Insurance Journal

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STATE AUTO PUSHES AHEAD CEO Restrepo Explains How

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INDIANA AND MISSOURI: No New Business From UCC

SPECIALTY UNDERWRITERS’ ALLIANCE Acquired by Tower Group

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Inside This Issue

July 6, 2009 • Vol. 87, No. 13 • Midwest Region

MIDWEST COVERAGE

N20 Special Report Commercial Auto Car Dealers in the Storm Those Left Standing Will Be Stronger

6

| North Dakota Workers’ Compensation Cost to Employers Likely to Rise

6

| Indiana, Missouri Ban New Business from Universal Casualty Company Needs to Improve Business Practices, States Say

7

| Tower Group to Acquire Specialty Underwriters’ Alliance Merger Gives Tower Greater Presence in the Midwest

7

| Indiana’s Commissioner Atterholt Moves to Utility Board Cutter to Head Insurance Department

8

| How a Regional Carrier Weathers the Storms State Auto CEO Restrepo Talks

NATIONAL COVERAGE N10

| Closer Look: Salute to Near National Carriers Leading Near National P/C Carriers Revealed

N15

| Special Report: Commercial Auto The Road to Savings: Five Best Practices to Control Costs

N18

| Special Report: Commercial Auto Beware of Symbol 7 Only Auto

N20 | Special Report: Commercial Auto Car Dealers in the Storm Dealers Left Standing Will Be Stronger, Leaner and Better N23

| Closer Look: Construction Safe and Sound: Making the Connection for Contractors

N24

| P/C Industry Posts $1.3B Loss in Q1 Combined Ratio Up to 102.2

N25

| International Report Jackson’s Death and Event Cancellation; Max Cap Rejected; Still Searching for Air France Crash Cause; Den Dekker is New FERMA President

N27

| Correction: Program Directory

N28

| Spotlight: 2009 Digital Product Guide

IDEA EXCHANGE N1 | Salvaging Success How to Boost Producers’ and CSRs’ Revenue-Generating Ability in Tough Times N4 | International Insider Cyber Security: Global Risk and Rising Complexity

8 State Auto A Regional Carrier’s Success Secrets

N15 Control Commercial Auto Costs Five Best Practices Provide a Road Map

N12 | Minding Your Business The Worst Ways to Manage Producers N31 | How Independent Agents View Super Regional Carriers Survey Says Claims Service Continues to Top List of Agency Demands N32 | Closing Quote: Turmoil Breeds Opportunity A Golden Moment for the Insurance Industry

DEPARTMENTS 5 6 7 N8

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| | | |

N32 Turmoil Breeds Opportunity A Golden Moment for the Insurance Industry

People It Figures Declarations MyNewMarkets

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Idea Exchange Opening Note

Clichéd, But True S

tick to your knitting. Sell on value, not on price. Return to the basics. Achieve growth through disciplined underwriting.

The above are just a few of the mantras, some might say clichés, being repeated throughout the property/casualty insurance industry these days as it, like other lines of business, struggles to maintain profitability while under pressure from recessionary and soft market forces.

In the current issue of Insurance Journal, two notable figures in the P/C industry — Dr. Robert P. Hartwig, president of the Insurance Information Institute, and Joe Plumeri, chairman and CEO of Willis Group Holdings — expound on those ideas, asserting that in man y ways difficult business environments present opportunities to those who recognize and act on ways to operate their businesses more creatively and efficiently.

“Turmoil in the long run is in man y ways better than the status q uo, because turmoil breeds opportunity,” Plumeri says in the “Closing Quote” on pag e N32. He says that now is a great time to begin selling on v alue and not on price, a dding that the current recession “will make organizations rethink the way they operate. As new business models emerge, new risk assessments will be needed. The insurance ind ustry’s expertise can provide true enterprise risk management, which clients will increasingly demand.”

On the insurance company side, Hartwig explains that while insurers’ equity investments have taken a huge hit and that it will likely take years for their portfolios to recover, the situation presents the opportunity for insurers to “return to their roots as underwriters” and be rea dy to “operate in an environment where earnings account for a smaller fraction of profit.”

Not since the mid-1970s has the industry run at an operating profit, Hartwig says, but it can and should be done.

‘Turmoil in the Plumeri maintains that the industry can achieve sustainable long run is in success if it takes the opportunity, pushes itself to improve and many ways grow, and rises to the moment. better than The advice that Hartwig, Plumeri and others are offering to the status insurers and brokers alike may sound a bit like cheerleading, quo, because but their proposals are laudable and correct. It will be interestturmoil breeds ing going forward to see if the industry follows its own advice opportunity.’ and begins sticking to its knitting, selling on value, returning to basics and achieving growth through disciplined underwriting.

These ideas may be tired and clichéd b ut that doesn’t mean they are wrong.

Stephanie K. Jones Interim Midwest Editor sjones@insurancejournal.com

Publisher Mark Wells Chief Executive Officer Mitch Dunford

EDITORIAL

Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists Kathleen Ellis, Catherine Oak, Joseph Petrelli, Bill Schoeffler Contributing Writers Howard Hanscom, David Money, Carletta Neal, Charlie O’Connor, Joe Plumeri, Tracey Vispoli, Dale Wetzel

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

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

MARKETING

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

DESIGN/WEB

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

A D M I N I ST R AT I O N

Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Cover designed by: Jamie Bethell

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio N orth, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue cop y, $195 per y ear in the U .S., $295 per year all other co untries. DISCLAIMER: While the information in this p ublication is deriv ed from so urces believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Cop yright 2009 W ells Publishing, Inc. All Rights R eserved. Content ma y not be photocopied, reproduced or redistrib uted without written permission. Insurance J ournal is a p ublication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052

4 | INSURANCE JOURNAL-MIDWEST REGION July 6, 2009

FOR QUESTIONS REGARDING SUBSCRIPTIONS: please call 856-380-417 6 or email subscribe@insurancejournal.com. You may subscribe or change your address online at insurancejournal.com/subscribe.

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

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Midwest Coverage People

Wayne F. Berner

Stephen W. Miller

m

Diane L. Monnin

William L. Peters

thals py, R: to her ictoof 49,

Associated Agencies Inc., a full-service insurance brokerage firm based in Rolling Meadows, Ill., has added new staff members.

Craig A. Kanter has been hired as Producer Development director. Kanter is an attorney, a former executive vice president and chief operating officer of a regional insurance brokerage, and founder of Risk Resource Partners.

Sean Patrick Fortier joins the company as account executive. Fortier comes to Associated from HUB International Scheer’s, where he sold property and casualty insurance. He also specializes in surety bonds, employee benefits and credit insurance.

Lee Lazar also joined Associated as account executive.

Lazar previously worked at State of Israel Bonds.

Scott Lieber has been hired as account executive. Lieber comes to Associated from Edward Don and Company.

Columbus, Ohio-based State Automobile Mutual Insurance Company and State Auto Property & Casualty Insurance Company has named new managers in various divisions.

Robert (Bob) A. Bachtell is claims manager for State Auto’s Ohio region. Bachtell joined Midwest Security Insurance Company of Onalaska, Wis., in 1989, prior to its 1997 acquisition by State Auto.

Wayne F. Berner is manager of personal insurance actuarial. Since joining State Auto in 1993, Berner has served in several actuarial staff and management positions. He was elected assistant secretary of the companies in 2005 .

Stephen (Steve) W. Miller has held a number of positions in State Auto’s claims operations since 1989, and currently serves as a corporate claim manager.

Diane L. Monnin began her State Auto career in 1987 as a personal lines underwriter. Her current role is personal insurance product manager.

William (Bill) L. Peters joined State Auto in 2007 after serving as managing attorney for a large national auto insurer. Peters is State Auto’s corporate claim counsel.

Neil E. Stufft is director of custom insurance operations in State Auto’s business insurance division. Prior to joining the company in 1987, Stufft worked in an independent insurance agency and served as vice president of underwriting for a regional property and casualty insurance carrier.

Zurich’s Global Corporate in North America (GCiNA) unit named David Bartnick as North Central Property regional manager. The North Central region includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, North Dakota, Nebraska, South Dakota and Wisconsin.

Bartnick has more than 30 years of experience in the insurance industry. His most recent role was National Accounts property segment manager and Excess and Surplus underwriting manager for GCiNA.

Former Missouri Gov. Roger Wilson is now acting president and CEO of Missouri Employers Mutual. Departing president Dennis Smith will serve as CEO emeritus.

Wilson’s appointment is temporary.

Smith and Wilson served together in the Senate when lawmakers created Missouri Employers Mutual in 1993 to improve competition for workers’ compensation insurance in the state. The firm employs more than 200 people in offices in Columbia, Kansas City, Springfield and St. Louis.

Taffy F. Troup, senior vice president of Administration and Operations for Roanoke, Ind.-based American Specialty Insurance & Risk Services Inc., has been named national Insurance Professional of the Year at the 68th Annual National Convention of NAIW (International).

Troup was named Insurance Professional of the Year at a regional level in March 2009 at the NAIW (International) Region IV Conference in Troy, Mich.

Troup joined American Specialty in 1990.

Kansas City-based insurance broker Lockton has added Michael Todorovich II as vice president and producer in its St. Louis, Mo., office. With more than 11 years of experience in the insurance industry, Todorovich’s expertise includes mergers and acquisitions, and executive risk.

Prior to joining Lockton, Todorovich spent four years with Aon’s Financial Services practice, three years in Aon’s Trade Credit and Political Risk group, and the most recent four years as an Aon producer.

David M. Breitmayer has joined the Professional Insurance Agents Association of Ohio Inc. (PIA) as vice president of Member Services. Prior to coming to PIA, Breitma yer served as vice president of Administration for DTE Gas Resources.

Hays Companies, a Minneapolis, Minn.-based insurance broker, added Ben C. Graves as associate director of research and compliance in the employee benefits division of Hays Benefits Group LLC. Prior to joining Hays Companies, Graves was the director of compliance for A.E. Roberts Company, a training and consulting company for human resources, benefits and insurance professionals.

The Missouri Department of Insurance appointed two veteran insurance regulators to division director positions.

Mary Kempker will direct the Market Regulation Division. Kempker has worked at the department for more than 10 years, including the last six as director of the Consumer Affairs Division.

Angela Nelson is the new head of the Consumer Affairs Division. Nelson has worked at the department since 2002, and for the past year has managed the Property and Casualty Section, which oversees policies and rates for several lines of insurance, including homeowners, auto and workers’ compensation. IJ

ur44 n.

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Midwest Coverage News & Markets

North Dakota Employers’ Workers’ Comp Bills Likely to Rise

By Dale Wetzel

E

ight months after North Dakota voters gave Gov. John Hoeven the final word on state workers’ compensation rates, employers’ insurance bills are likely to rise due to the recent bleak market for investments.

Hoeven adopted an advisory board’s recommendation that the Workforce Safety and Insurance agency forego dividend credits on business’ insurance bills during the 2009-2010 billing period. The advisory board found that WSI’s investment surplus was not large enough to justify a dividend. Board members decided against a $9 million dividend, which would have reduced insurance bills by about 1.2 percent. The governor said he hopes WSI will be able to resume dividend payments as the economy recovers.

The dividends have knocked almost $274

It Figures $255 Million More than $240 million in federal disaster aid will be used to b uyout home and properties in Iowa damaged by record flooding in 2008. The money will be used in areas where Federal Emergency Management Agency funds are not available. The state had already allocated $10 million for home buyout programs. The total is now $255 million.

Much of the money is expected to go to the Cedar Rapids area. Local governments will be able to apply for funds to buy out properties from a list maintained by FEMA and the Iowa Emergency Management Division.

million from insurance costs for businesses in the last four years, WSI figures show.

They reduced costs by $97.5 million in the current year, cutting employers’ bills by as much as 62 percent.

A new insurance rate schedule that takes effect July 1 will decrease average rates by 5 percent, with a maximum possible increase of 10 percent, the agency says, but the decreases may not offset the loss of the divendends.

North Dakota businesses are required to buy the insurance, which covers almost 20,000 employers. The new rates are expected to bring in $156 million from J uly 1 through June 30, 2010; the current rate schedule brought in almost $143 million, according to WSI estimates. IJ

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

Indiana, Missouri Ban New Business from Universal Casualty

I

ndiana ordered Elk Grove Village, Ill.-based auto insurer Universal Casualty Company (UCC) to stop writing new policies in the state until the company can demonstrate “improved business practices,” according to the Indiana Department of Insurance (IDOI), which fined the company $200,000.

Although UCC writes less than 1 percent of the auto insurance business there, it ranked number one on IDOI’s complaint index for 2008. The department said it received more than 200 complaints from policyholders regarding UCC’s unwillingness to pay claims properly and on time.

The Missouri Department of Insurance also has barred UCC from writing new business in that state for the same reasons. The Missouri DOI said Universal Casualty had more than 13 times the typical number of consumer complaints for a company its size.

UCC wrote $5.9 million in premiums in Missouri in 2008.

