving teen drivers during the holidays. The study was conducted by Allstate in conjunction with Sperling’s BestPlaces www.bestplaces.net, a Portland, Ore., research firm specializing in demographic studies and analysis.
Allstate’s national Home for the Holidays public awareness and policy campaign focuses on encouraging parents to have the safe driving talk with their teens. Allstate suggests that the perfect way to help make that conversation happen is by using a Parent-Teen Driving Contract, which helps families lay out expectations for driving decisions and consequences if expectations aren’t met. Allstate encourages parents and teens to download the contract:www.allstate.com/teen. For more information contact Allstate Insurance Company, Northbrook, Ill. IJ Source: Allstate
Former North Dakota Workers’ Comp Director Convicted
n late December, North Dakota’s former workers’ compensation director was convicted on the more serious of two felony charges that he misspent public funds. It carries a possible 10year prison term. Sandy Blunt’s attorney, Michael Hoffman, said his client will appeal. He argued the presiding judge in the case should have dismissed the charge during Blunt’s five-day trial. Blunt, 44, who was chief executive officer of Workforce Safety and Insurance for almost four years, stared impassively at South Central District Judge Bruce Romanick as he watched the judge read the verdict. Blunt declined comment. Romanick ordered a pre-sentence investigation for Blunt, who remains free on his promise to show up for future court appearances. His sentencing has not been scheduled. Blunt had faced two felony
charges of misapplication of entrusted property. Jurors found him guilty of the more serious charge, which carries a maximum penalty of 10 years in prison and a $10,000 fine. Jurors concluded Blunt was responsible for paying more than $10,000 in illegal expenses. Prosecutors claimed Blunt improperly endorsed $26,401 in payments, including extra moving costs and sick leave for a healthy WSI administrator, gift cards for employees, and refreshments and trinkets for regular meetings of WSI workers. Blunt continued the spending even after other state officials and his own employees warned him the expenses were questionable, trial testimony indicated. Blunt was acquitted of a separate felony charge that he paid $7,509 in illegal bonuses to his secretary, two agency executives and its top attorney. The charge carried a maximum penalty of
10 | INSURANCE JOURNAL-MIDWEST REGION January 12, 2009
five years in prison and a $5,000 fine. Blunt, who did not testify during his trial, described the payments as retroactive salary increases. During a meeting with lawyers in his chambers, Romanick ruled that a $15,279 safety training grant paid to the North Dakota Firefighter’s Association was not a crime, Hoffman and Feland said. Jurors were told not to consider it during deliberations. The criminal case against Blunt grew from an October 2006 state audit of Workforce Safety and Insurance, which questioned the agency’s spending and management practices. He was charged in April 2007 with two felony counts of misspending public funds, and a third charge of conspiring to use confidential state driver’s license photos as part of an investigation.
Prosecutors later dropped the conspiracy charge, and South Central District Judge Robert Wefald threw out the other two, ruling that prosecutors had not shown Blunt benefited personally from the disputed expenses. The North Dakota Supreme Court reinstated the two charges last June, ruling unanimously that prosecutors did not have to show Blunt was enriching himself. Blunt, a former Ohio workers’ compensation executive, was hired as CEO of Workforce Safety and Insurance in April 2004. He was dismissed by the agency’s board of directors in 2007, eight months after the criminal charges were lodged. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. www.insurancejournal.com
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
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
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
National Coverage Washington Report
FTC Probing Insurers Over Credit-based Homeowners Insurance Pricing
.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
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REVIEW YOUR RISK
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
Closer Look Employment Practices Liability
Employment Laws, continued from page N6
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
Closer Look Employment Practices Liability Employment Laws, continued from page N8
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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Left: Mark Miller President, Ann Arbor Office Regional Vice President, Michigan & Illinois Right: Michael Hylant, CEO
Photos by Eric R. Eggly, PointSeven Studios
, 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
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N13
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
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N15
Special Report Contractors and Subcontractors
Facts About the Progressively Narrowing Coverage of Contractors and Additional Insured Endorsements By Chris Boggs
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
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 ...
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.)
