FLORIDA LATIN AGENTS LAAIA President Mier
DRYWALL IN THE HOUSE Chinese Product Woes
CRIST VETO UNDER FIRE Puts Nix on Condo Fix
Inside This Issue June 15, 2009 • Vol. 87, No. 12 • Southeast Region
SOUTHEAST COVERAGE 6
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| Veto of Florida Condo Glitch Bill Disappoints Many Crist Won’t Go Along with Extended Sprinkler Deadline | Florida Cuts Workers’ Comp Rates Reflects Reinstatement of Attorneys’ Fee Cap | Former Alabama Exec Gets 12 Years Workers’ Comp Broker Goff Sentenced | Citizens’ 10% Rate Solution in Effect Crist Signature Lifts Rate Freeze | Alabama Beach Pool Rates Rising Some Counties to See Drops Also
16 Chinese Drywall How Policy Exclusions Favor Insurers
11 Latin Agents Special Report LAAIA President Mier Welcomes New Agents, Copes with Old Problems
NATIONAL COVERAGE N1 | Special Report: Agency Options Financing InsurBanc’s Pettinicchi on Managing an Agency in a Troubled Economy N4 | Special Report: Agency Options Networks Social Networking for Fun and Profit N12 | Special Report: Top 100 Profile Diversification Spurs San Antonio’s SWBC to Great Heights N16 | Special Report: Agency Options Networks Assurex Global Is the Globalized Broker N22 | Special Report: Agency Options Staffing How to Make Telecommuting Work for Your Staff N24 | Closer Look: Construction Risk Management Considerations for Projects on Standstill N26 | Sotomayor Shows Record of Favoring Insurers Attorney Finds Rulings to Be ‘Very InsurerFriendly’ N28 | International Report Air France Crash Claims Could Top $1 Billion N29 | Closer Look: Construction Contractor’s General Liability Coverage Limitations 2 | INSURANCE JOURNAL-SOUTHEAST REGION June 15, 2009
11 | Latin Agents Special Report LAAIA President Mier: Welcoming New Agents, Coping with Old Problems Dealing with the Economy and South Florida Market Woes 12 | Latin Agents Special Report E&O in Translating English Policy Terms Into Spanish Providers Beware, Warns Vincent Ruiz 14 | Latin Agents Special Report Latin Middle Class Losing Ground Hard Hit By Recession 16 | Chinese Drywall: Builders, Insureds Face Uninsured Losses How Policy Exclusions Favor Insurers
6 Crist Nixes Florida Condo Law Fixes Won’t Go Along with Sprinkler Deadline
IDEA EXCHANGE N10 | Growing Your Property Casualty Agency Take Advantage of Bad Times by Hiring a Marketing Major N32 | Closing Quote: Risk, Reward and Reflection Lessons Gained from the Current Economic Storm
DEPARTMENTS 10 N8 4 18
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Business Moves MyNewMarkets Opening Note People
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Idea Exchange Opening Note Publisher Mark Wells Chief Executive Officer Mitch Dunford
Justice Benjamins
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n elected West Virginia judge should have taken himself out a case involving one of his major campaign donors, the U.S. Supreme Court recently ruled. The issue arose in coal producer Massey Energy Co.’s appeal of a $50 million jury verdict against it. By a close 5-4 vote, the high court held that West Virginia Supreme Court of Appeals Justice Brent Benjamin should have removed himself from the case because Massey CEO Don Blankenship had contributed $3 million to help Benjamin win his court seat from the incumbent. The court found that in this case, there was a serious risk that the judge would be biased. “We find that, in all the circumstances of this case, due process requires recusal,” Justice Anthony Kennedy wrote for the majority. The West Virginia Supreme Court was ordered to reconsider its decision in which it reversed— with Benjamin’s vote— an award of $50 million to Harman Mining Corp, which had claimed it has been forced into bankruptcy by Massey. Harman Mining claimed that its rights to due process had been violated by Benjamin’s refusal to remove himself from the case. But Benjamin said he could be fair and impartial as he voted with the majority in two 3-2 decisions that overturned the $50 million jury verdict. Supreme Court decision appears narrow in Eleven states also its The scope and responsive to the unusual facts of this elect insurance case. we see it as another disturbing sign of the commissioners and role But that money has come to play in all of our elecgiven that insurance tions. states elect judges. Part of the probregulators are in lemThirty-nine is that most states, like West Virginia let the many ways judges, individual judges decide whether they should themselves. There are few standards and the same potential excuse this latest ruling does not offer any, instead leaving conflicts are in play. it up to states to develop them. Eleven states also elect insurance commissioners and given that insurance regulators are in many ways judges, the same potential conflicts are in play. As we have previously repored, North Carolina has had early success with public financing of its insurance commissioner elections. In 2004, 66 percent of the funds raised by candidates for insurance commissioner in North Carolina were from interests regulated by the department. But in the most recent election won by Commissioner Wayne Goodwin, who accepted the limits under public financing, that percentage fell to just five percent. The jobs that elected judges and commissioners perform — and public confience in them— are too important to be corroded by monied conflicts of interest, real or rumored. Perhaps North Carolina’s experiment in public financing offers a lesson in how to keep judges free to consider only the facts and the Andrew Simpson law — and not fundraising — in their deciSoutheast/Midwest Editor asimpson@insurancejournal.com sion making.
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 Susan Henry, Alan Shulman Contributing Writers Gary Grindle, Timothy Kania, Gerald F. Ladner, Vincent Ruiz, John Sadler
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
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Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2009 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052
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Southeast Coverage News & Markets
Crist Veto of Condo ‘Glitch’ Bill a Letdown for Unit Owners, Agents Critics Say Florida Governor Let Fire Sprinkler Deadline Provision Overshadow Other Benefits
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lorida Gov. Charlie Crist’s veto of a condo insurance bill has disappointed condo unit owners and insurance agents who must comply with what they say is a costly and confusing existing law that would have been modified by the vetoed bill. Crist cited fire safety concerns in his veto but critics say he has overlooked other benefits of Senate Bill 714 in refusing to sign it, including correcting apparent drafting errors in the current law (H.B. 601) that was enacted in 2008. S.B. 714 would have extended the deadline for condo buildings to install fire sprinklers in common areas until 2025; as a result of the veto, the deadline will remain Dec. 31, 2014. Some condo, mobile home and cooperative associations are concerned about having to comply with a sprinkler mandate that could prove expensive, especially at a time when the economy and the state’s condo real estate market are in deep trouble and many unit owners are struggling to hold onto their properties. But in his refusal to extend the deadline, Crist said safety for residents and responders trumped cost concerns. “I am sensitive to the costs associated with installing the fire sprinkler systems, especially in these challenging economic times. However, in the event of a fire, public safety for residents and for the firefighters and emergency medical personnel who lay their lives of the line to provide services greatly outweigh all other considerations,” he said in his letter explaining his veto. He called for a study to determine the actual costs to retrofit buildings with the sprinklers and the effect on insurance premiums. Yeline Goin, executive director of Community Association Leadership Lobby (CALL), whose group called a press conference to protest the veto, said in a letter to lawmakers that “associations will be required to expend hundreds of thousands of dollars to retrofit their buildings or obtain a vote of the owners to forego retrofitting.” The bill also would have exempted some single and two-story buildings with exterior egress from fire system requirements but now they, too, will have to “spend significant funds” to comply, according to CALL, which represents about 4,000 condo and home associations.
According to Gary A. Poliakoff, an attorney “No doubt the drafter’s intent was to make it with the Fort Lauderdale law firm Becker & a unit owner obligation to carry insurance and Poliakoff, imposing the extra costs for fire be responsible for repairs for upgrades or ‘betsprinklers “adds insult to injury” to condo unit terments’ made to the improvements. But that owners suffering through the financial crisis. is not what the law says,” Poliakoff told Crist in “[E]xactly who did your advihis letter. “It imposes upon sors assume will be forced to pay unit owner(s) the obligation the special assessments to retrofor carrying insurance on, fit a condominium where 40 perand repairing if damaged by cent to 50 percent of the units casualty, all improvements are in default in payment of their that ‘benefit fewer than all assessments, or in mortgage foreunit owners.’” closure?” Poliakoff asked in a letThe current law doesn’t ter to Crist. define “improvements” and Condo owners are not the other terms, according to only ones expressing frustration Poliakoff, and the result is at Crist’s veto. In his group’s that unit owners are being Fla. Gov. Charlie Crist newsletter, Jeff Grady, president, forced to pay for insurance Florida Association of Insurance for damage to balconies, Agents, wrote: The bill would have parking spaces or garages, “After all the fuss over the storage bins, or other clarified unit ‘glitches’ in last year’s condo bill, improvements generally after all the re-drafting, the meetdesignated as “limited comowners’ need to ings, the coalitions, and striving mon elements” that are typibuy at least $2,000 cally covered by master polito explain insurance concepts to a world of those who already cies of the association. in ‘special assessthought they understood them; Current law states that ment’ coverage. we finally get the bill drafted, insurance policies must amended, and passed, and the include “special assessment governor vetoes S.B. 714. That’s right, affectioncoverage of no less than $2,000 per occurrence” ately called the ‘condo glitch bill,’ it was the for these common elements, language that has one sure to be signed into law. But it won’t caused confusion as unit owners seek out “spebecome law because of a provision dealing with cial assessment” coverage, which really doesn’t fire sprinklers!! “ exist. What the law should say, and S.B. 714 The fire sprinklers are just one concern that would have made clear, is “loss assessment covS.B. 714 was supposed to address. It also would erage,” according to Poliakoff and agents. have clarified existing laws involving condo The measure Crist vetoed would also have unit owners’ insurance. The current law changed some rules and responsibilities for requires unit owners to show annual proof of those who sit on boards of condo associations. insurance to cover not only typical hazards but But none of these changes will occur now. also at least $2,000 in “special assessment cover- Until changes are enacted, the fire sprinkler age.” The unit owner’s policy must list the asso- requirement remains in effect; basic unit owner ciation as an additional named insured. Also, coverage remains mandatory; the unit owner the law authorizes condo associations to purmust have additional $2,000 “special assesschase a policy for any unit owner who does not ment” coverage; and the association must be annually produce proof, a situation known as named as an additional insured and loss payee “force placed insurance.” on all unit owner policies. S.B. 714 would have addressed some of the “So, it’s back to square one; meaning nothing insurance issues by correcting what many see changes as we had hoped,” FAIA’s Grady wrote as language errors in the 2008 statute. to his agents. IJ