The IDOI said it first investigated UCC in 2004 and fined the company $35,500 at that

6 | INSURANCE JOURNAL-MIDWEST REGION July 6, 2009

time for similar problems. UCC was given time to improve its business practices, the department said, but consumer complaints continued, prompting an additional investigation.

Under a commissioner’s order filed June 11, the company is required to submit “stringent Compliance Plan” and implement it before resuming new business in the state. Failure to submit such a plan in a timely manner will result in an additional $100,000 fine, the IDOI said. The order also directs UCC to reopen all consumer complaints since 2005; final determination of all such complaints will be subject to the regulators’ approval.

The company will undergo an additional examination to ensure full compliance as well, the department said.

The IDOI said a typical customer complaint would “involve the consumer calling the insurance company numerous times never receiving a human response, the company not paying enough to properly fix the car, or refusing to pay for a rental.” IJ www.insurancejournal.com

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Midwest Coverage News & Markets

Tower Group to Acquire Specialty Underwriters’ Alliance of Illinois

N

ew York-based Tower Group Inc. has agreed to purchase Specialty Underwriters’ Alliance Inc., headquartered in Chicago, in a transaction valued at approximately $107 million.

SUA said the deal will enable it to better leverage its independent general agent distribution network and expand. Tower said the deal will allow it to create a separate underwriting and operational infrastructure dedicated to specialty business to take advantage of the growth opportunities in this area. The deal also gives Tower a Midwest regional office to support continued geographical expansion.

The boards of directors of Tower and SUA have approved the transaction, and the board of

directors of SUA has recommended the transaction to its shareholders. The transaction is expected to close approximately at year-end 2009.

The deal would appear to put an end to takeover attempts by Texas-based Hallmark Financial Services that SUA been fighting.

Hallmark owns 9.9 percent of SUA’s outstanding common stock and recently attempted to replace three members of SUA’s board of directors with candidates that Hallmark preferred.

Hallmark has said there is a need for improved governance and board and management accountability to SUA stockholders. It also has criticized SUA’s operating performance.

SUA has renewed its partner

agent program agreements with its three largest partner agents: Risk Transfer Programs LLC (RTP); American Team Managers Insurance Services Inc. (ATM) and AEON Insurance Group Inc. (AEON). The renewals extend the exclusivity of each partner agent relationship for an additional five years. RTP, ATM and AEON are SUA’s three original partner agents.

Ratings agency A.M. Best Co. commented after Tower’s announcement that it would purchase SUA that the financial strength rating (FSR) of ‘A-’ (Excellent) and issuer credit ratings (ICR) of “a-” of Tower Group Companies and its pooled members, the FSR of ‘A-’ (Excellent) and ICR of “a-” of Bermuda-based

Indiana Insurance Commissioner Atterholt Moves to Utility Board

Declarations

Cutter Named to Head the Department

I

Slow and Uneven

filed insurance-related complaints. ndiana Department of Insurance (DOI) Atterholt served as a state representative Commissioner Jim Atterholt has been (House District 86) from 1998-2002 and previappointed to serve on the Indiana Utility ously served as the director of state government Regulatory Commission (IURC) and former affairs for AT&T Indiana, and as a congressionDOI Chief Deputy Commissioner Carol al aide in Indiana and Washington, D.C., where Cutter will now lead the insurance departhis responsibilities included energy issues. ment.

Cutter has been DOI deputy comAtterholt was appointed DOI missioner of health issues since 2005. commissioner in 2005. During She led efforts to eliminate an 18his tenure, he led agency month backlog of rate and form filreform efforts to make DOI ings for health, life and property/ more responsive to consumers casualty products in her first two and the insurance industry years on the job. while strengthening the departCutter also helped establish a ment’s commitment to conself-certification process for life and sumer protection. He also initiannuity rate and form filings to ated a program to provide DOI allow for a faster turnaround for assistance to Hoosier victims of Atterholt approval of those insurance products. natural disasters who have probPrior to serving in state government, Cutter lems with insurance claims. Since 2005, the worked in various capacities in the insurance DOI has set record numbers with respect to industry for nearly 30 years. IJ the dollars recovered for consumers who

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CastlePoint Reinsurance Company, Limited — all with a stable outlook — and the FSR of ‘B++’ (Good) and ICR of “bbb+” (both with a positive outlook) of new Jersey-based Kodiak Insurance Company remain unchanged.

Best placed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Chicago-based SUA Insurance Company “under review with positive implications,” following the merger announcement.

Best indicated that the “acquisition will allow SUA to better leverage its strong distribution network and expand its business opportunities through Tower’s higher rated paper. IJ

“We will not wake up one morning and say thank goodness this crisis is over. It will be slow. It will be uneven. It will be two steps forward and one step back.

That’s how recoveries are.”

— Dr. Robert Hartwig, president of the Insurance Information Institute, projects the property and casualty insurance industry will be smaller, in dollar terms, once the curr ent financial crisis is corrected. The industry will be about 3 percent to 7 percent smaller accounting for inflation, Hartwig told agents at an industry event in Texas. The weak economy is not entirely responsible for the reduction. “It’s also because this economic downturn happened to be coincident with the soft market,” he said.

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Midwest Coverage News & Markets

State Auto: How a Regional Carrier Weathers the Storms CEO Restrepo Talks Cat Losses, Premium Growth and Independent Agents

By Andrew G. Simpson

R

egional property/casualty insurance companies don’t make headlines like the large institutions. They simply go about their business serving customers and independent agents — and paying claims.

How are regional insurance companies faring in today’s climate? What challenges do they face? How can they grow? And why are they so popular with independent agents?

Insurance Journal’s Andrew G. Simpson put these questions to a popular regional carrier leader, Robert P. Restrepo, chairman, CEO and president of Ohio-based State Auto Insurance Companies. State Auto writes in 33 states from Utah to Vermont, through about 3,400 independent agencies. Restrepo worked at national and regional insurers including Aetna, Travelers, Hanover and Main Street America Group before joining State Auto in 2006.

Insurance Journal: A number of insurance companies have reported large catastrophe losses. What is State Auto’s experience with catastrophes, and what can be done to mitigate these losses?

Bob Restrepo: My experience has been terrible.

In the past year and a half, we’ve had an unusually large frequency of fairly significant wind and hail storms thro ughout the Midwest and somewhat in the Southeast.

When I started the business, it seemed that all the wind and hail happened in the second quarter, generally along I-30. These events now happen earlier in the year ... and much further north, up toward I-70.

We haven’t built our business model around that, and we’re unusually affected by that because we are so large in the Midwest. That’s primarily where these storms have their biggest impact, with Midwestern-oriented companies such as State Auto.

IJ: That’s the heart of your business.

Restrepo: It’s the heart and what we’ve come to realize is that we can’t control the

weather, we can only control our response to it.

We put in place this year an aggregate reinsurance treaty [to cover] high frequency, low severity weather events such as wind and hail if they reach an aggregate amount of, in our case, $80 million. Last year, we had more than $100 million in cat losses.

We’re in the process of rolling o ut more wind and hail deductibles. We’ve, as has been true throughout the Midwest for competitive reasons, not been very aggressive with wind and hail. Again, the weather has changed, the pain is too great. We need to share more of that risk with o ur policyholders.

‘[T]he weather has changed, the pain is too great. We need to share more of that risk with our policyholders.’

We will be rolling out higher peril-specific wind and hail deductibles starting at $1,000. Eventually, when we roll out a new homeowner product, we’re going to 1 percent to 2 percent deductibles in 11 of the 33 states we operate in. We’re getting more prices, and we are also developing a new product that will allow us to price by peril.

Traditionally, we priced almost entirely based on the fire exposure. Our pro blem has not been fire. It’s been wind and hail.

The new rating methodology will allow us to address, by home and by homeowner, the specific perils that relate to that individual’s risk profile.

We’ll have the first generation of this

8 | INSURANCE JOURNAL-MIDWEST REGION July 6, 2009

product installed in Missouri at the end of this year, and we plan to roll it o ut to all affected states next year.

IJ: Larger financial institutions and insurance companies have been getting into trouble. Some are considered too large to fail. As a competitor, do the prospect of bailouts concern y ou?

Restrepo: The prospect of bailouts concerns me both as a taxpayer and potentially as a competitor. We’ve not had much of an impact on property and casualty-specific companies. It’s been more of a life insurance issue than a property/casualty insurance issue.

The P/C industry doesn’t need bailout money. We’ve tended to take risk on the liability side as opposed to the asset side.

What has been demonstrated through all of this crisis is just how well-managed the industry has been from a risk standpoint.

Companies that do have life insurance companies, particularly life insurance companies that have been focused on retirement and investments, that’s where the risk has been. There’s a much higher degree of risk on the asset side that is not v ery complementary to the kind of risk w e take on the liability side.

IJ: Do tight credit markets and the overall investment environment affect State Auto?

Restrepo: They clearly have an effect. We have a certain percentage of our investment portfolio in equities. Those equities have been written down, they’ve lost value. Most property/casualty companies, though, are much more heavily weighted on fixed income.

Because we need liquidity and flexibility to make sure that we can pay the claims, whether it’s a big catastrophe tomorrow or a long tail liability claim in the future. So we tend to take a lot less risk on the asset side. We need predictable returns, and we need predictable liquidity, because we take our risk on the liabilities side. www.insurancejournal.com

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Page 9

But clearly it’s had an effect on our capital as we’ve had to write down some equity.

For companies in the industry that are more heavily weighted towards equities, clearly they’ve had a much bigger impact on their capital.

IJ: Do you see a trend of independent agents becoming either more or less dependent upon their regional carriers as opposed to their national carriers?

Restrepo: I spent most of my early career with large national companies. One reason I left was because I was very attracted to the regional company model, because I saw the growth and the increased competitiveness among regional companies competing for market share and shelf space with independent agents.

Independent agents have increasingly relied on regional companies, particularly in the small to medium commercial space, which is where most independent agents make most of their commission income. They like the reliability, the accessibility, and the relationships that they have on a day-to-day basis with smaller regional companies.

The kind of data that I’ve seen over the years reported by organizations such as the Big “I” demonstrates to me that that is pa ying off, that the regional companies are g etting an increasing share of independent agents’ business, both renewal business as well as new business. More on the commercial line side, but increasingly we see it on the personal side as well.

IJ: What is State Auto’s mix of personal lines and commercial business, and are you happy with that?

Restrepo: We’re just about 60 percent personal lines and 40 percent commercial lines. We’ve been 60 percent personal lines for 40 y ears.

We don’t want to shrink ourselves to greatness; we’d love to have a balance of 50-50.

A lot of our growth, in the past 15 years has come from acquiring smaller personal linesoriented companies and then cross-selling in our commercial lines portfolio. Every time we get a little closer to 50-50, we buy another smaller company, which increases the weight toward personal lines. Over time we’d like to have a good balance.

We’re a terrific personal lines company, always have been. We’ve got a nice presence in it ... and an increasing presence in the commercial market.

But where traditional regional companies have been the strongest is in the smaller commercial risks that require individual underwriting. [Those types of risks] don’t lend themselves to a standardized BOP-like approach.

We have not had as much success in that market as many of our regional company competitors. That’s where we see the real opportunity for us in the future.

Our internal goal is to grow faster than the economy and faster than the industry.

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IJ: All companies preach against gaining market share by cutting prices.

What do you see going on in the marketplace?

Restrepo: It’s still a very competitive marketcontinued on page 10 July 6, 2009 INSURANCE JOURNAL-MIDWEST REGION | 9

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Midwest Coverage News & Markets State Auto, continued from page 9

place. Where we compete in personal lines, prices are increasing. Personal lines is a very disciplined market, it tends to be more concentrated and fewer players. The advent of techniques like predictive modeling allow us to really monitor our margins and be much more responsive in making the pricing adjustments we need to preserve our profitability.

The commercial lines marketplace is much more fragmented. ... We really focus primarily on the small- to medium-size market. That remains very competitive.

We’re starting to see price decreases moderate, and I expect in the second, third q uarter we’ll start seeing some modest increases.

That’s going to be masked by the economy. We’re not going to see the same kind of premium yield that we’ve had in the past because the premium basis is declining, particularly in trades such as construction.

But our margins will start increasing because we’ll start getting at least less rate decreases, and I think over time some modest rate increases.

tially because the economy, and partially because of price competition.

IJ: Are regional carriers under pressure to grow? What do you consider healthy growth for a company like State Auto?

Restrepo: We feel under pressure to grow our profitability, but clearly part of demonstrating you’re a responsive carrier over time is to have reasonable profit growth. We call it rational premium growth. Our internal goal is to grow faster than the economy and faster than the industry. We can have negative growth and still outpace the industry and the economy right now. But we are growing. We’re having positive growth largely on the personal lines side.

We’ve had success in personal lines growing organically partially because of our product line, partially because of our pricing precision, and partially because of the technology we have in place with our agents right now make it easier to do b usiness with. As a regional company, we’re more likeable than a lot of the larg er, national, often times less personal companies. We’re growing nicely in personal lines.