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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January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N17
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-
Discrimination During these unstable economic times, predictions stress increased numbers of layoffs and evictions. Lawsuits alleging discrimination, retaliation and/or harassment are already on the rise – and certain to keep soaring. 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: firstname.lastname@example.org.
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
International Coverage News & Markets
Economy and Climate Change Top New Year Agenda By Charles E. Boyle
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N19
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
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N21
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
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
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N23
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
N24 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009
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
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
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
January 12, 2009 INSURANCE JOURNAL-NATIONAL REGION | N25
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 email@example.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 firstname.lastname@example.org.
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 email@example.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 firstname.lastname@example.org.
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 email@example.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 firstname.lastname@example.org. IJ www.insurancejournal.com
Idea Exchange Minding Your Business
Developing a Sales & Marketing Plan Part 2: Designing the Plan
By Bill Schoeffler and Catherine Oak Oak
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
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
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: email@example.com. annual meeting to discuss agency goals and Web site: www.oakandassociates.com.
N28 | INSURANCE JOURNAL-NATIONAL REGION January 12, 2009
Midwest Coverage People
Markel Corp. has promoted Henry Lopez to executive vice president for the Markel Midwest region. Lopez has been with Markel since 1995 and most recently was the vice president, director of business development for underwriting administration. He also held a variety of leadership positions within Markel, including assistant vice president, marketing services; vice president, marketing services; and vice president, underwriting administration. Markel also announced Brad Kiscaden will serve as the chief administrative officer. He will also continue his current role as chief corporate actuary. He joined Markel in 1986 as an assistant actuarial analyst. He had held several positions within Markel including actuarial supervisor, assistant manager and actuarial manager. The Midwest region is one of five in the new structure of Markel Corporation's excess and surplus lines operations. Markel's new regional structure is an effort to improve customer service by getting closer to its agents, providing one point of contact, and offering a wider range of insurance products. Plans for the new structure will be implemented in early 2009. Burns & Wilcox added David Derigiotis as a professional lines underwriter in its Special Risk Division (SRD), the company's internal brokerage division located in Farmington Hills, Mich. Derigiotis is responsible for underwriting the company's professional lines products, including miscellaneous errors and omissions, cyber liability, employment practices liability (EPLI), directors and officers liability, and lawyer's professional. Prior to joining Burns & Wilcox, Derigiotis was a professional liability underwriter at Colony Insurance Company in Chicago. In this role, he managed a portfolio of diversified professional liability business. Burns & Wilcox also announced it has added two other promotions in its Farmington Hills, Mich., office. Laura Colbert was named director of sales and marketing. She is responsible for developing initiatives that will expand the company's array of specialized insurance products. Previously, Colbert was senior underwriter, personal lines. She has 15 years of insurance industry experience. Prior to joining Burns & Wilcox in 2003 as an underwriter, Colbert held positions at Auto-Owners, an insurance company located in Lansing, Mich. Chandra Kwaske was promoted to underwriting manager. Kwaske has overall responsibility for the production underwriting operations of the office. Previously, Kwaske was a senior underwriter. Prior to joining Burns & Wilcox in 2004 as a commercial underwriter, she was a commercial underwriter at Cameron Wilson & Associates, a managing general agent in Kalamazoo, Mich. Kwaske is a certified insurance counselor and service representative.