6 | INSURANCE JOURNAL-SOUTHEAST REGION June 15, 2009
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Southeast Coverage News & Markets Florida Cuts Workers’ Comp Rates After Lawyer Fee Cap Reinstated
Former Alabama Workers’ Comp Executive Goff Sentenced to 12 Years
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lorida’s insurance regulator has approved a rollback of workers’ compensation insurance rates from April 1 rates to the lower rates that were in effect on Jan. 1. The order by Florida Insurance Commissioner Kevin McCarty came as a result of Gov. Charlie Crist’s signing into law of H.B. 903, legislation that restores a cap on attorney fees and clarifies related statutory language that the Florida Supreme Court had determined to be ambiguous. On Feb. 26, McCarty had approved a 6.4 percent increase, citing the cost increases expected as a result of the Oct. 23 Supreme Court opinion in the case of Emma Murray v. Mariner Health Inc. that eliminated caps on attorney fees. The rate rollback will save Florida employers about $172 million, according to the Florida
Office of Insurance Regulation. It effectively restores an 18.6 percent rate decrease worth $610 million that took effect Jan. 1. The lower rates apply to new and renewal business starting July 1. They are based on a filing by the National Council on Compensation Insurance (NCCI). Under the new law, attorneys will continue to be paid based on a fee schedule of 20/15/10/5 percent of benefits secured. Hourly fees will not be allowed. Lawyers have argued that the cap on fees hurts injured workers’ access to legal representation. But McCarty rejected that argument. “I believe that injured workers still will have appropriate access to the legal system while also still keeping workers’ compensation rates affordable for employers,” he said. IJ
Some Alabama Pool Rates to Rise July 1
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ates for some coastal property owners insured through the residual market insurance organization known as the Alabama Beach Pool are going up July 1. The overall average hike will be 5.5 percent, according to the Alabama Insurance Underwriting Association, the pool’s official name. According to a letter the insurer sent to agents, rates are going up in Mobile, Gulf Shores, Orange Beach, Dauphin Island and Fort Morgan. Renewal rate increases will be capped at 15 percent on an individual policy basis. At the same time, rates will go down in south Mobile County, the Eastern Shore, and areas of south Baldwin County including Magnolia Springs, Perdido Beach, Josephine, Elberta and Lillian. Rates will remain unchanged elsewhere in Mobile and Baldwin. The pool provides a fire and extended coverage policy and a wind and hail only policy (written with a package policy issued by an insurance company that underwrites other coverages). Only condominiums, homes, mobile homes and commercial businesses located in the Gulf Front, Beach and Seacoast territories of Baldwin and Mobile Counties are eligible for coverage in the Beach Pool. IJ 8 | INSURANCE JOURNAL-SOUTHEAST REGION June 15, 2009
former Montgomery, Alabama insurance executive has been sentenced to 12 years in federal prison for mail fraud and embezzlement in his insurance business. U.S. District Judge Myron Thompson imposed the sentence on John Goff and ordered him to pay $5 million in restitution to XL America insurance company. Goff was once a major supplier of workers’ compensation in Alabama, Mississippi, Tennessee, North Carolina and Georgia. A federal jury convicted him in February of mail fraud, embezzlement and filing a false report with the insurance department. Prosecutors said that Goff stole millions to finance a lavish lifestyle. Defense attorneys said Goff was indicted for what was a business dispute with two subsidiaries of XL America Corp.
Federal prosecutors accused him of collecting premiums for two subsidiaries of XL America and not sending the company $4.5 million in premiums. They also accused him of lying to the state insurance department about his company’s background. The Goff Group once had more than 200 employees. The agency sold policies for Greenwich Insurance Co. and XL Specialty Insurance of Stamford, Conn. Goff’s lawyers claimed that XL America tried to force him out of business, a move they said would have allowed XL America to keep the customers without paying commissions to Goff. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Florida Governor Signs Citizens Insurance 10% Rate Hike Bill Into Law
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lorida Gov. Charlie Crist has signed legislation that will increase property insurance rates by 10 percent annually on more than one million customers of the state-backed Citizens Property Insurance Corp. and gradually reduce the exposure of the state’s hurricane insurance fund. Crist signed the bill (H.B. 1495) without any public comment. Supporters of the legislation had warned that Citizens’ customers could have faced rate increases of more that 40 percent on Jan. 1 if lawmakers didn’t allow the smaller hikes in Citizens’ rates, which have been frozen for several years. The legislation implements a
so-called rate “glide path” capped at 10 percent until Citizens’ rates are actuarially sound. The bill also reduces the state’s $20 billion exposure in the Florida Hurricane Catastrophe Fund by phasing out the upper levels by $2 billion a year over six ears. Other provisions of the legislation deal with how the state handles insurer rate filings; prohibit public adjusters from accepting referrals of business from any person with whom the public adjuster conducts business; and allow insurance agents to discuss the state’s back-up guaranty insurance fund that covers claims for insolvent insurers to consumers. IJ www.insurancejournal.com
It Figures
Travelers on The Dow
10% The increase in Atlanta’s homeowners insurance rates that is possible unless the city hires more firefighters and improves fire training. Georgia Insurance Commissioner John Oxendine said a report by Insurance Services Office (ISO) that found Atlanta’s public protection classification rating dropped from 2 to 4 on a scale of 10, with 1 being the best rating. He said Atlanta has nine months to make changes that will allow the city to keep its current rating or drop to a 3. Insurers use the rating in setting premiums.
23 The number of accidents that involved 19 employees of West Virginia’s Alcohol Beverage Control Administration over the past five years, prompting officials to enforce a long-ignored regulation requiring reviews of accidents involving state vehicles and disciplinary action.
$1 Billion The amount that the U.S. government has paid out in claims to 9,134 Tennesseans made ill from working in the nuclear weapons facilities at Oak Ridge during the Cold War. They worked at the Y-12 nuclear weapons plant, the former K-25 uranium enrichment plant or the Oak Ridge National Laboratory. Since the program began in 2001, about one in five payouts have gone to Tennesseans. Another $500 million has been paid to nearly 4,800 workers in Kentucky.
15% The increase reported in Florida property/catastrophe reinsurance rates at the June 1, 2009, renewal, compared to a decline of 15 percent a year ago, according to reinsurance specialist Guy Carpenter & Co. Guy Carpenter said this increase was largely consistent with the overall rate trend of 10 to 14 percent increases for U.S. national reinsurers.
$2 Million The total on a check delivered by Mississippi Insurance Commissioner Mike Chaney to the state’s general fund. The money represents fees collected by the Mississippi Surplus Lines Association, which collects surplus lines fees and premium taxes.
5 The number of Atlantic hurricanes expected this season by forecasters at Colorado State University. That’s down from their original prediction of six. The forecast indicates that the 2009 Atlantic hurricane season will be slightly less active than the average 1950-2000 season.
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Declarations “The selection of Travelers, a property and casualty insurance company, is intended to restore the financials industry to full representation in The Dow. When we removed American International Group, Inc. last fall, we substituted Kraft Foods, Inc. rather than another financial stock because the financials industry was then in great upheaval. That choice left financials underrepresented in The Dow, a deficiency we are now correcting.” — Dow Jones announcing that The Travelers Companies, Inc. (TRV) is taking the place of Citigroup, Inc. (C) and Cisco Systems, Inc. (CSCO) is going in for General Motors Corp. (GM) on The Dow.
Sprinkler Priority “I am sensitive to the costs associated with installing the fire sprinkler systems, especially in these challenging economic times. However, in the event of a fire, public safety for residents and for the firefighters and emergency medical personnel who lay their lives of the line to provide services greatly outweigh all other considerations.” — Florida Gov. Charlie Crist explaining his veto of a bill to fix glitches in the state’s condo insurance laws
Insurer Ruse “...State Farm is overexposed in the homeowners market and will likely not offer coverage to many of its policyholders irrespective of its freedom to charge an excessive rate. In fact, State Farm and other companies may actually use excessive rates to effectively nonrenew policyholders under the ruse of consumer choice.” — Florida Insurance Commissioner Kevin McCarty suggesting that a bill deregulating rates for large national property insurers would not help the marketplace as proponents claim.
Bad Behavior “I find your professional behavior reprehensible.’’ —Florida state Sen. Mike Bennett, R-Bradenton, demanding that Insurance Commissioner Kevin McCarty resign because, Bennett said, lawmakers can no longer trust his word. Bennett claims that McCarty had told him he would not oppose a measure designed to let large national property insurers operate without rate approval by the state.