Our commercial production is flat, par-

IJ: How important are acquisitions?

Restrepo: Acquisitions are critical to our long-term growth. Our long-term strategy over time is to have about half of our growth come through acquisitions, and about half of it to come from org anic growth.

Our focus has been on smaller companies, $50 million to $250 million in premium that have good underwriting fundamentals, strong agency relationships and allow us to diversify.

We’ve diversified by affiliating with Patrons in New England; by acquiring a company in Texas [Beacon Insurance Group], which was a stock company; and most recently with Rock Hill, which is a commercial lines specialty company.

Our goal really, put simply, is to diversify.

We diversified geographically with Beacon and Patrons, and we’re looking to diversify product lines wise with a commercial lines specialty business such as Rock Hill, which will allow us to better balance o ur traditional property oriented business with more casualty business.

Robert P. Restrepo, chairman, CEO and president of Ohio-based State Auto Insurance Companies.

10 | INSURANCE JOURNAL-MIDWEST REGION July 6, 2009

IJ: Earlier in your career you worked for some very large insurance companies — Travelers, Aetna, others. How do you compare that experience to working for a regional?

Restrepo: Well, the obvious issue is scale.

When I was with large companies, I always said that the large companies had a competitive advantage over regional companies.

Primarily because of the companies, [Travelers, for example] and its ability to invest in technology and to have the management information that really made our pricing and underwriting and claim decisions more effective because had more data, we had more credible information.

What I’ve come to realize is that w hat regional companies bring is focus. We don’t play in as many different markets. Our focus on technology is narrower than many of our national competitors.

When I look at the data from third party research sources, in terms of ease of doing business, the companies that are identified as being easy to business are largely regional companies, partly because of their technology, partly because of their business model and partly because of their culture.

These are companies that live and die with the independent agent, whose interests are totally aligned with independent agents.

Independent agents don’t question regional company’s commitment; at least not regional companies such as State Auto. Don’t question the commitment to the independent agency system and to the individual relationship.

I think the strength that we have is that we may not be pioneers often in technology, but we can be early adopters in terms of ease of doing business. We have sufficient scale, certainly at State Auto, supplemented by third party agencies to have statistical credibility; to adequately to price and underwrite our products.

The third thing is we have a culture that’s very attractive to independent agents and a track record of consistently being committed; a committed and stable market. IJ The above is an excerpt from a longer video interview with Restrepo. The interview and additional excerpts may be viewed at www.insurancejournal.tv. www.insurancejournal.com

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Idea Exchange Sales & Marketing

Salvaging Success How to Boost Your Producers’ and CSRs’ Revenue-Generating Ability in Tough Times

By Carletta Neal

A

Neal

s fallout from the U.S. recession tomers. Make sure they’re callbuilds, there’s a strong drive withing on the right people in the in this country to stretch the value right accounts with innovative of virtually everything … and and competitively unique ideas. everybody. From dollars and cents to people Involve yourself. Offer to attend and performances, the new cry of battle is to a presentation or go along on a get the most for the money to sustain at sales call if doing so might help least some level of financial stability. capitalize on an opportunity.

What does this mean in the insurance Today’s Sales Incentives world?

While hefty commission Let’s start with the outside sales staff. checks are what drive most These days, a producer’s role is as much sales personalities, there are about caring, counseling and advising as it is other incentive options that about selling. That said, it’s important to may also help maximize a prohire and retain producers who exhibit not ducer’s performance. However, only an entrepreneurial mindset, but also a keep in mind you may need to compassionate, encouraging personality. tailor those rewards to the Straight talk and direct responses are fine, unique preferences of each provided they’re couched in an empathetic member of your sales team. For tone. example, one person may find Remind your introspective, technically the chance to earn sports tickoriented producers to engage freely in some ets as a worthy goal while small talk and stay as upbeat as possible, as another may see free lunches and seminars doing so can ease a prospect’s fears or skeptias perks. Find what truly inspires your sales cism and make him or her more receptive to employees and offer what you know they’d buying. like to spur them on.

Encourage innovation.

Fostering a spirit of comCoach producers on how to These days, a petition can also enhance assume the role of a trusted producer’s role sales performance in a friend, one who offers weak economy. Some manprospects sound insurance is as much agers are now placing a solutions and responds to about caring, greater emphasis on unique financial challenges. asking producRequisite to maximizing sales counseling and prospecting, ers to double-up or, in potential during these tough advising as it is some cases, triple these times is your producer’s ability calls. They set prospecting to not only offer attractive about selling. goals with each producer products to prospects but also and create a point/reward to come across as someone system for the various stages of prospecting. driven, knowledgeable and understanding.

A closed deal might earn four points; a Train your sales staff in how to correctly proposal, three points; a completed presenread their prospects. Offer tips on ho w to tation, two points; and a scheduled presenalign their own personality and communicatation, one point. The producer with the tion style to those of their existing or potenmost points within a given time frame tial clients. chooses from a short list of rewards — the Maximize your producers’ rate of success more points, the bigger the reward. by helping them retain and grow existing By breaking down a time-consuming customer relationships and acquire new cuswww.insurancejournal.com

process such as prospecting into small, closely monitored segments, you’ll help producers keep better track of their progress and, most likely, push more aggressively.

Recognizing the importance of successfully navigating staff through these difficult economic times is critical.

CSRs Smart customer service representatives (CSRs) know they can be transformed into great ones if their manager is willing to take the time to uncover their hidden strengths and foster professional growth. Whether your agency’s CSR job description emphasizes service, sales or some combination of the two, it’s more important than ever to provide the educational foundation necessary to help these employees build your business.

Some CSRs are geared primarily to service. They are nurturers who can empathize with others, make customers feel appreciated, resolve problems and retain business. continued on page N2

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Idea Exchange Sales & Marketing Salvaging Success, continued from page N1

Teach these more cautious, behind-the-scenes players everything they need to know about effective communication, call control, phone etiquette, conflict resolution and rapport building.

Keep them current on the latest trends, policy changes and new rules. The more your

service-minded workers know about any given situation, the more independent, effective, confident and productive they will be.

Get them to see account rounding or cross selling as an extension of good customer service.

Other CSRs will exhibit a natural flare for sales. Their solicitations for new business may

be more understated than outside producers’ but with some solid coaching and sincere encouragement, CSRs possessing an assertive, competitive personality can often readily convince existing clients to make additional purchases or renew. Boost the potential for their rate of success by role-playing, providing incentives and offering to lend extra support whenever necessary.

Flexible Time, Telecommuting Options While working non-traditional hours or from home is not everyone’s idea of a perk, it ranks highly on many a CSR’s list of enticing benefits.

As the expected but unprecedented generational shift occurs throughout the working world, it’s likely employers will place greater emphasis on what, by most accounts, is Smart CSRs the top priority of younger workers — know they can increased work/life be transformed balance.

Employees from into great ones Gen X and Gen Y if their manager — the two generations poised to start is willing to take replacing retiring the time ….

Baby Boomers — are increasingly insisting that companies respond to their strong desire for a range of different programs and initiatives, such as flex time, casual environments and telecommuting. While a company’s lack of these initiatives may not be the sole factor in a CSR’s decision to leave, it can certainly influence it.

And a revolving door of dissatisfied employees will destroy your revenue — not maximize it.

In today’s recession, maintaining strong sales and a motivated staff are two of your most daunting challenges. But poor sales and low morale can be turned around if you make the effort and take the time to understand and address employee attitudes, expectations and beliefs. IJ Neal is a seminar speaker and senior consultant for The Omnia Group, a company that helps clients make better managerial decisions and maximize employee productivity. Phone: 800-525-7117, ext. 1226. E-mail: cneal@ omniagroup.com.

N2 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Idea Exchange International Insider

Cyber Security: Global Risk and Rising Complexity

By Kathleen Ellis

M

ultinationals are fighting a battle on two fronts when it comes to cyber security as they seek to fend off new, emerging security threats and also comply with evolving global regulations.

These emerging security threats include the risk of attacks by insiders threatened by the economic downturn and new tactics — such as “spear phishing” and “malware” — being used by criminals on the outside to gain unauthorized access to computer networks.

Global regulatory compliance, meanwhile, is a chief concern for many companies as they navigate the various international laws and standards concerning cyber security.

With security and regulatory risks extending beyond the United States to their foreign

operations, multinationals need to take additional actions to make sure their operations are well-protected and compliant.

Cyber Crime a Growing Problem Cyber crime is not going away. As the world becomes ever more interconnected and dependent on networks, laptops and

Ellis

more than double the level from the previpersonal handheld devices, the opportunious year, according to the Identity Theft ties are just too great. The personal informaResource Center. tion stored on such devices — credit card In addition to the risk posed by insiders, information, drivers’ licenses and Social companies are also faced with the task of Security numbers — is at high risk and is trying to stay ahead of the bad often targeted by criminals because of the price it can Cyber crime guys from the outside, who are constantly looking for ways to bring on the black market. is not going get around corporate defenses.

The numbers paint a disconOne of the latest tricks is certing picture. Data breaches away. known as “spear phishing,” a increased dramatically in 2008. term for a highly targeted Breaches reported to the phishing attack. “Spear phishers” will craft Identity Theft Resource Center in 2008 their e-mails using information they’ve were up 47 percent over the previous year. found on other Web sites, blogs or social Internet-based crime complaints jumped 33 networking sites to make them seem more percent in 2008, according to the Internet legitimate. These e-mails are often directed Crime and Complaint Center, and the total to individuals within corporations and can reported dollar loss was $265 million, up be sophisticated enough to trick employees about 11 percent from 2007. These cominto clicking on a link or pro viding critical plaints included a wide variety of cyber information about the company or its comcrime matters from online fraud, to computputer system. er intrusions, economic espionage, identity Another concern is the growing use of theft and other matters. “malware,” which is used to infiltrate or Although these are U.S. statistics, damage computer systems without the comInternet-based crimes can happen anywhere pany’s knowledge. Malicious code activity in the world. Because the Internet is global, grew at a record pace in 2008, primarily tarthe risk is global. Networks are vulnerable geting confidential information of computer to breaches no matter where in the world users, according to a Symantec Internet they may be. Laptops, flash drives and other Security Threat Report issued in April. handheld devices, meanwhile, are easily lost and misplaced, creating vulnerability for Regulatory Compliance multinationals seeking to protect sensitive Keeping networks and the data stored on private data. them safe from security threats is just one of the challenges facing multinationals.

Emerging Cyber Threats Compliance with the various laws and reguEach year brings its own set of risks and lations concerning data and network securichallenges. One risk that bears watching is ty is another. the threat posed by company insiders, In the Sixth Annual Global Security Survey either former or current employees, who of financial institutions issued by Deloitte understand a company’s inner workings and Touche Tohmatsu in 2009, respondents idenmay be able to exploit that knowledge to tified security regulatory compliance as their gain unauthorized access to valuable confitop priority, reflecting their struggle with the dential information. right way to handle the multiple legal and Theft by insiders appears to be a growing regulatory requirements as well as those of problem. Insider theft accounted for nearly 16 percent of security breaches in 2008, continued on page N6

N4 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Idea Exchange International Insider Cyber Security, continued from page N4

and Development Privacy Guidelines.

Annual Cost of Data Breach Study issued in Other initiatives are also under consideraJanuary. tion in the United States. The Cybersecurity In addition to the various notification Act of 2009, introduced in the Senate in laws, certain types of companies in the April, would give the federal government United States are also expected to comply power to set and enforce with laws such as the Grammstandards for private Leach-Bliley Act and the Data breaches security industry for the first time.

Health Insurance Portability The bill would require the and Accountability Act were up National Institute of (HIPAA), which require com47% in 2008 Standards and Technology to panies to protect consumer’s establish “measurable and personal information. compared auditable cybersecurity stanThere is also a growing to 2007. dards� that would apply to trend toward the enactment private companies as well as of comprehensive privacy and the government. It also calls for the appointdata protection acts around the world. More ment of a cybersecurity “czar� who would than 40 countries and jurisdictions have or have authority to shut down computer netare in the process of enacting such laws. works if a cyber attack were underway.

In the European Union, companies are required to comply with EU Data Protection Risk Management Directive of 1995. In Asia, the Asia-Pacific By making their operations in the U nited Economic Cooperation continues its work States and abroad more secure, companies on a Privacy Framework, building on the will also go a long way toward being more 1980 Organization of Economic Cooperation compliant. Companies that are more difficult targets for cyber attacks are less likely to experience a loss.

By taking the appropriate measures to mitigate their security risk, multinational organizations will put themselves in a stronger position when it comes to negotiating insurance coverage as well. Insurance is available to help protect against first-party losses stemming from theft of money or other assets as a result of a breach of network security. Insurance also can help defray notification and legal defense costs, and crisis management expenses.