Martha Lester-Mittenzwei recently joined the Independent Insurance Agents of Wisconsin (IIAW) as its new director of Education and Membership. Mittenzwei began her insurance career in the agency ranks, working her way from a customer service position to overseeing the entire property and casualty sales department for an agency. Most recently, Mittenzwei spent 16 years operating TIL, Insurance Staffing Co. As owner and president of TIL, her primary concern was filling the staffing needs of insurance industry entities. Mittenzwei also taught prelicensing insurance for the association, as well as continuing education courses for a Madison area technical college. She spent five years as the member human resources consultant for the IIAW, writing articles on employment issues for the Wisconsin Independent Agent. Mark Wobbe has been named property/casualty practice leader for Gibson Insurance Group. Wobbe will provide risk management and insurance services to business clients and will lead the firm's technology and life sciences specialty area. Wobbe will also work closely with the department managers and be responsible for the overall strategic direction, operations, and carrier relationships for commercial and personal insurance and risk management services for all three Gibson locations. Wobbe's insurance career began in 1989. After progressing through several assignments with national carriers, gaining commercial lines underwriting experience and advancing to territory manager, he was senior underwriter for the technology practice at Chubb Insurance Co. He joined Gibson Insurance Group in 2003. In addition, Gibson has named Wes Mantooth employee benefits practice Leader for Gibson Insurance Group. In addition to the responsibilities of assisting employers with analyzing, developing, and implementing employee benefit strategies. Kansas City, Mo.-based Rockhill Insurance Company recently added Alex Pittignano to its Rockhill Underwriting Management as vice president of Environmental. Additionally, Jim Ziogas has joined National Environmental Coverage Corporation (NECC), a wholly owned subsidiary of Rockhill, as assistant vice president and Midwest regional manager. Pittignana will lead Rockhill's Environmental Division, and will be located in the Orangeburg, N.Y., office of NECC. He joins Rockhill from AIG where he held several positions in their headquarters as well as the position of European regional profit center manager for Environmental Liabilities. Ziogas, who will be located in Medina, Ohio, also joins Rockhill from AIG where he was regional manager for AIG Environmental in Cleveland. IJ January 12, 2009 INSURANCE JOURNAL-MIDWEST REGION | 39
Midwest Coverage News & Markets
Getting People to Commit to Something Bigger Than Themselves Sometimes a Little Adversity Goes a Long Way, Thomco CEO Says By Stephanie K. Jones
little more than 10 years ago Greg Thompson, CEO of the Georgiabased insurance services firm Thomco Inc., discovered his accounting manager was stealing money from the company. One day Thompson thought he had an excess of $300,000 in capital surplus; shortly thereafter a finan-
What Not to Do There are several “no-no’s,” Thompson said, that should be absolutely avoided by those in a position of leadership. Among them: • Public displays of temper. • Using e-mail to discuss subject matter that is open to interpretation. E-mails can be a “very dangerous and toxic form of communication,” Thompson said. E-mails should not be used as a vehicle for people to attack others in the organization, or worse, for supervisors to discipline employees. It’s “very important to reduce heat-seeking e-mails,” he said. • Punishing people for honest mistakes. • Trying to solve everybody’s problems. “When somebody comes to me with a problem it’s very hard for me to hold myself back,” Thompson said. A better way is to start asking questions and listen, he said. • Discouraging honest feedback and expression of concern. “You really need to let people point out unpleasant truths, it’s important to create an atmosphere where people want to talk about things,” Thompson said. • Dumping, not delegating. Dumping is when you give someone a job they’re not ready for and don’t provide direction or leadership. That leaves employees feeling “like they’re left in the desert trying to handle something they’re not ready for,” Thompson said. IJ