Heck of a Job “They’re going to have a heck of a time getting somebody.” — Alan Johnson, managing director of New York-based compensation consultant Johnson Associates, on the prospects of American International Group finding someone to fill the shoes of Edward Liddy, current CEO, who is stepping down. June 15, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 9
Southeast Coverage Business Moves Hiscox Hiscox, an international specialist insurer, has opened an office in Miami to further expand its U.S. operations. The Miami office, which is located in the heart of the Brickell area, will serve brokers in the Southeast. The lines of coverage that will be initially available through the Miami office include allied healthcare, architects and engineers and miscellaneous errors and omissions. In the last six months Hiscox has added several new product lines including inland marine and construction, and opened new offices in Lexington, Ky.; Boston, Mass. and Kansas City, Mo. Hiscox plans to open a Los Angeles office by end of 2009. American Strategic Florida-based American Strategic Insurance Corp. (ASI) has entered the South Carolina marketplace and is offering homeowners’ insurance coverage for coastal property owners through independent agents. ASI President and CEO John Auer said the firm plans to eventually offer a suite of personal property insurance products in South Carolina. ASI has more than 400,000 policyholders in Texas, Louisiana, Colorado and Arizona. It specializes in personal property insurance and also offers flood coverages as a Write Your Own Flood Service Provider. The company, licensed in 15 additional states,plans to expand. The Hanover The Hanover’s CEO Fred Eppinger says the specialty lines business will be a key growth engine for the Worcester, Massachusetts-based super regional insurer in the next several years. Over the last year, revenue from specialty lines at The Hanover has grown from roughly $65 million to $500 million, fueled by a spending spree that includes the purchase or expansion of specialty products, services and companies - including last year’s acquisition of Windsor, Connecticut-based specialty insurer AIX Holdings. Eppinger’s big plans for The Hanover coincided with A.M. Best upgrading the company’s insurer financial strength ratings to “A,” the third ratings firm in 15 months to do so. Considering the state of the industry as a whole, an upgrade in the current market is 10 | INSURANCE JOURNAL-SOUTHEAST REGION June 15, 2009
rare. But viewed in the context of The Hanover’s recent history, it’s nothing short of amazing. Back in 2003, the company sat on the verge of ruin, and Eppinger led a turnaround effort to ditch The Hanover’s life insurance business to focus on its core P/C business. The financial conservatism created by the distress of the company in 2003 made Eppinger and other executives focus on underwriting, rather than investment gains, as the key driver of The Hanover. “I made it very clear that we’re in the underwriting business,” he said. “Our portfolio is very conservative around investment grade bonds. Our skill is in underwriting, and not” playing the market. That conservative, investment-wary approach partially laid the roots five years ago for the financial stability the company is now seeing, Eppinger said. The upgrade, he added, “is a very important mark in the journey we have made… this allows us to be one the most important companies for independent agents over the next two years.” The company’s capital base is $1 billion stronger than in 2003 with $400 million at the holding company level. Eppinger plans to leverage this by investing in new products and services, and bringing in talent from distressed, larger competitors. Over the short term, Eppinger said The Hanover will focus on improving specialty lines products, and providing greater access for agents to those markets. Eppinger also said The Hanover will continue to grow in niche middle-market lines for institutions, schools and nonprofits, which have also been significant revenue drivers for the insurer. All of this means growing The Hanover’s presence across the country. The Hanover currently writes in 35 states but lacks a physical presence in 30. “With the disruption in the industry, we have had agents ask us to expand,” Eppinger said. “Our footprint will grow.” AIG American International Group Inc. has reached a deal to sell two New York buildings, including its downtown Manhattan headquarters, according to a report from Reuters, citing unnamed sources. The buildings being sold are located at 70 Pine Street and 72 Wall Street. IJ www.insurancejournal.com
LAAIA Special Report Also in Latin Agents Report: • E&O in Translating to English • Latin Middle Class Declines
An Interview with Latin American Agents President Joe Mier
Florida Welcoming New Latin Independent Agents, While Still Coping with Old Market Problems LAAIA Chief Says Property Markets Will Be a Problem in South Florida Until There’s a National Plan By Andrew G. Simpson
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eing an independent agent in south Florida means never having enough property markets. That was true years ago and remains true today, according to a leader among south Florida agents, Joseph Mier, who is the incoming president of the Latin American Association of Insurance Agencies, which is based in Miami. But the perennial scarcity of property markets has not kept entrepreneurs from wanting to become local independent agents, says Mier, who says he sees new agencies starting up even in today’s economy. “I am so surprised. The amount of people who have left real estate, people from banking …… they were very comfortable at what they were doing and then all of the sudden they say, ‘Let’s try the other end.’ So we have seen a tremendous amount of small agencies springing up.” Helping new agents is one of the joys of being involved in the association, Mier says. “They’re like lost puppies. They really don’t know where to go. They find us and they start networking with agents, and they start understanding. A lot of agents will do mentoring with them,” he said. “Then of course being able www.insurancejournal.com
to make connections with companies that maybe they didn’t even know were out there, giving them markets. It is rewarding to see an agency throughout the years, a start-up agency as they grow and they progress.”
new agency, starting with Travelers. He has since added Safeco, Progressive, Mercury and others for personal auto. The property market, even back then, was tough, with state-backed Citizens Property Insurance just about the only game in town. But slowly he was able to get other companies, beginning with American Strategic, then Southern Fidelity, then Universal Property and Casualty. “Little by little our book grew with some of these
Mier’s Own Story Mier understands the appeal of being independent, as well as the challenge of being a new agency trying to find carriers to represent. Like many south Floridians, Mier is originally from Cuba, although he also had a stopover as a kid in Bridgeport, Conn. before his family located permanently in Miami. He entered insurance in 1976, starting as a life agent with Prudential before There is a mistaken impression among migrating into property/casualty with Pru and then with Allstate. He was an some companies that they must speak agent for Allstate at a Sears store. In Spanish to do business in south Florida. October 2000, he sold his Allstate business and went the independent agent smaller companies,” he said. route. “[A]t the time with Allstate it was diffiToday, Mier’s Allstar Direct Insurance and cult because we didn’t have access to property Financial Services includes a retail agency in markets at all. It was very difficult for the north Miami and an Internet presence that agents. I decided to give the independent agent promises customers online quotes on personal side a shot. It’s been very good to me,” he told Insurance Journal. and small commercial lines. There’s even a toll Back in 2000, insurance was in a hard market free number to call. “We combine old fashioned but Mier was still able to line up carriers for his continued on page 15 June 15, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 11
LAAIA Special Report Policy Translations Into Spanish Fraught with Potential Legal Issues Warning: Errors or Omissions in Translating Can Invite Class Claims Against Insurance Providers By Vincent A. Ruiz
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2008 study by the Life and Health Insurance Foundation for Education found that Hispanics overwhelmingly consider it important to own life insurance, yet nearly half think they do not have sufficient coverage. Among the main reasons mentioned for this disparity was a basic lack of knowledge about insurance products. For years, insurers have responded to this gap through various forms of community outreach, including offering products in the Spanish language. Although such efforts are laudable, and make good business sense, translating policies and related disclosures into Spanish is an undertaking fraught with potential legal problems. Some states have enacted consumer protection laws covering translated business documents. All states have laws prohibiting unfair business practices, as well as fraud in the inducement of contracts. Such legal theories could be grist for attempts to render ineffective the obligations of insureds under all manner of insurance policies—from credit insurance to private mortgage insurance, to property and casualty insurance. Some examples are instructive: • At its core, an insurance policy is a contract. Yet, in English, people talk about “buying insurance” or “taking out” a policy. Neither concept directly translates into Spanish: to
buy insurance is to “contract” for it (contratar sequence. Let’ say an insurer discloses that un seguro); taking out a policy is the term for“private flood insurance may be available on a malizar un seguro (to “enter into” an insurance limited basis in Special Flood Hazard Areas contract). (SFHA).” The translator then places the word • A policy may provide “personal liability” cov- “limited” as follows: Puede ser que un seguro erage for “property damage.” Such liability privado contra inundación limitada esté coverage is not cobertura de responsabilidad disponible en las áreas SFHA. This suggests personal, but rather cobertura de responsabilithe actual coverage is limited, when it is the dad civil. Similarly, property damage is often availability of such insurance that may be translated literally as daños a propiedad, but restricted. Moving the word “limitada” to the this is wrong because propiedad means “owncorrect place renders an accurate translation: ership,” as well as “property.” The correct Puede ser que un seguro privado contra inuntranslation is daños materiales. dación esté disponible en forma limitada en • In the insurance context, the term compenlas áreas SFHA. sación relates to “offsets” (e.g., offsets of premiCan an assortment of slight translation ums) or a “balancing” of factors (e.g., a balancerrors spread among a policy or disclosure ing of portfolio risks). Translators, however, statement expose an insurer to liability? sometimes incorrectly say that uninsured Perhaps not, but even a few significant errors motorist coverage pays compenwithin crucial provisions— sación in the event one is injured such as incontestability by a driver without insurance. clauses—are more likely to Some states Instead, such coverage pays una engender potential claims have consumer brought by an entire class indemnización por daños y perjuicios (legal compensation for protection laws of affected insureds. damages and losses) suffered in Moreover, if key wordcovering trans- ing from the English lanan accident. • Comprehensive insurance guage document is misslated business should not be translated as ing from the transladocuments. seguro de cobetura completa (a tion—e.g., the words rather meaningless statement “not” or “maximum” are concerning “complete insurance coverage”); inadvertently omitted from the original rather, it is seguro de cobertura multi-riesgo translation—the potential for liability may (“multi-risk” insurance). increase, regardless of the accuracy of the • If we say that existing remaining translation. coverage has been modified Insurers should always take special care to into “paid-up insurance,” assure that Spanish translations of insurance we do not mean that is it is documents fully comply with the intent of un seguro redimido their English counterparts. It is not only good (“retired” or “redeemed”) for business, but also a wise form of coverage but rather that is un seguro against needless liability. IJ liberado de prima (insurance for which no addition- Ruiz is an attorney with Ruiz Law Group in San Francisco. His practice includes assisting insurers and financial institual premiums are due, given tions in ensuring that their Spanish language translations are current or prospective cash consistent with applicable law. He can be reached at values). vruiz@ruizlawgroup.com. “Authorship of this article does • The syntax of a translanot create an attorney-client relationship, and the content is tion can have a subtle, yet not legal advice.” potentially sweeping con-
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www.insurancejournal.com
LAAIA Special Report Latino Middle Class Security Weakened in U.S. Before Recession Millions of Families Experienced Economic Decline Since 2000
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s the economic downturn continues, a new report finds that millions of African Americans and Latinos lost economic security between 2000 and 2006, and that more than four out of five are either borderline or at high risk of exiting the middle class altogether. The report, “The Downslide Before the Downturn” shows some worrying trends in America’s households, including: • In 2006, before the recession, most U.S. middle class families (76 percent) were already economically insecure, with only 24 percent experiencing stability. However, when the numbers are broken down demographically, only 16 percent of African Americans and 12 percent of Latinos experienced such security. This is a dramatic decline from 2000, when the national average was 29 percent, 26 percent for African Americans and 23 percent for Latinos. • In 2006, 88 percent of Latino and 94 percent of African-American households lacked sufficient assets to weather a financial emergency, up from 82 percent and 89 percent in 2000. • The median value of financial assets held by African Americans declined by 33 percent in the six year period, while those held by Latinos declined by 60 percent during the same time. • From 2000 to 2006, median housing costs increased 9 percent for African American households and 7.5 percent for Latinos. • During the same period, the number of fami-
lies in which at least one member lacked health insurance increased—from 18 percent to 30 percent for African Americans and from 26 percent to 39 percent for Latinos. “These results show the precarious position of families who struggle to make it into the middle class amidst policies that do not support broad economic opportunities. Even before things started to slip, African-American and Latino middle-class families were already on weaker footing, a position that sets them up to lose more ground than they can afford in the current economy,” said Jennifer Wheary, coauthor and a fellow at the policy center Demos. “The decline in assets experienced by these families is particularly alarming,” said Tom Shapiro, professor and director of the Institute on Assets and Social Policy at Brandeis University. “Most of these families had few assets to start with. With the value of these assets declining just as families need them most, they will not only find it difficult to weather uncertain times, they’ll also experience setbacks that will be felt by future generations.” The Downslide Before The Downturn: Declining Economic Security Among Middle Class African Americans and Latinos, 20002006” was published by the policy center Demos and the Institute for Assets and Social Policy (IASP) at Brandeis University. IJ
Latino Market Growing Twice as Fast as General Consumer Market
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This is according to MarketResearch.com ‘s new report, “The Hispanic (Latino) Market in the U.S.A.: Generational View, 7th Edition.” One finding is that consumer attitudes and behavior of Gen-Y and Gen-X Hispanics are different from those of their non-Hispanic counterparts, while Latino Boomers think and act differently than non-Hispanic boomers. This suggests that strong cultural ties continue to differentiate Hispanics from non-Hispanics, regardless of age and degree of acculturation. IJ
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www.insurancejournal.com
s their buying power nears $1 trillion, the 46 million Hispanics now living in the United States wield a powerful influence on the American consumer economy. Between 1995 and 2007, expenditures by Hispanic consumer units grew more than twice as fast as expenditures by non-Hispanic consumers. The impact of Latinos on American society will get even stronger. The 133 million Hispanics in the U.S. in 2050 will account for 30 percent of all Americans.