With “malware,� “spear phishing� and the threat of insider attacks on the rise, compaWith PULIC, your physician clients don’t have to compromise coverage— nies face significant challenges protecting despite their hard-to-place status. Contact us, and provide your clients with their operations in the United States and in the quality coverage they need. other parts of the world. Multinational firms s #OMMITTED TO SERVING THE MARKET SINCE that keep networks secure and work to coms &INANCIALLY STRONG WITH AN ! RATING BY &ITCH 2ATINGS AND AN ! RATING ply with regulatory standards may benefit BY ! - "EST #OMPANY AND &ITCH 2ATINGS from lower losses, fewer lawsuits, fines and s !VAILABLE FOR ALL MEDICAL SPECIALTIES IN NEARLY EVERY STATE penalties, and a greater number of insurers s &LEXIBLE COVERAGE OPTIONS BROAD TO RESTRICTIVE willing to provide needed insurance protecs 2ATE INDICATION OR QUOTE FROM ANY APPLICATION tion. IJ

auditors. As security breach notification laws and other cyber security initiatives proliferate, often imposing the potential for fines, lawsuits and negative publicity, it’s understandable that this is a concern for the survey’s respondents and most likely other firms.

Companies conducting business in the United States must manage myriad changing regulations. As of December 2008, 44 states, the District of Columbia, Puerto Rico and the Virgin Islands had enacted legislation requiring notification of security breaches involving personal information, according to the National Conference of State Legislatures. These notification laws typically require companies to immediately disclose breaches of personal information to customers, usually in writing. The costs involved with notifying customers about breaches can be substantial. The average cost of a data breach has risen to $202 per customer record in 2008 from $197 in 2007, according to Ponemon Institute’s Fourth

Get a second opinion for your hard-to-place physician clients.

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(800) 537-7362 www.pulic.com

N6 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

Ellis is a senior vice president of Chub b & Son and manager of Multinational Risk Group - Global Accounts. Tracey Vispoli, vice president, global financial fidelity manager, also contributed to this article. www.insurancejournal.com

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

Fire & Water Restoration Contractors Market Detail: USAssure Insurance Services Inc. (www.USAssure.com) offers a fire and water restoration contractor’s pollution liability package policy that includes contractor’s pollution liability as well as general liability.

Incidental mold and mold remediation coverage is also available. Minimum premiums and deductibles begin at $5,000.

Available Limits: Up to $1 million.

Carriers: Zurich. “A” rated by A.M. Best.

Admitted.

States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Fla., Ga., Idaho, Ill., Ind., Io wa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., W.Va., Wis. and Wyo. Contact: Jenny Roberts at 904-224-8970 or e-mail Jenny.Roberts@USAssure.com.

Hazardous Transporters Commercial Auto Market Detail: London American Risk Specialists Inc. (www.londonamericantx.com) brings agents access to a program covering for-hire and proprietary hazardous material and hazardous waste transporters. The insured must haul at least 50 percent hazardous waste or hazardous materials. The program also includes coverage for chemicals, petroleum products, hazardous waste solvents, contaminated soil or products and hazardous materials identified for transportation under 49 CFR 177. Pollution coverage is automatically included (CA9948 or equivalent plus MCS-90). State and federal filings done as needed. There is also a loss control program and other services available.

There is a minimum 10 power units required.

Available Limits: Up to $5 million.

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

States: All except Mass.

Contact: Danielle Garza at 713-977-7726 or e-mail dgarza@londonamericantx.com.

Aggregate, Sand & Gravel Haulers Market Detail: Leo Risk Services (www.leoriskservices.com) offers a program for aggregate, sand and gravel haulers. The program is designed for fleets with a minimum of five power units (exceptions can be made). Available coverage includes auto liability, physical damage, hired and nonowned auto and general liability.

Available Limits: $1 million to $5 million.

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

States: All.

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Conn., Del., D.C., Ga., Hawaii, Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.Y., N.C., N.D., Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W.Va., Wis. and Wyo. Contact: Riley Binford at 707-775-2662 or e-mail rbinford@tangramins.com.

IT Professional Liability Market Detail: USX/S (www.USXS.net) offers a customized package of coverage for IT professionals encompassing all of the insured’s operations. Coverage is provided for data breach and privacy provided to both the insured and its clients. Other co verage options include electronic media coverage and contingent bodily injury and property damage (BI/PD available only for certain classes). Automatic coverage for independent contractors is also available.

Minimum premiums begin at $1,850.

Available Limits: Up to $5 million.

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

States: All. Contact: Janet Wilson at 440-888-7300 or e-mail JanetW@USXS.net.

Crop Insurance Contact: Pat Leo at 727-734-0040 ext. 220 or e-mail pleo@leoriskservices.com.

Portable Potty Package Program Market Detail: Tangram Insurance Services (www.tangramins.com) offers a comprehensive package of coverages designed for the portable sanitation industry. The program targets those firms involved in the rental/cleaning of portable sanitation units, including guard stations, showers, luxury units and baby care units. Minimum premiums begin at $1,000 and deductibles vary depending on the coverage.

Available Limits: $1 million to $5 million.

Carriers: Unable to disclose. No rating information provided. Admitted.

States: Alaska, Ariz., Ark., Calif., Colo.,

N8 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

Market Detail: Live Asset Insurance (www.liveassetinsurance.com) makes private crop insurance available to nurseries, orchards, groves, plantations, vineyards, tree farms and forests. This program is not affiliated with RMA/USDA Government Crop Insurance. Coverage is extended to 17 named perils. Primary coverage is available for trees, shrubs and vines for both commercial and residential risks. The program is endorsed by the American Nursery & Landscape Association. Minimum premiums begin at $5,000 and the minimum deductible is $10,000.

Available Limits: Up to $10 million.

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

States: Ala., Ariz., Ark., Calif., Colo., Ga., www.insurancejournal.com

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Ky., La., Miss., Nev., N.M., N.C., Okla., Ore., S.C., Tenn., Texas, Utah and Va. Contact: David J Teed, CIC at 800-644-0178 or e-mail dteed@liveassetinsurance.com.

nonadmitted.

States: All. Contact: Robert McIntyre at 610-337-3200 ext.

7021 or e-mail rmcintyre@apogeeinsgroup.com.

Cemeteries - D&O and EPLI

Food Borne Illness

Market Detail: Apogee Insurance Group a Berkshire Hathaway Group (www.apogeeinsgroup.com) offers directors and officers and employment practice liability for nonprofit and for-profit cemeteries.

Coverage features include: full prior acts coverage; defense costs outside the policy limits; unlimited extended reporting period for former elected officials; duty to defend; third-party discrimination coverage within the EPLI coverage; and many others.

Minimum premiums begin at $1,000 and deductibles start at $500.

Available Limits: $250,000 to $5 million.

Carriers: United States Liability Insurance. “A++� rated by A.M. Best. Admitted and

Market Detail: Professional Liability Insurance Services Inc. (www.plisinc.com) offers a special coverage for restaurants suspecting of causing or spreading a foodborne illness: Trade Name Restoration/Food Borne Illness Loss of Business Income for Restaurants. The costs of immediate crisis management expenses, communications, marketing and media support are covered by this program.

Accidental and malicious contamination both are covered by this policy. No restaurant is too small. The insured can p urchase six- or 18 month period of restoration.

There is no minimum premium.

Available Limits: As needed.

Carriers: Certain Underwriters at Lloyds. “A� rated by A.M. Best. Non-admitted.

States: All. Contact: PLIS Product Team at 800-761-7547 or e-mail underwriting@plisinc.com.

Home Medical Equipment Dealers Market Detail: Davidson-Babcock (www.davidson-babcock.com) makes available a program for home medical eq uipment dealers selling, renting and servicing home medical equipment. Program coverages include professional liability, products liability and general liability. Minimum premiums begin at $1,700.

Available Limits: $300,000 to $2 million.

Carriers: United National. “A� rated by A.M. Best. Non-admitted.

States: All. Contact: Cheryl Bishop at 888-329-0003 or e-mail hme.program@davidsonbabcock.com. IJ

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Closer Look Salute to Near National Carriers

Taking Care of Business Leading Near National P/C Carriers Revealed

By Joseph L. Petrelli

T

he original criteria and objective definition for the Near National Property/Casualty Carriers was established in the Feb. 12, 2007, issue of Insurance Journal. The Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners.

The 11 categories that comprise the system are Nationals, Near Nationals, Super Regionals, Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and companies with less than $1 million in direct written premium.

A company can be assigned to only one category in the Demotech Company Classification System. Therefore, a company not designated as a Near National is assigned to another classification, perhaps National, Super Regional or Regional.

To qualify as a Near National, a carrier must pass the following criteria: • Write more than $1 million of direct written premium in each of at least 35 states at Dec. 31, 2008.

• Policyholders’ surplus of at least $100 million at Dec. 31, 2008.

• $100 million or more of direct premium at Dec. 31, 2008.

• $50 million or more of net premium at Dec. 31, 2008.

• No line of business greater or equal to 90 percent of direct premium volume at Dec. 31, 2008.

• No state greater or equal to 90 percent of direct premium volume at Dec. 31, 2008.

• May not be a surplus lines carrier, risk retention group, reinsurer or classified as a National.

To develop the list of Near Nationals, Demotech reviewed 2,736 individual property/casualty insurance companies. Only 67 insurers met the criteria to be designated as Near Nationals. The 2009 list of Near Nationals is in the chart on page N11.

While investigating the companies classified as Near Nationals for 2009, Demotech noted several interesting observations. Of the 67 individual carriers that are Near Nationals, 61 are stock companies. All b ut two of the Near Nationals are members of a group. Thirty-nine of the 67 Near Nationals were also on the 2007 and 2008 lists of N ear Nationals.

By count, the 67 Near Nationals comprised slightly more than 2 percent of the 2,736 carriers that were reviewed; however, they wrote slightly more than 9 percent of the 2008 direct premium reported by the property/casualty insurance industry. More impressively, the Near Nationals represented nearly 13 percent of the P/C industry’s reported surplus at year-end 2008. Clearly, this level of presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P/C insurance markets. The Near Nationals facilitate commerce and trade, and are an important component of the total P/C industry.

Specifically, 12 percent of the premium written by Near Nationals is workers’ compensation insurance, permitting employers

N10 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

to provide protection for workers. Another 27 percent of their premium is commercial multi-peril and general liability insurance, permitting businesses to protect their assets and their consumers. Near Nationals also write homeowner’s insurance, personal and commercial auto, and trucking insurance to protect our homes. These lines represented 41 percent of their premium volume.

On the business side, they write much of the surety coverage and bonds necessary to initiate construction projects.

Other lines of insurance round out the remaining dollar volume.

In summary, the only thing small about the Near Nationals is their count. The 67 carriers comprising the Near National Company Classification for 2009 are critically important to the P/C insurance industry. The coverages that these 67 carriers write permit consumers and b usinesses to transfer risk to this remarkably stable group of carriers and thereby facilitate the placement of insurance products necessary to support growth of the U.S. economy. IJ Petrelli is the president and fo under of Demotech Inc., a Columbus, Ohio-based financial analysis and actuarial services company. Demotech provides services to regional insurance companies, title underwriters and specialty insurance markets. Financial Stability Ratings® of A or better are a ccepted by the secondary mortgage marketplace, virtually all mortgage lenders, an increasing number of umbrella insurance markets and some writers of insurance agents’ errors and omissions insurance. Web site: www.demotech.com. www.insurancejournal.com

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2009 Near National P/C Insurers Company Name

2009 Demotech Company Compan Classification

2008 Demotech y Classification

2007 Demotech Company Classification

Affiliated FM Insurance Co. AIG Casualty Co. American Alternative Insurance Corp.

American Automobile Insurance Co. American Economy Insurance Co. American Modern Home Insurance Co. American National Property & Casualty Co. American States Insurance Co. Amex Assurance Co. Amica Mutual Insurance Co. Argonaut Insurance Co. Axis Insurance Co. Balboa Insurance Co. BCS Insurance Co. Carolina Casualty Insurance Co. Caterpillar Insurance Co. Charter Oak Fire Insurance Co. Cincinnati Insurance Co. Electric Insurance Co. Employers Insurance of Wausau Employers Mutual Casualty Co. Everest National Insurance Co. Farmers Insurance Exchange General Insurance Co. of America Great Northern Insurance Co. Great West Casualty Co. Greenwich Insurance Co. Hanover Insurance Co. Hartford Accident & Indemnity Co. Hartford Insurance Co. of the Midwest Horace Mann Insurance Co. IDS Property Casualty Insurance Co. Indemnity Insurance Co. of North America Lancer Insurance Co. Metropolitan Property & Casualty Insurance Co. National Indemnity Co. National Interstate Insurance Co. National Liability & Fire Insurance Co. National Surety Corp.

Navigators Insurance Co. Northland Insurance Co. Ohio Casualty Insurance Co. OneBeacon America Insurance Co. Pacific Indemnity Co. Peerless Indemnity Insurance Co. Praetorian Insurance Co. Progressive Casualty Insurance Co. Property & Casualty Insurance Co. of Hartford QBE Insurance Corp.