cial audit revealed the company’s bottom this company I don’t blame them. We’ve got line was actually in negative territory — to serious financial problems. I will personally the tune of $1.8 million. write a positive recommendation letter for another job, there will be no hard feelings, “We were essentially insolvent,” but I’ve got a plan, I think we Thompson explained during a can pull this out. It’s going to presentation at the Target take a lot of hard work and Markets Program we’ve got to pull together.’ Administrators Association “An amazing thing happened Eighth Annual Summit in — nobody left. … We started Tempe, Ariz., in October 2008. working really hard and some “I had signed personal indemnigood things happened. … ties to all of our carriers so I Within one year we pulled ourwas personally bankrupt. ... The selves out.” company’s insolvent; I’m personally bankrupt. It doesn’t get a The Greatest Resource whole lot worse than that.” Greg Thompson In the insurance business, But Thompson believes that people are a company’s greatest resource, sometimes the worst things that happen to Thompson said. “Unless they are commita company can end up being the best ted to pushing the company forward you things, and that’s what occurred at are not going to be that successful. … The Thomco. He said the challenge to turn the bigger you get, the less it depends on the company around brought his employees CEO and owner, and the more it depends together in a way that had never happened on those folks out there.” before. As a result of the embezzlement, Thompson shared some of the strategies his employees committed to something bigthat have worked for his company in terms ger than themselves, and that, in his opinof inspiring commitment from his team. ion, is an essential ingredient to a compaThey include leadership, setting an examny’s success. ple and creating a positive culture that peoPeople perform their best when they feel ple want to be a part of. they are part of something bigger than “People will commit when they feel recthemselves, Thompson says. “Obviously ognized,” Thompson said. “Recognized by you’re trying to make a profit, everybody management and recognized by their knows that. But you have to have some supervisor. … Recognition is more imporvision of the company other than making tant than compensation. That may be hard the owner rich.” And it’s a leader’s job to to believe, but there are many examples of create an organization that inspires its people leaving very high paying jobs where employees to go the extra mile. they were poorly recognized to go to jobs In his case, on the advice of a friend he maybe not as lucrative where they did feel came clean with his employees about the part of something bigger and they were recembezzlement. ognized.” “I called everybody into the break room,” Communication is also a key factor. Thompson explained, “and basically said, Leaders need to communicate regularly and ‘I’ve screwed up. If anybody wants to leave
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openly with their people, Thomson said. “This cannot be overstated. The bottom line is most people want to know where they stand. Most people will accept constructive criticism quite openly if you’re communicating with them regularly. People know that you’re seeing them … you’re giving them feedback. Obviously they want to be recognized for the positive things as well. But when you recognize the things they are not doing so well when you give them a compliment it’s taken that much more seriously.” Compensation that is fair and adequate, as well as advancement based on performance, not office politics, are also essential.
takes the time to meet with customers, it delivers the message that they are important to that company. “You need to strategically pick out your customer opportunities. … Obviously the CEO can’t be on the road all the time doing marketing but it is important that you take advantage of your status as owner or CEO of your company,” he said. Finally, Thompson said, a CEO must be willing to get their hands dirty. If the CEO
handles some of the tough jobs within the company, when they ask others to do the same kinds of things, those people are more likely to feel good about doing them. Still, some “tough jobs don’t need to be delegated,” Thompson said. If an insurance company has to be fired, that’s the CEO’s job. Also, if someone in the organization that the CEO hired has to be let go, the CEO has to be a part of that too, Thompson said. IJ
Leadership Sets the Tone The CEO is the chief morale officer in an organization, Thompson said. “One thing that took me a long time to understand … was how much the CEO is looked at as a barometer of the organization,” Thompson said. “If you’re looking down, if you’re looking worried, the company picks up on that.” He said his father, an insurance company president, “used to preach to me about the difference between concern and worry.” His point was that worry is a destructive force, as in, ‘how are we going to get out of this mess?’ versus concern, which is, ‘we have a problem, how are we going to address it?’ It’s not always easy but one of the jobs of an owner/CEO is to make sure that “your people feel relatively good about where they are in the company.” That comes back to communication, recognition and establishing an atmosphere where people feel comfortable talking openly about issues. “Encourage constructive criticism,” Thompson said. “The companies that are the most successful are where the truth is on the table … especially in the senior management team. We even have an executive code in our senior management team about how we’re going to relate to each other. One thing is go to the source: If you have a problem with somebody, go talk to them about it.” In addition to being the chief morale officer, the CEO also serves as the chief sales officer by having a visible presence with the company’s customers. “One thing I’ve discovered is, I’m not a particularly good sales person but I am the CEO,” Thompson said. And when the CEO www.insurancejournal.com