LAAIA Special Report continued from page 11
service with cutting edge technology,� says the Web site. His northern Miami location serves what he calls a “very diverse� clientele that is far from exclusively Latino. Only about 30 percent of his business comes from Latinos. �You have a lot of Europeans, there’s a lot of French, there’s a lot of Haitian folks in this area, a lot of Latinos. So it’s a very mixed area,� he said. Capacity Solution Lack of capacity has been a problem for south Florida agents ever since Hurricane Andrew slammed the state in 1992 and it’s likely to remain a problem, Mier believes, until the federal government gets involved. “I don’t think that we’re going to have a real solution to the Florida property market until there is a national program similar to what they did with flood,� he told Insurance Journal. “All we’re doing, we have a huge, huge wound and we keep putting band-aids on it. We’re always thinking that this band-aid is the one that’s going suture it up and fix it and it’s not going to happen. It’s never going to happen.� There is an ongoing debate whether property insurance rates for Citizens, frozen since 2006, and those of private insurers in Florida, are adequate. State Farm says it is leaving because the state would not approve rate hikes, although Insurance Commissioner Kevin McCarty claims that the insurer is really leaving because it is overexposed in the state. New legislation will raise rates charged by Citizens while another bill to deregulate the rates that large carriers including State Farm can charge is on Gov. Charlie Crist’s desk. Mier is sensitive to insurers’ need to have adequate prices but also to the plight of consumers. “I’m sure that it’s something that has to be done. Probably Citizen’s wasn’t priced correctly; they’ve had a freeze. ...[I]t’s going to be another burden on the citizens of Florida because the way the economy is, it’s just another additional burden on them. Any time you raise rates or taxes, it’s a burden on our customers,� he said. Mier is also concerned that rate increases could further harm the state’s real estate market, which has shown signs of improving but remains among the top in foreclosures in the nation. “Now if companies are allowed to charge whatever they feel they want to charge in the state of Florida, that could possibly open up more markets. But by the same token, is it www.insurancejournal.com
affordable? What is it going to do? Is it going to hurt the real estate market?â€? he asked. Mier says personal auto and workers’ compensation in Florida are working just fine but the property challenges carry over into commercial lines. “Florida’s such a huge state, where you have markets in central Florida and northern Florida that are not available to the agents in south Florida, whether they’re Anglo, Latino, whatever. There’s a lot of companies that will not write general liability in south Florida. They just don’t want to do it here,â€? he said. Language Barrier The majority of LAAIA’s membership is in south Florida—in Dade, Broward and Palm Beach counties. Mier thinks the reluctance of some companies to do business in south Florida is due to their mistaken impression that they must speak Spanish to succeed in the region. “I do know that sometimes ‌‌ and I’m not just trying to speak about insurance companies but maybe inspection companies, wind mitigation companies, companies that are insurance-related in some way‌‌ and I’m try-
ing to see if they’ll if they’ll come down to our trade fair or our convention and they’ll say, ‘But we don’t habla espanol.’ And I say, ‘You have to understand, we’re communicating in English. All our business is conducted in English down here.’� Dispelling the myth of a language barrier is one of the challenges he will face in July when he takes over from Nestor Rivero as president of LAAIA at the group’s annual meeting at the Westin Diplomat in Hollywood, Florida. As president, he’d like to see LAAIA grow by taking advantage of interest shown by other Latin agencies across Florida and in other states. “Right now, the majority of our member associates are in Dade County. We’re having a lot of success growing into Broward County, which is our adjacent county. And there’s a lot of interest in the mid-section of the state, to have a chapter there, and in the Orlando and the Tampa areas,� he said. “We even get calls where they want to start chapters in places like Texas and Michigan and different areas where you have emerging Latino populations.� IJ
Florida Surplus Lines Association Annual Convention July 30, 2009 – August 1, 2009 Boca Raton Resort & Club Boca Raton, FL 9LNPZ[LY6USPUL!^^^ÅVYPKHZ\YWS\ZSPULZHZZVJH[PVUJVT -VYX\LZ[PVUZVYYLNPZ[YH[PVUTH[LYPHSJVU[HJ[! Roger Gobler, Executive Director 7O! VYY[NVISLY'Q\UVJVT June 15, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 15
Southeast Coverage News & Markets
Policy Exclusions Favor Insurers But Builders Can Be Protected By John Sadler
— Kevin Prior, CEO
www.SeeHowWeSeeIt.com
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Let us tell you why at:
“We see your success as our success.”
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Chinese Drywall: Builders, Subcontractors, Home Owners Facing Potentially Massive Uninsured Losses
eneral liability carriers specializing in contractor insurance for builders and drywall subcontractors are “sweating it out” over the potentially massive claims dollars that could be paid out in litigation, settlement, and adverse jury verdicts arising from Chinese drywall. However, due to the impact of little known policy exclusions, and evolving case law in many states, general liability carriers may escape liability for all or a significant percentage of claims, leaving builders and trade subcontractors facing huge uninsured losses and potential bankruptcy. From the point of view of the home owner, these claims will not likely be covered by homeowners insurance. To the extent that the damages are not covered by the policies of builders, subs, and distributors, home owners will incur devastating out of pocket losses. There is a lot at stake for all parties because the damages on a per house basis are likely to be astronomical. The lawsuits will allege that the fumes from the defective Chinese drywall have resulted in corrosion damages to all metal parts of the house including electrical systems, copper piping, HVAC and other metal fixtures. In addition, it will be alleged that the nonmetal parts of the house have been damaged by foul smelling and noxious sulfur dioxide fumes. Some experts may claim that the drywall can be sealed, but this approach is unlikely to be accepted by home owners. Most lawsuits will likely ask for the total removal and replacement of all drywall and electrical systems as well as other building materials that may have been contaminated by the fumes. Next, add damages for remediation or replacement to household contents for exposure to corrosive and foul smelling fumes. Top this off with the possibility of bodily injury claims due to adverse health consequences to occupants due to exposure. Pollution Liability Exclusions All contractor general liability policies include a standard exclusion for liability arising
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from the “actual, alleged or threatened discharge, seepage, release or escape of pollutants.” Pollutants are defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Based on this broad definition, carriers will take the position that the fumes released from drywall fall under the policy definition of pollution. Exception to Exclusion Fortunately, the standard policy language includes an exception to the exclusion for pollution that results from the products or completed operations of an insured. In There is a lot at other words, stake for all parties the insurance carrier can’t use because damages the pollution on a per house exclusion to deny a claim basis are likely to when the pollube astronomical. tion arises after the house has been sold. Unfortunately, many general liability policies that are sold to contractors include a Total Pollution Exclusion that does not allow this same exception. The presence of the Total Pollution Exclusion (or similar exclusion) on a policy will allow the insurance carrier to deny all damages and legal defense. The successful use of the Total Pollution Exclusion, if upheld by the courts, will have a devastating impact on all defendants. Emerging Case Law In the event that the Total Pollution Exclusion is not present in the general liability policy or if it is not ultimately upheld by the courts, claims adjusters will have a fallback www.insurancejournal.com
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Performed By Subcontractors On Your Behalf (CG2294) or a similar exclusion, find out if the insurer provides a buyback for an additional premium. • Ask an insurance agent if any insurance carriers are available that don’t use exclusion CG2294 or have a less severe version that covers resulting property damage to the builder’s no- faulty work. • Purchase a pollution liability policy.
We see the business of insurance through your eyes
uilders are advised to protect themselves from future construction defect and pollution claims by implementing the following practices: • Implement mandatory subcontractor agreements with all subs including insurance requirements for general liability, hold harmless/indemnification provision, and a requirement for all subs to participate in arbitration proceedings. • If the builder’s general liability policy includes the Exclusion-Damage To Your Work
“We see strong client relationships being built on trusted advice.”
B
www.SeeHowWeSeeIt.com
How Builders Can Protect Themselves
— Kevin Prior, CEO
blog on the Web site, www.contractor-insure.com.
Let us tell you why at:
position in their quest to deny a significant per- Drywall Subcontractors centage of Chinese drywall claims. As a result As concerns drywall subcontractors, their of the construction defect crisis, most carriers general liability policies will not cover property specializing in builders insurdamage to their work ance began to insert special (drywall) but will cover exclusions around five years resulting property damMany general ago to escape liability for conage to other parts of the liability policies struction defects. The most house and contents. common exclusion entitled sold to contractors Their policy will also “Exclusion: Damage cover bodily injury to include a Total To Work Performed occupants. In addition, By Subcontractors Pollution Exclusion. their policy will likely On Your Behalf” trigger a full legal (CG2294), virtually defense of all claims. eliminates all property damage liabiliAssuming that both the builder and drywall ty for damage to the builder’s faulty subcontractor have general liability insurance in work itself (drywall) and resulting force continuously from the completion of the damage to the builder’s non faulty job to the filing of the lawsuit papers, their work (corrosion to electrical systems, combined policies won’t likely cover the cost to copper piping, HVAC, and other tear out and replace the drywall. Such a repair metal fixtures). job represents a huge undertaking and will be Existing case law in many states has very expensive. resulted in claim denials for construction U.S. suppliers of Chinese drywall will defect under the theory that property damage undoubtedly participate in these lawsuits with to a builder’s work is not considered to be an both builders and drywall subs. Plans for class “occurrence” or accident and thus the policy action lawsuits are already underway. Under a should not act as a warranty. Therefore, the worst case scenario, some U.S. suppliers may end result in these states is the same as the run out of general aggregate limits under their application of exclusion CG2294. general liability policies and it is unlikely that However, general liability coverage under the Chinese manufacturers will share in these builder’s insurance policy will still likely apply claims due to the difficulties in enforcing judgto property damage to contents and bodily ments against foreign manufacturers. IJ injury claims by occupants. Since most lawsuit Sadler is president of Sadler & Company Inc., which has a papers are likely to allege at least some covered damages, coverage will still be triggered for the contractor insurance division that specializes in insuring home builders, remodelers and light commercial general contractors entire legal defense for all claims at the in the Southeast. This article previously appeared in Sadler’s expense of the insurance carrier.