RLI Insurance Co. RSUI Indemnity Co. Sentry Insurance a Mutual Co. Sentry Select Insurance Co. Star Insurance Co. State National Insurance Co. Inc. Stonington Insurance Co. Tokio Marine & Nichido Fire Insurance Co. Travelers Casualty Insurance Co. of America Travelers Casualty & Surety Co. Travelers Indemnity Co. of America Travelers Indemnity Co. of CT Truck Insurance Exchange Twin City Fire Insurance Co. USAA General Indemnity Co. Westchester Fire Insurance Co. XL Insurance America Inc. XL Specialty Insurance Co.

Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National

Near National Near National Strategic Subsidiary Near National Near National Near National Near National Near National Near National Near National Near National Strategic Subsidiary National Near National Near National Regional Near National Near National Near National Near National Near National Super Regional Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Super Regional Near National Super Regional Near National Near National Super Regional Near National Strategic Subsidiary National Near National Strategic Subsidiary Near National Near National Near National Near National Near National Near National Near National Near National Near National Super Regional Near National Near National Near National Super Regional Near National Near National Near National Near National Strategic Subsidiary

Near National Super Regional Strategic Subsidiary Super Regional Near National Near National Near National Near National Near National National Super Regional Strategic Subsidiary Near National Near National Near National Regional Near National Near National Near National National Near National Super Regional Near National Near National Near National Near National Near National Super Regional Near National Near National Near National Strategic Subsidiary Strategic Subsidiary Regional Near National Near National Near National Super Regional Near National Super Regional Near National Near National Super Regional Near National Strategic Subsidiary Near National National Strategic Subsidiary Near National Near National Near National Near National Near National Super Regional Regional Regional Near National Coverage Specialist Super Regional Near National Near National Super Regional Near National Near National Near National Near National Strategic Subsidiary

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Idea Exchange Minding Your Business

The Worst Ways to Manage Producers Top Mistakes People Make When Managing Sales Producers

By Catherine Oak and Bill Schoeffler

Oak

O

ne of the most difficult things agency owners deal with is motivating, training and keeping good producers to help the agency grow.

In our experience working with hundreds of agencies and sales managers, when it comes to managing producers, there are clearly things that work and things that don’t work.

Producers come in all shapes and sizes. It is not easy to find the “right” formula to be successful. There is however, some common ground that will help any owner or sales manager be effective with sales and with managing producers.

In general, the default mechanism for people is to rely on their own experience when

Schoeffler

it comes to managing others. They expect producers to just figure it out on their own.

And … when the producer fails, the owner is mad and wonders why! “I didn’t get any help when I started,” they say. Or, “I worked morning, noon and night until I developed my book, why can’t they?”

A good place to start to unlearn bad habits is to learn from other people’s mistakes, including your own. There are many things managers should not to do when dealing with producers. Here is a list of the top 11 mistakes people make when managing producers. It will be obvious to the reader of this article to do the opposite, which will most likely achieve better results.

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N12 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

D I F F ER E N T WORKS

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1. You are on Your Own Whether producers are new or experienced, showing them a desk and phone and telling them to “go for it” does not work.

After a few days of dialing for dollars, without direction or assistance, they will have exhausted their friends and relatives, and all the things they might imagine they could write. Then they are left to stare off into space, listening to others in the office talking to existing clients and wishing they had someone to talk to that would want to write insurance with them. Starting with even a small book of house accounts or a retiring producer book for a new producer to spring board from can also help.

2. Giving Producers a Commission Goal Owners will often tell the producer what they would like them to write in new commission by the end of the year. It is important for producers to have a goal. The key is that it needs to be their goal. Producers can always blame the goal-setter when they fall short. Make sure the blame goes back to them and not the sales manager. Don’t give

them their goal, make them set it themselves.

goals on a monthly should be the minimum!

5. You Can Lead a Producer to a 3. Having Poorly Defined Goals Prospect, but You Can’t Make Them Call OK, the producer says they will generate Many agency owners buy lists of prospects $75,000 in new commission this year. Great. for producers, ask their carriers for lists or But, is it achievable? If they only sell personal even hire a telemarketing firm to dial for lines or small commercial lines accounts, can appointments for their they get there? Goal-setting producers. Some even have needs to include the averWhether a an in-house person(s) dial age size account, the numproducers are new for appointments for prober of contacts they will ducers. In many cases, make, the expected hit or experienced, producers don’t seem to ratios, etc. It should also showing them a appreciate it or even show include where the lead will up for appointments that come from and how many desk and phone are set for them. Part of they will get or need to and telling them the monitoring needs to write. include the use of to ‘go for it’ does resources. If they don’t use 4. Failure to Monitor not work. it, they lose it. Leads Progress should be given to those What good is setting a that follow-up and close. If the account is too goal if it is not monitored? Once the prod ucer tough, a more experienced producer should agrees to work toward a well-defined goal, double-team with the newer producer, and the role of a sales manager is to now hold commissions should be shared the first year. that producer accountable for his or her percontinued on page N14 formance goal, on a regular basis. Monitoring

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Idea Exchange Minding Your Business Manage Producers, continued from page N13

6. Expecting Producers to Cold C all It is funny because when you ask experienced owners and producers how they get new business, it is the rare person who says that they get or got the business from cold calling. Most say they would never cold call and usually get new business from referrals, which they don’t even ask for. Often, the referrals just come in because of networking or relationships. Yet the expectation is for producers to just get on the phone and call prospects they don’t know or just drop by businesses and ask for an appointment.

Producers need to practice with a script and be taught how to get good leads to call from.

7. Motivation by Sales Meetings Let’s be honest, most sales meetings are a waste of time. The typical meeting is a dry discussion of what the producers did or did not do, what accounts receivable are outstanding, new edicts from the carriers, blah, blah, blah. In many cases, the meetings are not used to train, practice, coach or acknowledge the sales force. If you want your producers to be motivated by the sales meeting, then make it motivating. Varying the leader also helps.

scripts to use and playbooks to hit the ground running. The Society of CIC and some carriers have great schools. It might seem like training is expensive, but in reality training will be well worth it for the producers to get quality training fast. In-house training most likely would take a long, long time to get to the same level.

10. Do as I Say, But Don’t Show Them Many agency owners or sales managers do not go on calls with their producers to show them the ropes. For whatever reason, the skills, knowledge and techniques of a successful producer are not passed on through live field training.

Most people learn best with hands-on experience. It usually is very helpful for producers to accompany owners or successful honest, most experienced producers on 9. Training is Too sales meetings and their calls to new and existing Expensive and We Know How to Do it Best are a waste of clients just to observe. After the visit, it helps to have a short Most agency owners did time. debrief on what worked and not attend sales schools. what did not work.

They look at the sales schools as too expensive. We hear them say, “We can show them how to do it … our way.” 11. Failure to Act on Your Word When it gets to the end of the y ear, and if If your way is not working, then why try to the producers have not performed, many replicate it with another producer? owners will give them another chance. Keep What is best is to give producers the tools in mind, the failure can be the fault of the they need to be successful. This can be done producer, the owner or most likely, both. The in a very short, condensed amount of time, key is to clearly evaluate the producer and especially with niches to specialize in, 8. Maybe This One Will Stick Owners often think that if the firm’s current producers are not producing enough new business (even if their books are not large) that hiring more producers will fix the problem. Throwing more bodies at a problem, rather than fixing the problem first, does not Let’s be work.

N14 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

the situation. Use a producer evaluation form and ask producers to rate themselves and what they need to improve on, as well.

If training or coaching is needed, then set up a specific producer development plan. If a producer cannot be rehabilitated, then let him or her go. Otherwise, the rest of the production staff will see that the rules are not enforced and then expect exceptions when they slip up.

Summary Although there are many mistakes when it comes to managing producers, these are the top mistakes from our experience. If you want your producers to be successful, avoid these mistakes and model the techniques of those that are successful.

Take the time and spend the money necessary to give producers what they need.

Growing organically and having sales inhouse with the tools necessary will guarantee success for producers and growth for the agency. In the topsy-turvy market and with the economic challenges we have today, producers need more management and assistance than ever before. IJ Schoeffler and Oak are partners at the international consulting firm Oak & Associates, providing services for mergers, acquisitions, management and financial consulting. Contact: 707-935-6565, by e-mail at bill@oakandassociates.com or visit www.oakandassociates.com. www.insurancejournal.com

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Special Report Commercial Auto

The Road to Savings Five Best Practices Provide a Road Map for Controlling Total Commercial Auto Costs

By David Money, Howard Hanscom and Charlie O’Connor

Y

our commercial auto clients are likely a diverse group — from large fleets of delivery trucks to accounts with smaller numbers of local service vans — but they all share the potentially devastating human and financial impact of accidents.

And this creates an opportunity for you.

You’re in the business of helping companies identify and mitigate the risks they face every day. You’re concerned with getting your clients effective coverage at a fair price, protecting their assets and lowering their total cost of risk over time. And there is no better way of delivering these goals than by helping your clients update their commercial auto programs based on the best practices of the safest companies.

Here are those best practices that can help you help your clients control commercial auto insurance costs.

Do as I Say and as I Do. Clear, and most importantly, consistent, management support for safety is critical to building a culture that responsible drivers welcome and underwriters recognize as likely to lower total cost of risk by reducing claim volume and loss amount. Your client’s management should take every opportunity to speak about the importance of safety. But their everyday actions and decisions must always underscore — and never undercut — that commitment.

Based on this management support, your client should develop written policies detailing expectations, responsibilities and consequences. Safety should be at the heart of all www.insurancejournal.com

company policies, rather than the topic of a handful of rules and guidelines. Remember, the goal is for your client to build a culture of safety throughout their company, rather than a rarely used safety binder that gathers dust on a shelf.

the time to mold them to the company’s safety system. Look at the initial orientation and ongoing training your client provides its drivers. Does it cover the right content? Is it integrated with the annual performance review process, so there is a clear financial consequence?

Hire the Best Drivers and Constantly Train Them.

Give Those Drivers the Right Tools.

There are three keys to choosing the best Understand the work your client does and drivers. First, your commercial auto clients how they select the vehicles and the safety should set standards for features they buy. Longselecting drivers and diligenthaul trucking requires Safety should be ly keep to those guidelines. much different equipOne of the most important ment than delivering at the heart of all standards involves the miniappliances locally. Does company policies, your client buy vehicles mally acceptable driving record. Those companies with anti-lock brakes, rather than the with the fewest accidents air bags, and traction topic of a handful and stability control tend to have drivers who have had no moving violations in systems? of rules and the past three years. They also Once your client buys guidelines. have very high percentages of a vehicle, understand drivers with completely clean how they maintain it. driving records.

They should follow the manufacturer’s speciSecond, be sure your clients get the motor fications. Drivers should take an active role in vehicle records from all states where a potenmaintenance. Every driver should inspect tial driver may have worked, both during the their vehicle before they hit the road, immeinitial hiring process — and if hired — once diately reporting and resolving any concerns. a year, perhaps as part of the annual review Some of your clients may allow employees process. to use their personal vehicles for company Finally, know whether your clients give work. If so, be sure your client has written potential drivers a written and in-vehicle rules detailing how the company manages road test. They should. In fact, your clients this. For example, the company should should give these tests to all drivers annually. require each employee get their manager’s As critical as driver selection is in preventpermission in writing before using a personal ing accidents, it is only the start. Once a vehicle for work. The company should also client has selected qualified drivers, now is continued on page N16 July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N15

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Special Report Commercial Auto Road to Savings, continued from page N15

have the right to inspect vehicles to make sure they meet their safety and maintenance standards. And, your clients should get a certificate of insurance from employees who may use their personal vehicles for company work, detailing their minimum limits of liability.

Know What Happened.

Accidents happen, even at companies with a culture of safety, the best driver selection and training, and proper maintenance. So understand how your clients document their accidents to find out exactly what happened, who was injured, and the extent of that damage.

Not only does this help control the a ccident’s financial impact, but it also helps your client potentially prevent similar accidents — and costs — from happening again.

Good documentation is fast and detailed.

And drivers must understand that the goals are to learn from the event and control the accident’s costs, rather than place blame.

Many companies have investigation kits in their vehicles and train drivers on how to document an accident. Do your commercial auto

tems that make sense given their operation, clients? A few digital photos and video comvehicles and drivers. And be sure they use ments from witnesses can go a long way in whatever data comes from these devices to managing the accident’s financial impact. address and improve driver performance.

Beyond documenting accidents, know how your clients report them to their insurance car- There are three reasons for this. First, it helps save lives. Second, it riers. Prompt reporting allows each insurer to Understand how your helps deliver a return on investment. And third, it quickly use their claims commercial auto can possibly reduce or management tools and prevent future legal services to better control clients keep current claims that your client the total cost of that on technology and was aware of an issue, accident. but took no steps to select the systems resolve it.