January 12, 2009 INSURANCE JOURNAL-MIDWEST REGION | 41
Midwest Coverage News & Markets
California Wildfires May Take Longer to Settle By Patricia-Anne Tom
ndustry analysts are predicting insured losses from the Freeway Complex, Sayre and Tea Fires that burned Southern California in mid-November will range from $600 million to $800 million, as of estimates gathered in early December. Comparatively, those losses are relatively minimal; insured losses from the 2007 Southern California wildfires amounted to approximately $2.36 billion. However, in some cases, the November 2008 fires may create costlier claims that take longer to settle. According to the California Department of Forestry and Fire Protection, more than 43,000 acres burned and close to 1,000 properties were destroyed in Los Angeles, Orange, Riverside and Santa Barbara counties. Given the large geographic exposure, heavily populated areas and extent of the fires, First American found the damage could have been much worse because approximately
10,431 commercial, public and residential properties were located within the combined perimeter of the three wildfires. The company estimated residential property loss would likely reach more than $737 million, and it noted the number could exceed $1 billion when contents and additional living expenses are added to the losses. AIR Worldwide expects insured losses to be in the $600 million to $800 million range. “The number of claims is likely to be significantly larger than the number of destroyed structures,” said Dr. Tomas Girnius, senior research scientist for the firm. The Freeway Complex Fire, the largest wildfire in terms of area that affected Orange, Riverside and San Bernardino counties, targeted an estimated 8,430 properties with residential properties valued at $4.7 billion. In this area, the average price per house is estimated at $710,000 with the median estimated at $634,000. The actual residential loss for this area
is estimated by First American to Hollywood stars like Oprah be approximately $224 million Winfrey, Michael Douglas and Rob with 314 homes impacted. Lowe. Actor Christopher Lloyd The Sayre Fire that struck Los lost his $11 million home, The Angeles county had an estimated Associated Press reported. residential loss of more than $283 “If you look at the Tea Fire, the million with approximately 500 average home value is close to $1.5 homes, mostly mobile homes, million, and that’s only half of the affected. First American estimated exposure,” Parkes said. “Typically a 1,303 residential homeowners properties valued at contents Claims are not policy’s $452 million were coverage is 50 exposed to the fire. percent of the necessarily In this area, the home value, and closed or average price per additional living house is estimated expenses are settled as at $566,000 with the about 20 perrapidly median estimated at cent. I imagine $537,000. that for folks as before. With only 695 with a median properties exposed, home value of the Tea Fire in the Montecito and $1.5 million, they may have some Santa Barbara areas was actually coverage above and beyond the the smallest fire but posed the standard contents coverage. Some highest level of risk with estimay have fine arts coverage, a sepmates of exposure reaching $632 arate personal property endorsemillion for residential properties. ment that would cover jewelry, First American estimated the total and so forth. Speaking from a conresidential loss in this area will servative standpoint, it’s probably reach approximately $280 million double the value of the home or more with 200 when you look at the true expohomes impacted. In sure figure.” this area, the average However, AIG, Chubb and price per house is $1.4 Fireman’s Fund said they were million with the able to prevent some of the losses median estimated at in the Tea Fire area — as well as $1.3 million. in the Freeway Complex and Sayre fire areas — thanks to their High-Value Homes risk prevention measures. Don Parkes, senior “We work very closely with cusdirector of business tomers in certain areas to mitigate solutions for First wildfire risks,” said Atle ErlingAmerican, said it sson, spokesman for Fireman’s wouldn’t be unreason- Fund. He said the company sends able to see higher out risk management teams preclaims values coming fire to evaluate customers’ properout of Tea Fire proper- ties and provide times on protectties. The Montecito ing homes from fires. “This has area has one of the tended to work very well,” he most exclusive ZIP said. “We’ve had a lot of reports of codes in the country, customers taking on recommensome owned by dations and saving their homes.”