J. Sadler June 15, 2009 INSURANCE JOURNAL-SOUTHEAST REGION | 17
Southeast Coverage People
Kendra Corman
Stephen Keep
Burns & Wilcox reported that Kendra Corman has joined the company as its new marketing director. Corman is responsible for managing the company’s advertising and marketing initiatives, which includes overseeing new product launches and developing e-mail marketing strategies, agent incentive programs and advertising campaigns to support Burns & Wilcox’s international presence. Prior to joining Burns & Wilcox, Corman was the advertising manager for Jeep at Chrysler LLC. She was responsible for the print, television and online advertising programs to support the Jeep brand campaign as well as the new product launch of the Jeep Patriot and Jeep Liberty. Connecticut-based insurance consulting firm Conning & Co. has named Stephen W. Keep as director. An experienced marketing executive in U.S. insurance asset management, he will be based in Hartford. Keep will be responsible for marketing Conning’s investment services and products to insurance companies in the U.S. and Bermuda and will team with Conning’s Client Business Development group. Prior to joining Conning, Keep was business development manager for insurance companies at Wellington Management where he marketed a broad range of investment approaches to both regional and global insurers. He began his career in 1985 at Goldman Sachs.
Teresa Long
Jonathan Young
Teresa Long has been named director of Agency Services for the Institute of WorkComp Professionals (IWCP), a national network of workers’ compensation professionals. Long will be working with IWCP member insurance agencies and their workers’ compensation claims processing and injury management procedures, helping agencies arrange medical clinic relationships, developing back-to-work programs, conducting seminars for employers and providing training for the IWCP’s Certified WorkComp Advisors. Long was most recently vice president of Risk Management for Sarasota, Fla.-based Unisource Administrators, Inc., a managing general agent and third party claims administrator, where she was responsible for client services. Previously, she was claims manager for Walt Disney World and vice president of Sarasota International Risk & Insurance Services, a third party claim administrator for self-insured and large deductible clients. Long was instrumental in the founding of the Association of Workers’ Compensation Claim Professionals and a board member and regular speaker for the Florida Workers’ Compensation Institute for over 20 years. ACE Limited has named Brian Dowd as vice chairman, ACE Ltd. and ACE Group Holdings. He currently serves as chief executive officer of ACE’s North America division. Dowd will assume corporate-wide executive responsibility for global product underwriting boards and the strategy and purchase of the company’s reinsurance programs. Dowd joined ACE in 1995 and has held a number of senior
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management positions with the company including president and chief executive officer of ACE Westchester, president of ACE Specialty P&C Group, senior vice president of Property for ACE Bermuda and, most recently, chairman and chief executive officer of ACE USA. Pennsylvania-based Harleysville Insurance has named Jonathan Young senior vice president and chief claims officer. Young will oversee all claims activities, including oversight of the home office central claims unit and its four regional claims service centers. Before joining Harleysville, Young was the managing partner of the New York office of Sills Cummis & Gross, and a member of the firm’s litigation practice group. Prior to that, he was the managing partner of Reed Smith’s New York office, and a member of the firm’s executive committee. Brenda Wallace joined the workers’ compensation division of Atlanta, Ga.-based Risk Innovations. Wallace has more than 25 years insurance experience including more than 20 years working with a national insurance carrier. Most recently, Wallace worked with a national workers’ compensation broker. The Navigators Group Inc. has opened a Pittsburgh office of Navigators Management Co. Inc., its principal underwriting agency subsidiary. The office will serve western Pennsylvania, western Maryland, Ohio and West Virginia. Robin Betza will head the new office in a newly created position as regional vice president, Three Rivers Region. She most recently held the same position at AIG/AIU Holdings where she spent the last 21 years of her career. The office will initially handle directors and officers liability, excess casualty, and middle market property casualty products, coordinating with underwriters in other Navigators offices to access products including environmental casualty, marine insurance, onshore energy, life sciences and other specialty products. The Independent Insurance Agents & Brokers of America awarded the 2008 Sidney O. Smith Award to Bobby Bramlett, president and CEO of The Bramlett Agency in Ardmore, Okla. The award is the association’s highest individual government affairs honor. Bramlett has been an active member of the Big “I” at the national and state association levels since starting his career as an independent agent in 1975. The Swiss Re Group appointed Rudolf Flunger as head of Insurance & Specialty, the division responsible for commercial insurance, industrial insurance, large corporate risks and specialty reinsurance. Flunger succeeds Agostino Galvagni, who was recently named Swiss Re Group’s chief operating officer. Flunger will now focus on growing insurance and specialty operations in the mid-size and large commercial insurance market. IJ www.insurancejournal.com
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Special Report Agency Options - Financing
Managing an Agency in a Troubled Economy InsurBanc’s Pettinicchi on Agency Financing Options
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nlike many businesses, independent insurance agencies do not need to access credit on a daily basis. But when the time comes that an independent agency needs access to credit and cash, it is usually due to an event driven need, such as the working capital required to bring in producers, the money required to buy another agency or to open a branch office, or even to finance an internal perpetuation plan. So, if and when an agency needs credit, it needs to happen fast. In this interview with Insurance Journal’s Andrew Simpson, InsurBanc’s Executive Vice President and Senior Lending Officer Bob Pettinicchi offers insurance agencies tips on how they can access credit when they need it, why it’s a good time to examine banking relationships and services offered to agencies, and why now more than ever is a good time for agency owners to invest in their own agency.
payments on a timely basis gives the bank a good indication of how well a business loan will be repaid. In the case of an agency, the agency principals are really the machinery that drives that agency. We expect those agency principals to stand behind their agency. IJ: Would you ever recommend that an agency principal either loan money to its own agency or in the reverse, borrow money from its own agency? Pettinicchi: Certainly, we would recommend that they don’t borrow from their agency. Usually you would like to see an agency principal get compensated in the form of a salary or a draw, but not a loan from the agency, because that ends up being an asset that is hard to quantify; it is not a strong asset of the agency. In the case of an agency principal lending money to an agency; that’s usually regarded as a good thing. It shows that the principal believes in the agency and usually moneys that are lent to an agency, they usually stay in that agency and would be repaid after other creditors are paid. So, it is like a form of capital. great
IJ: How does an agency protect its access to credit? Pettinicchi: An agency, like other businesses, has to operate in a fiscally responsible manner by This is a maintaining a good payment time for owners IJ: What about cash manhistory on credit they have agement in these ecoobtained, maintaining good to examine nomic times? Is it more personal credit standing for their banking important for an agency the owners of the agency, to conserve cash now, adhering to best practices, and cash and what can they do to running their business like a management. improve upon that? business, collecting the Pettinicchi: This is a great receivables timely, paying time for agency owners to examine their their bills timely. banking, specifically how they manage their daily depositing to a bank and their cash IJ: How important is an owner’s own management. An agency principal should credit rating to the operation of the want to deal with a bank that is stable and business and their ability to access that provides value and services for them; capital for the business? services that they really need like cash Pettinicchi: Well, very often insurance agenmanagement, remote deposit taking, the cies don’t have a longstanding record of borability to sweep funds into investment rowing money, so when they need to borproducts (and) having ready, online access row money, a bank would not only look at to information. the financial standing of the agency, but also the financial standing of the individuIJ: Do you think these services have als that own it. Their propensity to make www.insurancejournal.com
Web Video To view the video series, Managing an Agency in a Troubled Economy, visit www.insurancejournal.tv. been taken for granted in the past or not really paid attention to? Pettinicchi: I think a lot of people take their banking relationship for granted and feel that they are getting the best deal from their bank if they are not paying much for it, or if they are getting free services. Truly nothing is free. There is a cost to everything, but a prudent agency will examine their banking relationship in the way their policyholders will examine their insurance from year to year. Don’t take the banking relationship for granted. IJ: In these times, there are bound to be more ‘no pays’ and ‘slow pays’ for agents. Any advice on how to best handle accounts receivables in this economy? Pettinicchi: Try to manage them carefully. Try not to extend terms to your clients. Avail yourselves to premium financing for those. Why be in the lending business? Leave it to the experts. IJ: Agents have probably in the past not worried too much about the financial soundness of their banks. But given the financial situation today and so much talk about banks being in trouble, has that changed? Is that something that agents should be paying a little bit more attention to? Pettinicchi: Well, you can’t help but pay continued on page N2
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Special Report Agency Options - Financing Trouble Economy, continued from page N1
attention to it because it is on the news constantly. An agency principal should want to deal with a stable institution, one that is going to be there for them, one that understands their business. Many banks right now are having significant financial problems because the quality of their loan port-
folio is not doing as well as it should because of these times. … All of our clients are independent insurance agencies located around the country. As strong as that industry is, it represents the strength of our bank. The bank is only as strong as its clients.