Choose the Right that make sense Use these best pracTechnology. tices to add value for There is a range of given their operation, your clients. Improving technology that can help vehicles and drivers. their safety benefits companies better mantheir bottom line, while age their commercial protecting drivers and the public. IJ fleets, from in-vehicle cameras that monitor drivers, to GPS tracking, to devices that record vehicle speed and braking distance.

Money, Hanscom and O’Connor are commercial auto insurBut more is not necessarily better. ance experts for Liberty Mutual. E-mails: david.money@ Understand how your commercial auto clients libertymutual.com, howard.hanscom@libertymutual.com, keep current on technology and select the syscharles.o’connor@libertymutual.com.

We Know What Insurance Agencies Need “We began banking with InsurBanc in July 2008.

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(866) 467-2262 agencyfinancing@InsurBanc.com www.InsurBanc.com N16 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Special Report Commercial Auto

Beware of Symbol 7 Only Auto Agents Need to Cover Their Exposures by Offering Hired Non-Owned Auto Coverage

By Eric Galisdorfer

R

isk managers, insurance agents and brokers have always known that a Symbol 7 on auto liability policies is not very desirable. This symbol essentially means that only the autos scheduled on the policy are covered. If the insured fails to report a new vehicle within the policy’s reporting window — usually 30 days — or if the insured borrows or hires a vehicle, the insured could potentially have an uncovered loss with that vehicle.

There are certain industries where Symbol 7-only coverage is the norm: trucking, couriers, ambulance services and public livery exposures are examples. The reasons vary, but are usually due to these industries’ federal filing requirements and frequent use of independent contractors. Both factors can drastically expand the exposures under an auto policy. To avoid confusion, I will ignore the trucking policy differences (i.e., Symbols 41 and 46), with the understanding that the issues discussed here may be similar for truckers’ policies.

In addition to the issues above, the use

of Symbol 7 auto also presents a large errors and omissions (E&O) exposure for the agency or broker. If Symbol 1, or 7, 8, 9 are available and the agent or broker has not offered this to the client, E&O pro blems may arise. For purposes of this article, we will use the acronym HNOA (hired non-owned auto) to describe Symbol 8 and 9 coverages and exposures.

Unfortunately, we also see operations with no HNOA coverage in place, even though it may be available. Consulting firms are good examples of operations that commonly do not purchase coverage.

Often, even very large consulting firms rely on employees to use personal vehicles or rental vehicles (i.e., airport car rentals) for all of their transportation needs. These firms may have no owned autos, but usually will have a contingent exposure.

Employers often reimburse mileage expenses for employees’ use of a personal vehicle for company business, which can add up to hundreds of tho usands of dollars per year. For hired units, companies can

Risk Management Hired Non-Owned A uto Controls None

Weak

Good

Very Good

No Requirements

Requires state Requires $100,000 minimum PAP Limits CSL PAP Limits

Requires $300,000 CSL PAP limits

Confirms annually that PAP in place

Confirms annually that PAP in place

Confirms annually that PAP in place

Requires drivers to report license revocation or PAP lapse

Runs MVRs on all regular drivers

Requires all accidents occurring on company time to be reported

Requires drivers to report license revocation & PAP lapse Requires all accidents occurring on company time to be reported

N18 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

easily have over $1 million in rental costs per year. For example, 150 employees renting cars every other week for $50 per rental results in $975,000 in rental costs per year (150 employees x 26 weeks x 5 days x $50). That is equivalent to 75 full time units on the road each year, for which the employer has a significant exposure.

Unless these insured’s employees are accepting the insurance offered by rental companies, the employer’s uninsured exposure potential is huge.

Excellent Actually, both the employer Requires $300,000 and the agent or broker CSL PAP limits share this exposure.

If rental insurance is Confirms annually that PAP in place not purchased, and the employee causes severe Runs MVRs on injury to a third party, the all Regular Drivers injured party’s legal representative will likely sue the Has MVR standards rental agency, the employee and the employer. The rental agency’s insurance program Requires drivers to will respond, as will the report license revocation & PAP employee’s personal auto pollapse icy. In this case, the employer would be the only uninRequires all accidents occurring sured party. Even if the on company time to employer is able to get out of be reported the lawsuit — via summary www.insurancejournal.com

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judgment, for example — it will still ha ve to pay for legal expense, at a minimum. In the case of severe injuries, it is likely that all parties will be required to contribute to settlement. Again, the employer would have no coverage from which to contribute.

Another common area of large uninsured HNOA exposures is with temporary service providers, such as professional employment organizations (PEOs), temporary employment agencies and home health care nurses.

These operations often have no owned autos or a few executive vehicles, but rarely have HNOA coverage. The employees of these firms almost always use personal vehicles to commute to client locations.

This creates exposures to vicarious liability for the employer. If the employer has a Symbol 7 only coverage, it has a huge potential exposure.

Many large, sophisticated employers know they have an exposure, but few choose to insure it. Cost is a fa ctor. Costs vary, depending on the controls in pla ce (see table on N18), but can average $250 per full-time employee equivalent to insure.

Some self insure. The rationale behind self insuring is that if a temporary emplo yee causes injury with a personal vehicle, the injured party will go after the employee’s personal auto policy first. If coverage is insufficient or non-existent, the plaintiff’s attorney is unlikely to pursue the employer, who has no coverage in place. The employer is gambling that the lack of coverage will be a deterrent against plaintiff attorneys seeking a deep pocket in the employer.

Quite frankly, that logic is flawed. If a company is large and the injuries serious, the plaintiff’s attorney can and will go after the employer and its assets. The agent or broker who did not offer the a dditional coverage also has an E&O exposure.

The point is that agents and brokers need to identify the HNOA exposures and offer their clients the HNOA coverage. If the client does not want to spend the money, at least the agent or broker has done their job and, at a minimum, protected against the E&O exposure.

As a guide, here are a fe w red flags that agents, brokers and risk managers can use to identify serious and significant exposure www.insurancejournal.com

to HNOA losses. If present, these need to be addressed through insurance or through a risk management process.

• Large number of named insureds.

• Heavy use of independent contractors.

• High volume of car rental costs.

• Many reimbursed miles of employee

vehicle use.

• Frequent use of personal vehicles for company business. IJ Galisdorfer CIC, CPCU, is assistant vice president, commercial auto for RLI Transportation. Phone: 404-443-1015.

E-mail: eric.galisdorfer@rlicorp.com.

July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N19

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Special Report Commercial Auto

dealerships from Colorado to Tennessee, and Minnesota to Texas.

Roger Beery, president of Austin Consulting Group, a Greenwood Village, Colo.-based risk management and garage insurance consulting firm that represents 300 new car dealerships nationwide, couldn’t agree more with Curtis’ assessment.

“Auto dealers are the most upbeat, positive people in the world and the ones that are left are going to be fine,” Beery said.

“Americans will start buying cars again,” he predicts. Perhaps not at the same levels purchased just two years ago, but “once they get comfortable they will start buying again,” he said. “The dealers that are left standing are probably going to be financially stronger than dealerships today,” Beery added.

Jason Wallace, division president for The Horton Group’s risk management services, doesn’t expect his car dealer business to grow tremendously given the current times but says his agency will stay committed to the market, and so will the carriers that cover car dealerships.

“Auto dealers have always been attractive to carriers,” Wallace said. “The current financial situation hasn’t dissuaded anyone from that.”

By Andrea Wells

A

utomobile shoppers may be abandoning car makers but insurance carriers and brokers remain dedicated partners, experts say.

Yet no one can deny that tough times have fallen on many of the nation’s car dealers who seem to be caught in a perfect storm. The bad economy has led to a nearly 40 percent drop in new car sales. Financing for new car purchases remains tight and some Chrysler dealerships have found lending for new car inventories completely cut off all together. Not to mention the bankruptcy proceedings of General Motors and Chrysler, under which approximately 789 Chrysler dealerships out of its 3,181 authorized dealers will close. GM stands to shut down another 1,350 dealers out of their total 6,000 dealerships.

Even so, insurance specialists to the auto dealers market say survival of the fittest will come into play and those car dealers left standing will be stronger, leaner and better.

“I have a lot of confidence in dealers,” said Corie Curtis, account manager for RJF Agencies where she manages a dealers’ open lot insurance program out of the agency’s Minneapolis headquarters. “I’ve found them to be intelligent and savvy business people with innate survivor instincts,” she added.

RJF’s open lot auto dealer’s program is a relatively young insurance program, and despite the turbulent times, is growing quickly, Curtis says. The program is available to both used and new car dealers in 47 states and represents approximately 100

N20 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

Solid Market, Tighter Financial Underwriting The tough times haven’t deterred the insurance market when it comes to ‘Auto dealers insuring auto are the most dealers, the experts say. upbeat, positive A risk manager people in the to auto dealers, Beery says that world and the from his view ones that are prices tightened slightly for auto left are going to dealers early in be fine.’ the year, but that trend hasn’t held up.

“We still see what I call a vigorous market,” Beery said. According to Beery, a number of direct writers with very large books continued on page N22 www.insurancejournal.com

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Special Report Commercial Auto Car Dealers in the Storm, continued from page N20

who will be left standing is difficult to sa y. of auto dealer business continue to dominate “It’s hard to say how the overall numbers the market. Some of the biggest players are will turn out when you include the potential Zurich, Sentry Insurance Group, Federated of new brands and changes in distribution Insurance and HARCO National, he said. On the broker side, Beery says Travelers has been networks,” Curtis said, adding “there are still many challenges ahead for the dealers that very active, as well as Wausau Insurance and remain.” Despite these challenges, Curtis to some extent, Hartford. He also sees a believes the surviving dealers will come o ut number of regional insurers actively writing stronger, leaner and with advanced business auto dealer business today. tactics.

Even though he describes the market as Insurance providers need to be there and vigorous, he noted at least one carrier ready when the turnaround happens, as well. announced they will no longer write “Insurance providers will need to continue Chrysler dealerships but they are still willto provide creative, thoughtful and compreing to write GM dealerships. “We don’t hensive products that fit each individual dealer understand that. If Chrysler is bad then why group’s risk management strategy,” Curtis said. is GM good?” he questioned. “They are both From his risk manager’s seat, Beery says in bankruptcy.” one way brokers can help their auto dealer Even so, pricing for auto dealers remains clients in today’s tough times is by making stable, although underwriting for financial data has been under watch, Beery, Curtis and sure in auditable policies that the rating basis is correct and the dealer is not o verpaying Wallace concurred. during the policy period.

“We are seeing all insur“Some insurers, like ance companies scrutinize ‘More than Zurich, do audits on a financial statements much anything we have monthly reporting form, more,” Beery noted. so it is what it is every RJF’s Curtis says she has seen heightened month, but some (carriseen a rise in awareness and underwriting and ers) offer only annually concern when it comes to audited policies,” Beery financial underwriting data. more questions said. “Since we’ve seen so “There’s a heightened awarein financials, and much downsizing, brokers ness to the viability of a dealneed to make sure that ership,” she said. have not seen a the downsizing is being In recent years, coverage is decrease in taken into account during still very available, added The the policy period and Horton Group’s Wallace. available maybe even adjust the pol“More than anything we have markets or icy rating basis during the seen heightened underwritpolicy period to provide ing and more questions in appetite.’ appropriate pricing and financials, and have not seen improved cash flow.” a decrease in available marCurtis adds that as dealers tackle today’s kets or appetite.”

Bottom line, it’s still a competitive market, challenges — the economy, credit markets, the rising cost of oil — they have to be very Beery says. “I don’t want to give the impression that this is a truly soft market. But it is a nimble with their product and so do their insurance providers. vigorous market.”

“During this time there are opportunities for dealers to purchase other locations and Bad Times Offer Opportunity Tumultuous times present both challenges take on other franchises,” Curtis said. “And we need to be able to act just as swiftly as and opportunities for car dealers, says RJF’s they can — and we are — we are trying to Curtis. She says that both car dealers and car give them at least one board to stand on so manufacturers are likely positioning themthey can take on all the rest of these issues selves for growth as the U.S. recovers from that they are confronting today.” IJ the economic downturn. Just how many and N22 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Closer Look Construction

Safe and Sound Making the Connection for Contractors

By Todd Bateson and John Komidar

C

ontractors with a sharp eye for their bottom line are smart to place a premium on safety. Insurance agents and brokers tend to know a construction business that avoids injuries is not only applying safe building techniques but also sound economics. Accidents are costly and the majority of them may be preventable.

While contractors may have safety in mind, an insurance agent or broker can make sure site safety and its impact on profit margins is a top priority.

In addition to insight on the economic reasoning for taking safety measurements, insurance agents and brokers can connect customers with risk management resources that leading insurance carriers can provide.

The Business Case for Safety In Oklahoma, a boom comes loose from a crane as workers are attempting to move it and an employee suffers massive head injuries.

In Virginia, seven members of a crew are injured when a scaffolding collapses at a construction site. And in Florida, two are injured when a large sheet of metal they are moving through a site topples on top of them.