Homes Burned in Tea Fire in Relation to Fire Risk
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AIG and Chubb said they take risk mitigation steps as well, helping customers evaluate properties before fires hit. Additionally, AIG said for its Private Client Group, whose homes are worth $1 million or more or who pay at least $10,000 a year in premiums, the company offers additional protection during wildfires. “We monitor fires and in cases where we see insureds’ houses in peril, we will spray properties with fire retardant as a preventive measure for high-net worth insureds,” said Peter Tulupman, AIG spokesman. He said the service supplements, but doesn’t replace, the work of public fire agencies. Chubb, too, sends in its appraisal unit to help customers assess and mitigate their fire risks, spokesman Mark Schussel said. And, any Chubb policyholder can enroll in a free wildfire defense service, which monitors wildfire activity and sends in certified firefighters and equipment if a property is in danger. For example, the fire protection teams can move exterior items such as patio furniture that might catch on fire, set up a temporary perimeter sprinkler system, or spray a fire-retardant gel if the risk warrants it, Schussel said. Because of such fire protection and risk mitigation efforts, the insurers said they don’t expect the recent wildfires to affect their future ability to offer coverage. As with most carriers, risks are individually written on a number of factors, so their underwriting processes and ability to write risks will largely remain the same. “The wildfires do not affect our underwriting requirements, nor do they impact our capacity,” AIG’s Tulupman said. “Chubb’s general philosophy — and this is fairly universal with most carriers — is to look at each home individually and assess the risk related to that individual, and make recommendations in helping to mitigate the risks individually,” Schussel said. “Our appetite for risk won’t change in the foreseeable future,” Fireman’s Fund’s Erlingsson said. Changes Ahead What has changed, however, is the claims process and homeowners’ ability to rebuild following the wildfires. In some areas, homeowners are not being allowed to rebuild because properties are on www.insurancejournal.com
landslide areas. Santa Barbara Mayor Marty Blum indicated that a municipal code implemented in 1984 prohibits reconstruction in some areas because of the unstable hillside. After seeing the Sayre Fire affect many mobile homes, Gov. Arnold Schwarzenegger wants to pursue new building codes for mobile homes. “We should start thinking about building ... mobile homes with the same fire retardant materials that we now build in those fire-prone areas when we build homes,” he said. Additionally, claims are generally taking longer to close because of additional living expense (ALE) legislation that was implemented in 2004, according to Candysse Miller, executive director of the Insurance Information Network of California. The law protects victims of a natural disaster by granting them an additional 24 months of living expense coverage following a declared state of emergency. “Following the 2003 fires, people uniformly rebuilt their homes,” she said. “But following the San Diego Witch Fire in 2007, a lot of people took advantage of the two-year ALE rule and are not settling quickly. Some are sitting on the ALE or buying foreclosed homes because the real estate market is devalued. In
San Diego in some areas, what used to be a $4 million home you can now get for $600,000 today. … One of the unintended consequences of the law is that it makes it mandatory to give customers more time to settle claims, and claims are not necessarily closed or settled as rapidly as before.” Miller said given the current real estate market, she expected claims in 2008 to be similar to 2007, in that they will take longer to close. Every natural disaster provides lessons for the future. Industry experts say the November 2008 fires will likely encourage people to evaluate their insurance coverages. For people with high-valued homes, they “tend to be insured with more generous policy terms. Terms are more generous but the policies are more expensive, which influences and inflates the ultimate claims value that comes out of these events,” First American’s Parke said. For mobile homes on the other hand, 50 percent contents limit might not be necessary. The key thing to keep in mind, Parke and other insurance carriers said, is coverage for homes in wildfire-prone areas will be structured to best fit the property owners’ needs. IJ Reports from AP contributed to this article.
January 12, 2009 INSURANCE JOURNAL-MIDWEST REGION | 43
Midwest Coverage Business Moves Editor’s Note: For a comprehensive report of mergers and acquisitions for 2008, see Special Report: Agency Mergers in 2008 in the Dec. 22, 2008, edition of Insurance Journal. Euclid Insurance, Illinois American Insurance Agency Euclid Insurance Services Inc., has acquired Park Ridge, Ill.