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IJ: So, actually having independent agents as customers insulates your bank somewhat? Pettinicchi: To a degree, yes, absolutely. IJ: The $700 billion bailout package, among other things, raised the FDIC limits. What does that mean for your customers? Pettinicchi: That means that right now the limit that was $100,000 per account has been increased to $250,000 per account. Also, the limit was completely lifted on accounts that are noninterest bearing, such as business operating accounts. So, this should give agency owners a lot more confidence to deposit money in their bank, in particular at the increased coverage level on the noninterest bearing accounts. IJ: So, that is a better situation for independent agents and customers of banks in general? Pettinicchi: Agencies may hold a significant amount of money in a fiduciary capacity. You want to make sure that that money is absolutely safe. IJ: What about investment strategies for agencies going forward, any advice? Pettinicchi: I think that agency principals might want to think a little less about taking money out of their agency so they can invest it in the stock market. … Look at opportunities to invest in their own business. If you think about it, their insurance agency is a perfect business in that they control it, they don’t have to report to the street quarterly results, and they could take a long-term perspective that many companies can’t take. If you do the right things — you adhere to best practices, you have a strong sales culture, you keep your risk low and make sure that you run your business so that you can readily access credit, you will have opportunities. IJ: Are you saying that one of the best investments for an agent might very well be his or her own business? Pettinicchi: Oh absolutely. IJ www.insurancejournal.com
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Special Report Agency Networks – Social Media
Social Networking for Fun and Profit Why Agents Should Use Twitter, LinkedIn and Facebook to Build their Brand By Ken St. Onge
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hether it’s used to market new insurance products or interface with current clients, social media is transforming the insurance industry landscape — and fast becoming a key tool for agents who want to grow their business. That’s according to two insurance industry branding gurus: Peter van Aartrik, CEO of branding and communication firm Aartrijk, and Rick Morgan, a senior associate with the firm. Recently, Morgan and van Aaartijk sat down with Insurance Journal to discuss how insurance agents can — and should — tap these technologies to change the way they interact with clients and build their businesses. Their thinking: If an agency isn’t using social media yet, it should start. Soon. At its simplest, social media refers to the use of Web sites to connect with peers, clients, competitors and the public at large. It’s a very simple concept that has very complicated and powerful implications. As a tool for insurance agents, social media can be leveraged to attract new customers, market new products and brand an agency by harnessing the power of the Web. And increasingly, as the Internet becomes more and more a part of every day, the use of social media seems likely to grow. So knowing how to use it will be a major key to any business — be it an insurance agency or otherwise — that is looking to remain relevant. “On a macro level, social media is nothing more than networking using technology,” Morgan said. “It’s the same kind of networking that we’ve all done forever ... now we’re using the Internet.” It’s powerful. At its core, Morgan said, it’s a tool that can help Main Street insurance agents return to the hallmarks of their profession: building relationships. For a long time,
independent agents “feared that relationships would go away, everything would be all about price, and insurance would become a commodity. What’s exciting about social media is that it allows agents to get back to a past time, to hook into a very human need to have trust, and do business with people with trusted relationships. This is a very exciting time, and I think it feeds right in to the independent agency world and how they want to do business.” Social Networking 101 There’s a huge range of social media sites on the Internet, but three of the most useful for insurance agents are Twitter, LinkedIn and Facebook. Although they overlap in some ways, each has its own functions, audience and niches. Facebook is probably the biggest. The site claims more than 200 million users worldwide, and is growing every day. Although it began as a site for college students to exchange photos and other information, it’s increasingly attracted an older crowd — the fastest growing demographic on Facebook, for instance, is women age 55 and older. Users can post photo galleries, connect with old friends, join groups and trade information about what they’re doing. It’s the same basic principle as another social networking site, LinkedIn. However, LinkedIn is focused largely on professionals, a fact that is underscored by the tone, look and feel of the site, which overall is more business-like. It’s most commonly used for business networking and recruitment, but users can do many of the same things Facebook offers. Twitter, the social networking site of the moment, is a little different. The site allows a
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Web Resource The podcast, Agency Management Done Right, Episode 2: Social Media, may be accessed online at www.insurance journal.tv/videos/2434 user to post short messages — 140 characters — which are available to anyone on the Internet, and are delivered immediately to the user’s “followers.” People can post links to articles, photos or anything else they want. Users build a following by continually posting content and links to share with others. Which one should an agent use? “I wouldn’t say one is better than the other for an agency,” Morgan said. “It’s extremely important for any business jumping into social media to have an overall strategy, and then to pick the tools, or choose the tools or assess the tools that make most sense for what it is they’re trying to accomplish. There’s a synergistic value that comes by using more than one. So it’s not just about picking one and saying that’s it.” Peter van Aartrijk agreed. “Maybe another way to look at it is to say: ‘What do insurance agents do now to grow their business?’ They do a lot of face-to-face and telephone work. Telemarketing. A lot of out-bound. The meeting space they’re used to, whether it’s a chamber of commerce or Kiwanis or whatever, that still exists. But social media is like that on steroids, because you can reach a lot more people a lot quicker.” Both Morgan and van Aartrijk advised agents to start by diving right in. “You can go on Twitter, Facebook or LinkedIn and very easily begin to build a presence for your agency,” van Aartrijk said. “It doesn’t take that long to set up, and once you start playing around with these things, you can see incredible implications for growing and servicing insurance, and it’s just starting to emerge.” Try not to get overwhelmed, Morgan said. “A great suggestion is for people to get started by just playing. Do it on a personal, noncontinued on page N6 www.insurancejournal.com
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Special Report Agency Networks – Social Media
Social Networking, continued from page N4
threatening basis so it doesn’t have to be, necessarily, connected to your business, which is threatening to a lot of people. Get on Facebook and put in a profile. Find out how many of your old high-school or college friends find you and connect with you, just to get a sense of how all this works.” Mixing Personal and Professional One of the concerns many social networkers have is about the implications of mixing their personal and professional lives, which can happen often in a group where clients and personal friends share information. There can also be concerns about employees getting involved in discussion boards, posting comments and sharing material that hasn’t been vetted. “This is a huge bugaboo for a lot of people, particularly corporate lawyers who are really scared, but even agency owners can be scared about what’s going on, ” van Aartrijk said. “In the old days, the corporation would be sort of defined by what it would send out. It would reach out and touch people with direct mail,
telemarketing and so on. It was very one way.” Social networking is redefining the concept of the brand. Now, the people who receive information about a business are reshaping the way that business communicates with its clients and potential clients. “It’s becoming really about the consumer, the customer, even the prospect owning your brand more than ever, and responding to it,” van Aartrijk said. The idea of consumers owning a business brand can be very powerful. For agencies that already communicate with their clients regularly through newsletters, account rounding calls, and e-mail, adding in social networking could build even more trust with clients. “Agencies can use these tools to help make their presence more viable, more aware, and more interesting,” Morgan said. Set Some Rules Agencies that want to tackle social media head-on should create an agency-wide approach for how they are going to do so, van Aartrijk said. “Take a look at the tools, experi-
ment. Bring in everybody. Everybody should be looking at what this impact could be for the agency,” he said. Agency managers should create some boundary lines, too. “There ought to be some rules about ‘what are we going to blog about, what are we going to Twitter about, what is our corporate Facebook page going to look like,’” van Aartrijk said. “You’ve got to give some thought to it.” Added Morgan: “Like anything in an agency, whether it’s technology or any other process, it needs to be managed and monitored. We’ve got procedures for phone answering and response and conversations. When e-mail came out, we did the same thing. Social media is really no different. … Part of the strategy, part of the management and part of the monitoring is all something that needs to be taken into account as companies begin to participate.” IJ This story was based on an installment in the podcast series, Agency Management Done Right, hosted by Wells Publishing CEO Mitch Dunford.
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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. Contractors General Liability Market Detail: London American Risk Specialists Inc. (www.londonamericantx. com) brings agents a commercial general liability (CGL) market for residential and commercial general contractors (GCs). Work done on the GC’s behalf by sub-contractors is covered in this program. Program allows the option for use of uninsured and underinsured sub-contractors. Roofing contractors, artisan contractors and general contractors are the program target classes. New ventures are eligible. Occurrence, sunset or claims made forms are available for use. Minimum premiums begin at $750 for artisan contractors and go up to $4,000 for roofing contractors. Deductibles begin at $1,000. Available Limits: $1 million to $2 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: All except N.H. and N.Y. Contact: Chris Chiodetti at 713-977-7726 or email cchiodetti@londonamericantx.com.
Green Building Consultants E&O Market Detail: ELM Insurance Brokers Inc. (www.e-o.com) offers a new liability product designed for green building consultants accredited in programs such as LEED, Energy Star, Green Globe, EarthCraft, HERS and NAHBGreen. Coverage is also available to insureds who conduct green education seminars, green marketing consultants and green technical writers. Registered users of www.e-o.com or ELM Insurance can quote these products online. Minimum premiums begin at $1,300 with minimum deductibles starting at $2,500. Available Limits: $500,000 to $5 million. Carriers: Unable to disclose. “A+” rated by A.M. Best. Admitted and non-admitted. States: All. Contact: Fred Fisher at 310-322-1301 or e-mail ffisher@e-o.com.
Security Guard & Alarm Liability Market Detail: Izzo Insurance Services Inc. (www.izzoinsurance.com) brings 25 years of
specialization to agent’s security guard and alarm industry clients. Izzo offers these classes of operation primary general liability, following form umbrella coverage (including errors and omissions protection) and four workers’ compensation markets. Fidelity bonds and employment practices liability protection are also available. Minimum premiums begin at $2,500 and deductibles begin at $1,000. Available Limits: Starting at $1 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Admitted and non-admitted.
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States: All except Alaska. Contact: Scott Newell at 800-800-1704 or e-mail snewell@izzoinsurance.com.
Construction Managers & Consultants E&O Market Detail: Travis-Pedersen and Associates of Arizona offers a comprehensive policy to cover construction managers and consultants. Coverage is available to cover the various services provided by construction managers and consultants including: 1) acting as the owner’s representative or agent; 2) constructability reviews; 3) value engineering; 4) schedule development; 5) establishing preliminary and working budgets; 6) consulting on design, utility and building costs; 7) reviewing contractor qual-
N8 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
ifications; 8) monitoring contractor and design team performance; and 9) construction claims management. Available Limits: $500,000 to $5 million. Carriers: Various “A+” Rated by A.M. Best. Non-admitted. States: Ala., Alaska, Ariz., Ark., Calif., Colo., Conn., D.C., Fla., Ga., Hawaii, Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.J., N.M., N.Y., N.C., N.D., Ohio, Okla., Ore., Pa., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis., Wyo. Contact: Matt Gervin at 480-281-3850 or email mattg@travped.com.
Land Surveyors Program Market Detail: Agency Marketing Services (www.agencymarketing.com) offers a professional liability program for land surveyors and land surveying firms. Protection is available for independent surveyors, employed surveyors and surveying firms. Several carriers are part of this program. Carriers do not require a full application; the applicant only needs to answer nine questions. Minimum premiums start at $1,200 and deductibles begin at $1,000. Available Limits: $250,000 to $5 million. Carriers: Unable to disclose. “A” rated by A.M. Best. Non-admitted. States: Ala., Colo., Conn., Fla., Ga., Mich., Miss., Nev., N.J., N.C., Ohio, S.C., S.D., Texas, Vt., Va. and Wis. Contact: Keith Alexander at 800-542-2805 or e-mail kalexander@agencymarketing.com.
Bio-Fuel Manufacturers Casualty Market Detail: International Excess Agency Inc. (www.intlxs.com) offers agents access to liability protection designed specifically for manufacturers of bio-diesel. The program also allows agents to offer time element pollution liability coverage to both premises/operations and products/completed operations losses. coverage can be provided on either an occurrence or claims www.insurancejournal.com
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made coverage trigger. Defense is in addition to the coverage limits. Other unique features include: a zero deductible option; medical payments coverage; worldwide coverage for products suits; coverage for shortterm business activities and $100,000 product withdrawal expense coverage. Minimum premiums begin at $15,000. Available Limits: Up to $2 million. Carriers: General Star. “A++� rated by A.M. Best. Admitted and Non-admitted. States: All. Contact: Kenneth Kukral at 216-797-9700 or e-mail kkukral@intlxs.com.