These and other similar incidents are rarely front-page news because construction accidents tend to happen frequently. In fact, the Bureau of Labor Statistics has indicated that construction has one of the highest rates of injuries and deaths among all industries. In 2007, accidents left 1,172 construction workers dead (a rate of 12.3 per 100,000 w orkers) and injured more than 380,000 others.

Beyond human pain and suffering, the direct cost of accidents is high. A November 2007 study in the journal Accident Analysis and Prevention found that the 2002 total cost for construction deaths and injuries in the United www.insurancejournal.com

States was $11.5 billion.

Direct costs, however, are just the beginning. The Occupational Safety and Health Administration (OSHA) cites the following as some of the common identifiable indirect costs: 1) finding and training a replacement worker; 2) repairing damaged property; 3) investigating the accident; and 4) implementing corrective action. Schedule delays, added administrative time, lower morale, increased absenteeism and poor customer relations are additional indirect costs. OSHA estimates the indirect costs of an accident can range up to 20 times more than the direct costs.

The bottom line is that accidents can erase profit margins quickly. An insurance agent or broker’s construction customers need to understand it is smart business to avoid potentially costly accidents.

and employees do. Planning for hazards and preparing employees for dangerous situations is critical. There are four key components including, but not limited to: Buy-in at the Top. When a company’s leadership team is consistent about its commitment to safety, workers know that the company is not just going through the motions of meeting OSHA requirements. Owners who talk about safety frequently, who celebrate safety successes and who insist on accountability set the pattern for everyone to follow.

Creating safe worksites can become a priority when performance evaluations and financial incentives are driven by a focus on managers and supervisors following safety rules and raising awareness of safety expectations.

Effective Safety Planning and Training.

New employees need organizaAccidents are tional as well as site specific orienConnecting to Resources training that brings them costly and the tation In addition to government up to speed on how a contractor resources for creating adequate majority of expects work to be done. Daily safety programs at construction weekly safety briefings should them may be and sites, agents and brokers can apprise the crews of what will be help contractors tap into their preventable. taking place at the site, who may insurance carrier’s expertise. be coming onsite if subcontractors Insurers are in a position to potentially know are involved, what hazards can be expected, some best practices for avoiding accidents. and finally what precautions and controls the Their risk control consultants can be used to employees are to use. assess a contractor’s practices and recommend Employee Screening. All employees improvements for the contractor to make. should be properly certified for jobs they are Insurance agents or brokers may be an espeexpected to perform, including specialized cially useful resource for small construction training for drivers, crane operators and other firms without resources for a risk manager in workers who perform dangerous jobs. connecting the firm with their carriers’ risk Screening should take place prior to hiring an management expertise. employee and continue throughout their While different construction companies employment by staying on top of deadlines for may face a variety of specific challenges, the recertification. goal should be to create a culture of safety that Site Safety. Some construction businesses permeates everything managers, supervisors continued on page N27 July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N23

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National Coverage News & Markets

P/C Industry Posts $1.3B Loss in Q1; Combined Ratio Up to 10 2.2

T

he property/casualty insurance industry suffered a $1.3 billion net loss after taxes for first-quarter 2009, which constitutes a $9.8 billion adverse swing from the industry’s $8.5 billion in net income after taxes in first-q uarter 2008. And reflecting the swing to a net loss after taxes, the insurance industry’s annualized overall rate of return on average policyholders’ surplus dropped to negative 1.2 percent in first-quarter 2009 from positive 6.6 percent in first-quarter 2008.

Insurers’ net loss after taxes for the first three months of 2009 resulted from a combination of losses on underwriting and deterioration in investment results. In first-quarter 2009, insurers withstood $2.5 billion in net losses on underwriting — more than fo ur times the $0.6 billion in net losses on underwriting in first-quarter 2008. The combined ratio worsened to 102.2 percent in the first three months of this year from 99.9 percent in the first three months of 2008, a ccording to ISO and the Property Casualty Insurers Association of America (PCI).

First-quarter 2009 financial results show that private U.S. property/casualty insurers had $437.1 billion in policyholders’ surplus (or statutory net worth) at March 31, 2009.

Insurers also had $554.4 billion in loss and loss adjustment expense reserves to cover the cost of settling claims that had already occurred and another $201.5 billion in unearned premium reserves set aside to cover losses arising during the remaining term of policies in effect on March 31, bringing the total funds available to cover losses and other contingencies to just under $1.2 trillion.

Key leverage ratios, such as the premium-to-surplus ratio, show that the property/casualty insurance industry remained well-capitalized, though policyholders’ surplus fell $19 billion, or 4.2 percent, from $456.1 billion at year-end 2008.

The figures are consolidated estimates for all private U.S. P/C insurers based on reports accounting for at least 96 percent of all business written by such insurers.

Underwriting Results The factors leading to net losses on underwriting included weakness in premiums and increases in loss and loss adjustment expens-

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es. Net written premiums dropped $4 billion, or 3.6 percent, to $106.4 billion in the first three months of 2009 from $110.4 billion in the first three months of 2008. Net earned premiums declined $2.3 billion, or 2.2 percent, to $105.6 billion in first-quarter 2009 from $107.9 billion in first-quarter 2008.

As premiums declined, overall net loss and loss adjustment expenses (after reinsurance recoveries) rose $0.9 billion, or 1.1 percent, to $78.7 billion in first-quarter 2009 from $77.8 billion a year earlier.

But ISO estimates that the net catastrophe losses included in insurers’ financial results fell to $3.1 billion — down $0.5 billion, or 13.6 percent, compared with the net catastrophe losses included in insurers’ net financial results for first-quarter 2008. Excluding estimated net catastrophe losses, loss and loss adjustment expenses increased $1.4 billion, or 1.8 percent, to $75.7 billion in first-quarter 2009 from $74.3 billion a year earlier.

According to ISO’s Property Claim Services (PCS) unit, catastrophes occurring in firstquarter 2009 caused $2.9 billion in direct insured losses to property (before reinsurance recoveries) — down 17.1 percent from $3.5 billion in first-quarter 2008.

Other underwriting expenses — primarily acquisition expenses, expenses associated with underwriting, pricing and servicing insurance policies, and premium taxes — dropped 3.9 percent to $29.1 billion through three-months 2009 from $30.3 billion through three-months 2008.

The $2.5 billion net loss on underwriting for three-months 2009 amounts to 2.4 percent of the $105.6 billion in net premiums earned during the period.

The 102.2 percent combined ratio for firstquarter 2009 is the worst first-quarter underwriting result since first-quarter 2002, when the combined ratio also equaled 102.2 percent. But the combined ratio for first-quarter 2009 is 0.8 percentage points better than the 103 percent average first-quarter combined ratio since 1986. IJ www.insurancejournal.com

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International Coverage News & Markets

Jackson’s Death and Event Cancellation; Max Cap Rejected; Still Searching Air France Crash Cause; Den Dekker is New FERMA President

By Charles E. Boyle

the Jackson tour. However, event cancellation insurance is highly specialized. A number of commentators, including Chris Rackliffe, an Michael Jackson’s untimely death, bareunderwriter at Beazley, cited in the AP article, ly two weeks before he was to begin a long have noted that few, if any, insurers would awaited series of 50 concerts stretching over have been prepared to take on the risk of an eight months, has been the world’s top story. artist with Jackson’s problems. “His prior histoIt’s also a story in London, where rumors, ry, the fact of his health and the difficulties he announcements, speculation and a great deal has had in his life over the last few years of silence sums up current knowledge about means that, from our point what, if any, event of view, he would have cancellation coverage been very high risk,’’ he may be involved. said.

Other than Jackson, Lloyd’s spokesman Bart who had hoped the Nash did confirm tour would revive his Syndicate coverage, but flagging career and declined to give any fighelp repay an estimatures, indicating only that ed $400 million in the losses would not be debts, the biggest “significant.” Event cancelloser so far seems to Michael Jackson performing during the halftime show lation policies typically be AEG Live, the Los at the NFL’s Super Bowl XXVII in Pasadena. cover the costs of canAngeles-based proREUTERS/Gary Hershorn celling the events, includmoter of the concerts, ing promotional expenses, outlays for decorawhich is part of billionaire Philip Anschutz’s tion, sets, equipment, etc. They can also cover empire. According to an article from the loss of estimated earnings from the cancelled Associated Press, it stood to collect about 5 perevent. cent to 10 percent of the gross tick et revenue However, first one has to get the coverage; of $90 million to $100 million, plus as much as then write the policy, which may be subject to $15 million from concession and merchandise a number of exclusions. London’s Insurance sales. AEG also owns the O2 Arena in East Insider, usually a reliable source, especially for London where the concerts were scheduled.

Lloyd’s, has said that there was coverage for Jackson’s fans worldwide had already puronly three out of the 50 concerts, and that the chased an estimated $90 million in tickets. A probable loss for the London market is around number of companies who sold them, starting £14.5 million ($24 million). Other estimates with AEG, but also including eBay, Seatwave, have indicated that there may be coverage for Lastminute.com and viagogo, are now faced 10 of the events. No one has said that all 50 with refunding the money. Most of them have events were covered. said they intend to do so as q uickly as possiThe Insider also said that the lead insurer ble. AEG is also facing 50 empty nights at London’s premier concert venue, which will be was Lloyd’s Talbot Underwriting Syndicate, a unit of U.S. reinsurer Validus, which responddifficult, if not impossible, to replace. ed immediately with a denial. “Talbot There will be an impact on the London Holdings Ltd. has limited potential exposure insurance community, as there is some event to any contingency loss arising from the cancellation coverage. The question is how untimely death of Michael Jackson,” said the much, and who were the brokers and underbulletin. “The company announced ... that writers that participated. So far this remains despite press reports to the contrary, Talbot is unclear. not the lead underwriter on the Lloyd’s placeAlthough Lloyd’s of London hasn’t made an ment and has a maximum net exposure of less official statement, it has acknowledged that than U.S. $3 million, net of reinsurance recovseveral of its Syndicates did write coverage for www.insurancejournal.com

eries and reinstatement costs.”

It would help if the lead insurer were to step forward. However, as they are under a duty to disclose accurately and completely what their potential exposure might be, they are understandably reluctant to go public with any information, until they can give a complete picture of the liabilities involved and the potential losses. As Lloyd’s is a subscription market, there are probably a number of Syndicates involved, and each one of them is undoubtedly busy — like Talbot — trying to figure out how much they might owe and to whom, and what amounts, if any, are covered by reinsurance. The process could take months.

The vote by the shareholders of IPC Holdings on June 12 was decisive. Seventytwo percent rejected the offer from Max Capital Group to amalgamate the two companies. The consequences came quickly.

Max Capital threw in the towel and announced that it “has terminated the Agreement and Plan of Amalgamation previously entered into among Max, IPC Holdings Ltd. and IPC Ltd. on March 1, 2009,” pursuant to the agreement.

That left the door open for IPC to a ccept the rival offer from Validus Holdings, which had been repeatedly rejected by IPC’s Board of Directors in favor of the Max Cap deal. As IPC’s shareholders (94 percent are institutional investors and private equity funds) seem to be at odds with the directors, the situation is somewhat confusing.

Validus made it perfectly clear that it was in no mood to compromise. The company issued a statement bluntly declaring that it would “seek to replace the Board of Directors of IPC Holdings,” if it is unable to reach an agreement with the IPC Board in a timely fashion. It also said its offer remains on the table.

However, IPC’s directors seem to be in no hurry to conclude a shotgun wedding with Validus. According to a Reuters report, although the directors have held talks with Validus, they are also soliciting bids from other companies, and they remain opposed to continued on page N26

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International Coverage News & Markets International News, continued from page N25

Validus’ offer, as being too low.

Standard & Poor’s gave Max Cap a vote of confidence — taking it off credit w atch, affirming its “BBB-” ratings, but with a positive outlook, indicating that they could be raised in the future.

However, S&P put its “BBB” counterparty credit rating on IPC Holdings on CreditWatch with negative implications, and also placed its “A-” counterparty credit and financial strength ratings on IPCRe Ltd. and its “A-” financial strength rating on IPCRe Europe Ltd. — IPC’s main operating subsidiaries — on CreditWatch negative, due, the rating agency said, to the “confused situation.”

Cause of Airbus A330 - Flight 44 7 crash remains unknown. Although French and Brazilian investigators have recovered 50 bodies and more than 400 pieces from the jet that crashed in the Atlantic at the beginning of June, no conclusions have yet been reached as to the

cause of the crash.

Paul-Louis Arslanian, head of the French air accident investigation agency BEA, remained hopeful that additional information would be gathered. But a short-lived report that the black boxes, or flight data recorders, had been located was quickly denied by transport ministry officials.

Air France has taken the initiative to begin compensating the families of the 228 victims of the crash. The company announced that an initial payment of U.S. $24,640 was being arranged through its legal representatives.

The company also said that all its flights using long-haul Airbus jets will be equipped immediately with new speed sensors after the disaster. The pitot tubes that gauge an aircraft’s speed have become the focus of an investigation into the crash after messages showed they might have provided inconsistent data to the pilots. An improved version is being installed on all of the Airbus A300 series.