-based The American Insurance Agency Inc., a retail insurance agency offering commercial property/casualty, employee benefits and personal lines insurance services to clients throughout the Midwest. The American Insurance Agency specializes in providing insurance products and risk management services to the manufacturing, wholesale, retail, construction and professional services industries. The acquisition further strengthens Euclid’s presence in those sectors while adding to Euclid’s growing personal lines client base. American Insurance Agency Chairman Roger Hackett and President Robert McDonnell and their associates have relocated to Euclid’s offices in Itasca, Ill. With the additional risk management, loss control and claim services offered by Euclid’s commercial lines division, existing American Insurance Agency customers can expect a greater depth of available services focusing on their specific needs, the company release said. Euclid and American have the capacity now to place business with most major insurance companies underwriting middle-market commercial risks. Jacobson Group Adds Minneapolis Branch Office The Jacobson Group, a national professional and human capital services firm serving the insurance, healthcare and financial services industries, announced the opening of a branch office in Minneapolis. This location will primarily provide temporary and temporary-to-hire services to local insurance, healthcare and financial services organizations. Liz Bryan, territory manager of Jacobson Solutions, will head the Minneapolis location. Prior to this announcement, Bryan served as a client service manager out of the
firm’s national headquarters in Chicago. The firm’s new office is located at 100 S. Fifth St., 19th Floor, in Minneapolis. Machon & Machon, Insurance Services Agency Network Park Ridge, Ill.-based Machon & Machon, Inc. has joined the ISU Insurance Services network. ISU Vice President Robert Werner said that ISU has offices coast-to-coast, with access to over 300 insurance companies and over 1,000 ISU professionals. Robert and Kirke Machon founded ISU Insurance Services - The Machon Agency in 1975. The agency handles business and personal insurance out of its office at 838 Busse Highway in Park Ridge. ISU International identifies itself as a growing national network of over 90 independent agencies with offices coast-to-coast and combined annual premiums in excess of $1 billion dollars. Donegal Group, Sheboygan Falls Donegal Group Inc. recently reported that it had completed the acquisition of all of the outstanding capital stock of Sheboygan Falls Insurance Co. The acquisition was approximately $12 million, which includes a surplus contribution of $8.5 million to support the future premium growth of Sheboygan Falls. Sheboygan Falls, which operates only in Wisconsin, underwrites a broad line of personal lines products, including auto, homeowners, dwelling fire and umbrella coverages. It also underwrites commercial products, including commercial package policies, commercial fire, general liability and workers’ compensation. Donegal Group Inc. is a property/casualty insurance holding company whose insurance subsidiaries offer personal and commercial lines of insurance to businesses and individuals in five Mid-Atlantic states — Delaware, Maryland, New Hampshire, New York and Pennsylvania; eight Southeastern states, Alabama, Georgia, Louisiana, North Carolina, South Carolina, Tennessee, Virginia and West Virginia; and, six Midwestern states — Iowa, Nebraska, Ohio, Oklahoma, South Dakota and Wisconsin.
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Gallagher & Co., Treiber Agencies Itasca, Ill.-based Arthur J. Gallagher & Co. has acquired The Treiber Group LLC and Treiber Agency Group LLC, both located in Garden City, N.Y. Transactions terms were not disclosed. With roots going back to 1899, The Treiber Group LLC is a retail insurance broker offering risk management, commercial and personal property/casualty, life and health insurance services to their clients in the New York tri-state area. The company specializes in construction, surety, healthcare, executive risk and workers’ compensation coverages. Treiber Agency Group LLC is a wholesale insurance broker offering excess and surplus property/casualty coverage and other specialty insurance products and services to their independent retail agency clients throughout the Northeast. The Treiber agencies will continue to operate in their current Long Island location under the direction of H. Craig Treiber, Peter Treiber, John Treiber, Scott Treiber, John Paterno, and Lou Roca. Their retail operation will report through Douglas Brown, Northeastern Regional manager of Gallagher’s retail property/casualty brokerage operation. The wholesale operation will report through Joel Cavaness, president of Risk Placement Services Inc., Gallagher’s wholesale insurance operation. Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, has operations in 14 countries and does business in more than 100 countries around the world through a network of correspondent brokers and consultants. Principal Financial Cuts 300 Jobs Des Moines-based Principal Financial Group Inc. says it is cutting 300 jobs at its headquarters and around 250 in 45 other locations. The insurance, banking, retirement and asset management company on Dec. 9, 2008, blamed the cuts on continued deterioration of U.S. and global markets.The cuts represents about 3.5 percent of Principal’s workforce. A statement said all affected employees would leave Dec 31, 2008. All affected employees will receive severance and career assistance. Spokeswoman Mary O’Keefe says market conditions have worsened since September despite cutting expenses. IJ www.insurancejournal.com
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January 12, 2009 INSURANCE JOURNAL-MIDWEST REGION | 45
Idea Exchange Closing Quote
Eye on Insurance Industry Regulation In Financial Turmoil, Agents and the Industry Must Work Together
By Kenneth R. Auerbach
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-MIDWEST 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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