Pharmaceutical & Medical Device Manufacturing Market Detail: MarketScout (www.marketscout.com) provides access to coverage for companies in the life sciences industry including those involved in pharmaceutical, biotechnological and medical device
manufacturing. We offer flexible options, which allow us to adapt to this fast-paced and rapidly changing field. Products available include: general liability with products coverage; automobile liability; workers’ compensation; property insurance and product recall. Targeted risks include: pharmaceutical companies with less than 50 percent in generic drug manufacturing; accounts that manufacture 25 or more products; domestic and foreign exposures; and manufacturers conducting their own clinical trials. Minimum premiums begin at $25,000 and deductibles start at $5,000. Available Limits: $1 million to $25 million. Carriers: Unable to disclose. “A� rated by A.M. Best. Non-admitted. States: All. Contact: Norman Alberigo at 972-932-4275 or e-mail nalberigo@marketscout.com.
Market Detail: Francis L. Dean & Associates Inc. (www.fdean.com) brings agents a market for general liability and participant accident insurance for motor sports facilities, race teams, special events and more. Coverage is offered on an admitted basis with immediate underwriting and policy issuance. Minimum premiums begin at $500. Available Limits: $1 million to $2 million. Carriers: Starr Indemnity & Liability. “A� rated by A.M. Best. Admitted. States: All except Calif. Contact: Michael Dean at 800-745-2409 or e-mail mdean@fdean.com. Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com.
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Idea Exchange Growing Your Property Casualty Agency
Take Advantage of Bad Times by Hiring a Marketing Major Enhance Your Survival by Finding Light Within the Darkness Shulman
By Alan Shulman
T
he economic landscape is mired in ty at far less cost to them than they could in darkness. Bankruptcies and foreclobetter times. It’s a win-win arrangement that sures have risen to frightening levels, may last no longer than the recession, but it’s while the stock market languishes in still well worth the hire. Here are just a few despair. The high rate of unemployment has a ways that they can help. dreadful impact on downsized employees and their families, particularly those who have no 1. These nascent experts can develop recogimmediate prospects. It also makes the world nizable local brands that are not entirely appear bleak for recent coldependent on company reprelege graduates who seek to It’s important for Agency survival sentation. enter the workforce for the your long-term survival. first time. And in our indusAccept representation as a depends on try, an increasing number of privilege, but not as your busimore than raw once proud insurers are ness identity. Look at the being bailed out by the selling skills; it 3,400 or so car dealers who American taxpayer — or askrecently fired by demands smart were ing to be. Chrysler and GM. Something similar could happen in the But as Leonard Cohen, the marketing as agency business as well. venerable poet and songwell. 2. Trained marketers writer notes, “...There is a understand the concept of the crack, a crack in everything. unique selling proposition (USP). Essentially, That’s how the light gets in.” And the light, in the USP convincingly differentiates one sellour context, is the ability of insurance agener’s offerings from another’s, motivating a cies to use aspects of this economy to their buyer to switch. This classic theory originated business advantage. in the 1940s, while print and radio were the dominant ad media. Today, there are endless Insurance as a Fallback ways to grab a prospect’s attention and to In times of unemployment, selling insurcommunicate with them, both online and off. ance looks more appealing than ever. Agencies Young grads are familiar with them all, on find a seemingly endless supply of producer both business and social levels. wannabes. But the potential problem here is 3. Too many commercial producers are disthat by the time a new agent is fully trained organized in their new business solicitation and approaches profitability, they quit, returnprocesses. Marketing majors can help agents ing to their previous career, once times get and their CSRs to logically identify and probetter. In other words, you’re just the rebound fessionally solicit and follow-up on their most boyfriend and not the groom. You can gamble salable leads. These efforts might include sales by hiring these folks to sell for you, or you can planning and tracking, marketing material hire some new college grads as short-timers to modification or development, direct marketenhance your long-term survivability. ing test campaigns, etc. 4. A large selection of agency Web sites are Hire a Marketing Major screaming for a redesign. Many haven’t been Un- or under-employed college grads, with seriously modified since the 1990s. Some, but fresh business degrees in marketing, are anxnot all, marketing grads can help agents to ious to apply their lessons to the real world. update theirs, while concurrently performing Agency offices can offer them this opportuniN10 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
other much needed in-office services. 5. Ideally, this individual will bring real value to your office and want to make insurance his or her career — but you can’t count on it. It is wiser to presume that the recent grad will accept your job while simultaneously seeking a better-paying position elsewhere. So make certain that they invest a healthy portion of their time with you training others in the agency and leaving systematic marketing breadcrumbs for staffers to follow after their departure. Survival Time Agency survival depends on more than raw selling skills; it demands smart marketing as well. A full-time marketing professional is a desirable addition to any P/C insurance office. These professionals provide a sense of purpose and order to an agency’s promotional efforts, much like an IT pro manages your computer systems. Hiring an out-of-work grad is an affordable way to test the waters, without investing big dollars. Many are glad to work for modest pay because it gives them resumequality job experience that they can use once the economy kicks back into gear. But if the fit is right, the young expert you hired may elect to stay on and become a permanent and indispensable part of your team. IJ Shulman, CPCU, is the publisher of “Agency Ideas,” a subscription-only sales and marketing newsletter. He is also the author of the “Illustrative Insurance Sales Letter” series and other P/C sales resources. Phone: 800-724-1435. E-mail: alan@agencyideas.com. Web site: www.agencyideas.com. www.insurancejournal.com
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They
INSURANCE JOURNAL
TOP100 AGENCIES Left: Gary Dudley, president and co-founder of SWBC Right: Charlie Amato, chairman and co-founder of SWBC
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Do THAT, Too! Diversification Spurs San Antonio-Based SWBC to Great Heights By Stephanie K. Jones
C
harlie Amato says Gary Dudley got him into the insurance Even so, sometimes customers’ product requests are declined because business. Dudley doesn’t deny it, and why should he? From they don’t make sense or because they would be too short lived, Dudhumble beginnings as entrepreneurial partners selling ley explained. But, he added, when a client requests a product, “we insurance out of the trunks of their cars, the two have creresearch it with a lot of other clients that we’ve had long term relationated a world-class diversified financial services company — with 13 ships with and they can be a judge, and say ‘yeah, we would like that divisions and offices throughout the United States — that generates product as well.’ Then we’ll proceed with developing that product and nearly a billion dollars in annual revenue and employs 1,250 people. building it.” There’s no doubt that with the hundreds of prodFor more than 30 years Amato and Dudley have ucts and services the company has to offer, it is operated San Antonio-based SWBC as a 50-50 partTop 100 Agency Profile diversified. Insurance agency? Check. Risk managers? nership and neither would have it any other way. Ranking No. 13 Check. Insurance company? Check. Real estate? Friends and fraternity brothers in college, Amato (ranking based on 2007 figures) Check. Technology? Check. Mortgage origination? went into banking after graduation and Dudley Check. Employee benefits and wealth management? entered the insurance business after serving in the Agency Name: Check. Plus reinsurance, equities brokerage, collecMarines, and as a coach and teacher. SWBC tion services, call center, insurance wholesaler — “I worked for a company that sold specialty Headquarters: the list goes on. products to credit unions, insurance products,” San Antonio, Texas “Everything interconnects,” Amato said. For Dudley said. “It was a small company out of Year Founded: instance, SWBC owns 51 percent of a real estate busiMichigan. And they hired Charlie. He was in San 1976 ness. We’re “an insurance agency, and we own an Antonio and I was Houston. We were basically just 2008 Total P/C Premium: insurance company, and we have money to invest,” he sales people, worked out of the trunk of our cars. $645.3 million said. “So besides putting money into CDs and stocks, That company, we determined after a short period 2007 Total P/C Premium: equity, corporate bonds, we thought real estate of time didn’t have the clients’ best interest at $481.0 million would be another investment for us, to give us anothheart. They didn’t treat their customers and 2008 Other than P/C: er option. So basically everything we do is connectemployees the way we felt like they should treat $176.5 million ed.” And, “if you think about it, all those projects them. So Charlie and I left and formed SWBC. We 2007 Other than P/C: have to be insured,” Amato added. didn’t call it that in the very beginning but that’s $232.7 million who we were.” % Commercial: 62% An REO Niche That sense of fairness and the dedication to %Personal: 15% Early on, SWBC developed a recognized expertise treating their customers and their employees with 2008 P/C Revenue: in insuring real estate owned (REO) properties — a the utmost respect remains the foundation of the $246.3 million niche that grew out of, again, clients’ interests. The company today and it has served them well — as 2007 P/C Revenue: company’s involvement in the niche began “years and has their determination to diversify the company, $158.7 million years ago as a request from some of our clients that both geographically and product-wise. Agency Principals: were starting to repossess properties,” Dudley said. SWBC’s corporate slogan, We Do That Too, “realCharles Amato, Gary Dudley Having previously written coverage through ly tells the story,” Dudley said. “When we started Number of Divisions: Lloyd’s of London, Dudley and Amato turned to we were selling insurance products to financial 13 Lloyd’s for help developing a product to protect institutions,” Dudley explained. “We started out Number of employees: financial institutions and their repossessed, unoccuwith one product. As a result of the client liking 1,250 pied properties. While it’s been a profitable business how we delivered and did what we said we were for some time, the REO sector has been a real growth area for the going to do, they’d ask us for another product.” company during the current economy and SWBC is one of the top two Most of the products and services SWBC offers have been developed agencies in the country for this type of product. at the request of a client and that makes good business sense, Amato Standard insurance companies “don’t have the appetite to insure says. After all, the more products you can sell to one client the more vacant property or empty property. So that’s why REO insurance has cost efficient those transactions become. become so popular in today’s environment — because it’s designed While diversified, all of the company’s products and divisions are related and complementary, and they all begin with the customer. continued on page N14 www.insurancejournal.com
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SWBC, continued from page N13