N26 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

The Federation of European Risk Management Associations (FERMA) has elected Peter den Dekker, corporate insurance risk manager at Dutch multinational Stork, as its new president. He takes over from Marie-Gemma Dequae, whose mandate came to an end after fo ur years.

Den Dekker worked as a broker and underwriter in the industrial insurance market before becoming group insurance risk manager at the Dutch multinational Hagemeyer in 1999. He joined Stork, one of the Netherlands oldest companies, in 2006.

FERMA also elected to the board Michel Dennery, deputy chief risk officer of GDF Suez, from the French risk management association AMRAE. Stefan Sigulla of the German association DVS and Paul Taylor of the U.K. association AIRMIC continue as FERMA’s vice-presidents for 2009-2010.

FERMA is made up of the national risk management associations of 16 countries. It represents more than 5,000 members. IJ

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Closer Look Construction Safe and Sound, continued from page N23

even create a safety director position to serv e as the point person for OSHA compliance. That doesn’t mean, however, that job site safety is solely up to the safety director. Project managers, site foremen and supervisors all need to understand safe procedures and hold their workers accountable for safe practices.

Some construction companies may look at insurance as just one more cost of doing business. An insurance agent or broker can help these customers see insurers as an asset and valuable business partners.

One concrete contractor saw such a partnership pay off when an above-ground worker slipped and fell while removing concrete forms. Although OSHA requirements can be met without tie offs for some above-groundlevel work, the contractor’s insurer had convinced the company to implement a 100 percent tie-off program. The worker, secured to a horizontal lifeline, survived the fall without injuries.

No employer wants to be responsible for deaths or injuries — and no business can

www.insurancejournal.com

afford the costs and delays that come with accidents. With help from agents and brokers, including the risk management knowledge offered by their insurers, construction companies can build a culture of safety that

protects their employees and profits.

IJ

Bateson is president of Travelers Construction. E-mail: tbate son@travelers.com. Komidar is vice president of Construction Risk Control at Travelers. E-mail: jkomidar@travelers.com.

Oops … We’re Sorry The following program markets were listed incorrectly in the May 18, 2009, Program Directory. We apologize for the error .

Brecht & Associates 1450 Hughes Rd., Ste. 109 Grapevine, TX 76051 Phone: 817-424-5335; Fax: 817-424-3772 E-mail: nsopkin@brechtassoc.com www.brechtassoc.com

Brownyard Programs Ltd. 86 Carleton Ave. East Islip, NY 11730 Phone: 631-581-9300; Fax: 631-581-9385 E-mail: info@brownyardprograms.com www.brownyardprograms.com

Britt/Paulk Insurance Agency Inc. 100 Glen Eagles Ct. Carrollton, GA 30117 Phone: 800-842-8917; Fax: 770-836-8563 E-mail: ajbrown@brittpaulk.com www.brittpaulk.com

Cabrillo General Insurance Agency Inc. P.O. Box 501210 San Diego, CA 92150 Phone: 800-681-2045; Fax: 858-244-4669 E-mail: lstafford@cabrillogen.com www.cabrillogen.com

Brownyard Group 21 Maple Ave., P.O. Box 9175 Bay Shore, NY 11706 Phone: 800-645-5820; Fax: 631-666-5723 E-mail: info@brownyard.com www.brownyard.com

Cambridge Alliance P.O. Box 64998 Burlington, VT 05406 Phone: 800-691-1515; Fax: 802-864-9369 E-mail: tbougere@cambridgealliance.com www.cambridgealliance.com

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Vertafore is the leading provider of software, services and information to the insurance distribution channel including independent agents, brokers, MGAs, carriers and reinsurers, with more than 15,000 customers and 200,000 end users. Vertafore leverages a unique industry presence to deliver a broad set of interconnected solutions including agency management, content management and workflow, rating and connectivity, information solutions and producer lifecycle management to help organizations effectively respond to business challenges and capture new opportunities.

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www.aon-esolutions.com July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N29

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Digital Product Guide ** The following are paid advertisements.

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My Insurance Center™ Cover-All Technologies Inc. has been enabling Brokers, Agencts and Carriers to achieve significant cost reductions, shortened cycle times for new products, streamlined distribution, and other business benefits thorugh the use of its revolutionary software platform - My Insurance Center™ (MIC). The MIC platform is a comprehensive, flexible solution that is fast, easy-to-use and designed specifically for the property and casualty insurance industry.

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Aon eSolutions is a leading provider of global risk and insurance solutions. iVOSc Carrier Edition, specifically designed for property and casualty insurance companies, provides a powerful solution offering three modules – policy, claims and billing – delivering a complete system for business operations. iVOSc Carrier Edition is designed to have a modern, adaptable architecture – known as the iVOSc Enterprise Platform, which provides IT departments with the flexibility to align iVOSc to meet their company’s unique needs.

N30 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Idea Exchange Regional Carriers

How Independent Agents View Super Regional Carriers Survey Says Claims Service Continues to Top List of Agency Demands

By Ken St. Onge

Q

uality claims service continues to be the top factor in how independent agents evaluate their carriers, although insurers’ financial strength ratings are now a much bigger concern for agents than in the past, an exclusive survey reveals.

The survey — “How Independent Agents View Carriers: The Super-Regionals” — polled nearly 1,100 agents in all 50 states, and asked 100 questions about various aspects of their relationships with the carriers they represent, and ranked those responses in 24 categories. It’s the first survey of its kind that focuses on ag ents’ views of “super-regional” carriers, which form the middle ground between national and local insurance companies.

Claims services topped the list of q ualities agents look for, just as it did in last year’s survey — underscoring the importance agents place in carriers that resolve claims efficiently. Nearly two out of three agents called claims service a “critical” fa ctor they look for in carriers.

Insurers’ financial strength ratings ranked second most-important in the survey, a significant jump from the number five spot that factor ranked on a previous survey by Channel Harvest last year in which independent agents rated national carriers.

Nearly half of those polled said financial strength ratings were critical. The jump likely reflects recent dramatic instability in the entire financial services sector, including the government takeover of AIG. Competitive pricing was third most-valued, slipping from the number two position on last year’s list. Underwriting, too, is a major concern for agents: Nearly half of the top 10 involved some aspect of underwriting — from flexibility and availability to expertise and clarity.

“Agents placed the highest importance on things that matter to their customers, not themselves,” said Kevin Jenne, project manager for the survey and research director for co-sponsor Aartrijk. “They clearly priori-

www.insurancejournal.com

tized things such as claims service and pricing over the service and compensation they receive.”

that would give us more local sales and underwriting support and that would give us a voice when situations would arise that Agent Attitudes on Carriers would be challenging. We’d feel we’d have a The survey revealed a number of key findvoice with a large regional carrier, more ings about agents’ attitudes toward the carrithan a national carrier who didn’t give us ers they represent. the time that we felt we deserved (or) The importance of compensation is a needed.” major finding, particularly in that it ranked Also, independence is vital: Several large less important than most other carriers with strong issues. Compensation to agents brands have angered The survey was well down the importance agents with indiscriminate found that list, ranking nineteenth out of agency appointments and the 24 issues covered by the surdirect sales. These agents agents tend to vey. generally praise the favor superThe survey also revealed that strengths of these carriers, only some carriers are meeting but adamantly oppose the regionals over agents’ expectations. Insurers carriers’ competing with larger and are meeting expectations only them or undercutting their on having dedicated underwritsmaller carriers sales efforts. ers. Carriers on average signifiin nearly every cantly underperform on several About the Survey measured items in the top 10, including The survey was conductclaims service quality, undered

by Channel Harvest — attribute. writing responsiveness, and a partnership between competitive pricing. However, Aartrijk and Campbell there are some super-regional carriers agents Communications — and sponsored by listed who meet and even exceed agents’ Insurance Journal. IJ will report more selected demands in these areas. findings of the survey, such as agent attitudes on industry issues, in subsequent Agents Favor Super Regionals articles.

The survey also found that agents tend to The survey instrument covered more favor super-regionals over larger and smaller than 100 separate questions. A total of 1,098 carriers in nearly every measured attribute, agents responded to the survey and passed including pricing, customer and agent servvalidation criteria. For most general quesice, compensation and even marketing suptions in the survey, the number of responses port. This appears to reflect a preference for yielded a margin of error of 3 percent at a companies that are big enough to meet their 95 percent confidence level. Quantitative needs for coverage, technology and so forth, survey results are presented in a v ariety of while not being perceived as uncaring or formats, including rankings of frequently bureaucratic as some national carriers. This used carriers, ratings of individual carriers, preference is reflected in their placement: and comparisons of carrier ratings.

Agents on average place more of their busiThe “How Independent Agents View ness with super-regionals than with either Carriers,” is the second in a projected series nationals or small carriers. tracking agents’ views on issues in the One agent, commenting on his preference insurance marketplace. For more informafor a super-regional company over a larger tion on obtaining the survey report, contact national carrier, said he “wanted a company Peter van Aartrijk at peter@Aartrijk.com. IJ July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N31

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Idea Exchange Closing Quote

Turmoil Breeds Opportunity A Golden Moment for the Insurance Industry

By Joe Plumeri

Plumeri

I

n a time of financial turmoil, we in the insurance industry have an unprecedented opportunity. As capital providers and risk advisers in a time of scarce capital and huge risk, we should seize this moment to begin selling on value and not on price.

First, we must make the world understand and appreciate what we do. Insurance is the DNA of the modern world.

Without us, buildings don’t get built or rebuilt, victims don’t get compensated, loved ones are not provided for, planes don’t fly, ships don’t sail, goods don’t trade, careers aren’t saved, global economic life is finished and millions of people remain in poverty.

In a time of fear, we offer security. In a time of scarce credit, we provide capital. In a time of newfound risk awareness, we are the risk professionals. All of this p uts us in an exceptional position to lead.

We have learned our share of lessons over the years, and we’ve let adversity do what adversity should always do: Make us better. In 1984, the casualty market collapsed, and Ace and XL formed in Bermuda to help fill the v oid. The asbestos claims of the 1990s offered lessons on the ba d bank concept through Equitas. Hurricane Andrew shocked us into getting our act together in terms of exposure management, which led to the birth of modeling. In 2004, Spitzer ushered in the age of transparency. In 2005, Katrina taught us we could not rely exclusively on models.

If there’s an overall lesson, it’s that turmoil in the long run is in many ways better than the status quo, because turmoil breeds opportunity.

The world sees now what we’ve known for years: There is a need for greater transparency in business transactions. This is the perfect opportunity for us to showcase all we do and the value we provide, because we will need to explain why we charge what we charge, and what clients get for their money. We are not just buying policies at the best price — w e offer analysis and fight for the best possible terms.

We should take this opportunity to eliminate contingents once and for all. Contingents represent manufactured revenue, and not added value. In the age of transparency, clients will buy on value because they will see and understand the value we deliver.

The present turmoil also gives us a chance to lend o ur voices to the debate over how our industry will be regulated. The

N32 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

principles- versus rules-based debate must intensify. I, for one, will be on the side of principles-based regulation.

The current recession also will make organizations rethink the way they operate. As new business models emerge, new risk assessments will be needed. The insurance industry’s expertise can provide true enterprise risk management, which clients will increasingly demand. We will need to apply the analytics and modeling sophistication we’ve developed in the reinsurance sector to the retail side.

We need to stick to our knitting — investing conservatively and delivering the full range of risk management — but do more colorful knitting. We must be more creative, to produce new products for new risks that could include pandemics, cyber risks, global warming, and credit and political risks.

More will be demanded of us as an ind ustry and as individuals. As much talent as we have, we need more. We need underwriting expertise in new regions and in all lines of b usiness. Only then can we deliver the service clients need in a global economy, where the risks are global but the realities are also local. We have an incredible opportunity to recruit new talent. There are no more investment banks; insurance is more attractive than it’s ever been.

As brokers, we want to be more in the b usiness of giving advice, moving our focus beyond insurance transactions. We are selling an experience, not a commodity. Insurance is more than a retail transaction, it’s a partnership.

Always necessary, insurance becomes even more important during times of economic duress because companies need to aggressively manage risk. Insurance will be one of the essential building blocks of recovery. We are ready for this role.

If we take this opportunity, if we push ourselves to do better, to grow, to rise to the moment, we will not only have success, but sustainable success. Instead of the adversarial model of client versus market, and market versus broker, we can move toward a culture of partnership where everyone wins.

We can enjoy more sustainable pricing, and avoid the troughs and spikes of the hard market/soft market cycle that has such a grip on our industry. We need to continue our market reforms, promoting new technologies and processes.

Insurance has never been more important. Be proud to work in the industry. It’s cool. It works. Let us build on that legacy. IJ Plumeri is chairman and CEO of Willis Group Holdings. This article is based on a presentation he made at a conference sponsored by Insurance Day in Bermuda. A copy of the speech is available at: www.willis.com/ What_We_Think/Publications. www.insurancejournal.com

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