A Broader Mix specifically for repossessed properties that are unoccupied,” Amato While the percentage of REO business in SWBC’s property casualty explained. division increased from 17 percent in 2007 to 23 percent in 2008, com“REO was a nice, diversified part of the agency” when he joined mercial lines continue to make up the bulk of the division’s writings. the company in 2006, said Nick Grant, CEO of the Property and In 2008, commercial lines represented 62 percent of the P/C business, Casualty division of SWBC Insurance Services. By the end of that down slightly from 2007. Personal lines came in at 15 percent in 2008, year the country was headed into a difficult mortgage market, folcompared with 16 percent in 2007. lowed by the economic downturn and tightening of the credit On the commercial side the agency writes a wide variety of SIC market. codes. However, Grant said, “every agency leans towards certain “The whole mortgage industry started sliding and that’s when industries. … We do a number of banks; we’re very good at doing they started taking properties,” Grant said. “Seeing that, Gary and banks. We’ve been very successful with property managers, commerCharlie urged me to develop more of a marketing arm.” Grant then hired a producer whose “sole job is to ‘We started out with one product. As a result of the client liking cover the whole United States, reaching how we delivered … they’d ask us for another product. … So we’d out to anybody that create that product and build it for them.’ services a mortgage and may be taking properties back.” cial buildings, multi-purpose office buildings, we have great markets Some of the institutions currently being forced to take properthere. And for whatever reason the agency has gravitated toward ties back have never had to do that before, so it’s a sensitive issue, restaurants. We write a lot of the nicer, high end restaurants here in Grant said. The REO program can insure the property against hazSan Antonio and we have excellent markets in that area, as well.” ards and flood, among other things, and can be set up to do so on a The agency also serves a broad mix of small, medium and large month-to-month basis. “Our program is an extremely cost effective, business customers. user-friendly program,” Grant said. “It allows monthly billing. And “We have our share of smaller accounts,” Grant said. “We’ve been the reason I point that out is that the properties have to be successful in partnering with companies like Hartford and Travelers insured, and we believe we go about it in the most cost effective, that will make small account servicing, or what we call special efficient manner for the institutions.” account servicing, for the smaller client.” And, he added, SWBC has the ability to underwrite the program SWBC’s growth is linked to its customers’ growth, he explained, and tailor it to clients’ specific needs. and with small businesses it’s especially important to handle their accounts in a cost effective way. “We’re sensitive to that. … [We] realize that a start-up restaurant may not represent a huge premium, but then it picks up and takes off, and you’re part of the growth process.” The agency also sees growth opportunities in middle market accounts, especially in construction accounts, which is an area of special expertise for Grant. “When I came in, the agency was predominantly a white collar business, no real blue collar construction or artisan contractors, and I’d cut my teeth in this industry on construction,” Grant said. So he went on a search for the right people to help grow a concentration in construction, general contractors, subs, artisan contractors and the like. Now, SWBC has an experienced construction team that includes a producer, a CSR, and loss control and claims personnel. Grant added that SWBC writes a number of large-sized accounts, as well. Dudley and Amato “have never met anybody they didn’t think they could insure,” and that attitude filters down throughout the organization, he said. “You could be Frank’s Palette Manufacturing down the road or you could be any large corporation. They wouldn’t hesitate to ask the CEO of Southwest Airlines or anybody else — why aren’t we writing your insurance?” Whether an account is large, small or medium-sized, or whether Left to right: Nick Grant, CEO Property & Casualty Division, SWBC Insurance Services, it’s personal lines or commercial, one thing the agency strives for is to Charlie Amato, chairman and co-founder, SWBC, Gary Dudley, president and co-founder of make sure its customers’ exposures are protected appropriately. “We SWBC, Bill Pegel, CEO Financial Products, SWBC N14 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
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INSURANCE JOURNAL
TOP100 AGENCIES make every effort to get our prospects, our clients to understand that we’re not insurance sales people,” Grant said. “Our producers are people that go in and expose risk. We go to a client and look at their exposure and make sure they’re fully aware of what’s at risk. And then we provide options to insure the risk.” Embracing Technology SWBC has experienced tremendous growth since its founding in 1976, but in the past four years it has more than doubled in size. One enabling component of SWBC’s success is its total and complete embrace of technology, which both Dudley and Amato both see as yet another example of expansion into an area of business that complements the company’s existing strengths. “We’re a high technology company,” Dudley said. “We have 100 computer programmers on our staff, for instance, to design programs and keep our systems running.” SWBC in 2008 increased its technological investment by buying a stake in Pennsylvania-based Akcelerant Software LLC, which develops software, including collections software, for the financial services industry. And recently, SWBC made an additional investment to facilitate the purchase of one of Akcelerant’s Canadian competitors. “A lot of our financial institutions — credit unions and community banks — use this collections software,” Amato said. As a result of the investment, SWBC established a payment reminder services unit that makes after-hours soft collection calls for clients. The calls are made from a facility SWBC built two years ago — a spacious, light-filled, state-of-the-art contact center large enough to house 400 employees. The proprietary software tracks accounts that are past due and collection personnel make payment reminder calls. In addition, the call center staff can take payments while the customer is on the line.“The results have been remarkable,” Dudley said. “The financial institution hires us on their behalf,” he added. “We started that about two years ago before we knew what the economy was going to do, as a request from one of our clients. That has turned out be our fastest growing division.”
Basketball, Automobiles and the World
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hile SWBC owners and founders Gary Dudley and Charlie Amato both acknowledge that the company is very much their life, they do participate in few side projects apart from SWBC. And like all other facets of their world, there are connections. The two are investors in the San Antonio Spurs basketball franchise, and Spurs’ star and point guard Tony Parker serves as a “goodwill ambassador” for SWBC, appearing in ads and marketing campaigns for the company. Dudley and Amato together also own four automobile dealerships in San Antonio, in which they employee more than 200 people. The dealerships don’t use the SWBC moniker, but in the spirit of interconnection, they do sell its products and the company handles the insurance for the dealerships’ properties. While world domination may not be the goal, expanding SWBC’s horizon is always in order, according to Amato and Dudley. SWBC owns a Bermuda-based reinsurance company, SWBC Re, and they are in the process of becoming a corporate name in Lloyd’s of London, Amato said. There’s the possibility of investing in a retail operation in London, as well. Also, says Amato, while “we’ve never taken the time to do it because we’ve been so busy, but the software that we were telling you about earlier that tracks for financial institutions? I truly feel that if we ever told that story in Europe, especially in the current economic crisis, there would be a demand for our software.” IJ
the referring employee gets $200. Once an employee successfully refers five new hires, they get an extra $1,000. So, for referring five people who are a good fit, the referring employee can make $2,000. SWBC also compensates its employees well, Amato says, “because we feel that’s the only way we can compete with the public companies. Some people here are making a lot of money and we’re proud of that. We have some people who over a period of years have made more money than Gary and I … and we love it.” SWBC encourages each of its 13 division leaders to run their units ‘We’re a high technology company. … We have 100 computer as if they owned them, Dudley programmers on our staff ... to design programs and keep said. It makes for a very entrepreneurial atmosphere and one that our systems running.’ allows the company to “turn on a dime,” as Amato says, and react An Entrepreneurial Spirit quickly and efficiently to their clients’ needs. Because SWBC is Like many business owners, Amato and Dudley are quick to credit privately held, if a manager comes to one of the owners — to distheir management team and employees for the company’s achievecuss ideas or for an investment in their division — unlike in a ments. “I’d stand up and put our 1,250 people against any company in publicly traded company, they can give that manager an immedithe country,” Dudley said. “They just have that — ‘I want to help, I ate answer. want to take care of the client’” — attitude. Amato said they’ve been encouraged to go public and have been Both Amato and Dudley stand firmly behind the notion that if “you approached by equity firms interested in investing in SWBC, but hire the right people, they hire the right people,” Dudley says. And so far they’re not interested. Going public would not fit the combelieving that talented people associate with talented people, they pany’s business model, Amato said, “because it would take some put their money where their mouth is — they pay their employees to of our entrepreneurial creativity away from us. If we want to refer potential employees to the company. form a new division and lose money for three years, that’s our If a referred employee stays on the job a minimum of six months, privilege — we can do it and we can afford it.” IJ www.insurancejournal.com
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Special Report Agency Networks
The Globalized Broker Network Assurex Global Struck Gold with Partners Around the World By Charles E. Boyle
A
ssurex Global wasn’t fully “global” until the late 1990s, when it changed its structure to meet the challenge of an increasingly integrated insurance market. Assurex, which is actually a partnership of the top independent insurance and risk management brokers worldwide, (www.assurex.com ), was founded in 1954. Over the next 30 years or so it developed a strong presence in the United States and Canada. It also established some links with international, i.e., non-U.S, affiliates. “However, they had no shares and no voting rights,” explained John Rodwell, vice president, International Business Development, in a telephone interview. “That began to change in the late ‘90s,
as we realized we had to get bigger, or decline.” As a result, he explained, Assurex altered its basic structure. The group is set up as a corporation, with each member/partner owning shares in the enterprise, electing directors and setting group policy, as well as serving on the committees that oversee Assurex operations. Partners are selected from the most competent and dedicated independent agents and brokers, according to the group. They are committed without reservation both to their independence and to providing top quality service to their clients. Assurex members occupy a large niche, or second tier, market — between Marsh, Aon and Willis, or companies such as A.J. Gallagher and Lockton —
N16 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
Assurex Global Year Founded: 1954 Locations: 500 offices on six continents Employees: 20,000 Annual Premium Volume: $28 billion Annual Revenue: $3.4 billion and smaller agencies. It’s a model that fits like a glove with U.S. firms in the same market — see Insurance Journal’s Top 100 Independent Agency Profiles — and it has propelled Assurex Global to the top spot as the “world’s largest privately held brokerage group,” according to its Web site. In total, Assurex has 110 partners, who collectively write more than $27 billion in premium volume from more than 500 offices in 80 countries. continued on page N18 www.insurancejournal.com
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Keeping a restaurant running smoothly is no simple task. Travelers IndustryEdgeSM covers the complexities unique to this demanding industry. Our risk control professionals understand your clients’ concerns, and can help identify and reduce exposures that could result in injuries or damage. Contact your local Travelers Commercial Accounts representative to see how our customized coverage and service can help your clients stand the heat that comes with running a kitchen. ©2008 The Travelers Companies, Inc. All rights reserved. The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183
travelers.com
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Special Report Agency Networks Globalized, continued from page N16
establish a presence outside of Europe. “We The Expansion Trail were seeking an international network that The growth from being essentially a United States and Canada network to a glob- would generate cross border business,” said Flach, and “we particularly sought a partner in al one has been remarkably swift. Ten years North America.” ago the existing shareholders, realizing Enter Assurex, which was looking in the Assurex had to grow, instituted a sea change. other direction. The four companies became They contributed a substantial amount of new Assurex members in July capital, earmarked for expan1999, forming the cornersion, and began to seek likely stone of its international firms to join the network ‘We’ve become operations. from outside the United much more “Joining Assurex was States — as full partners, coabsolutely essential for our equal with existing domestic effective in terms future,” Flach continued. shareholders. of understanding “They are the same as us.” They soon struck gold. In Both the European and 1997, Aon bought the U.K.the nature of the American partners are based broker Frank B. Hall, global economy independent, dynamic, which had established a network of partners that includand the exigencies highly skilled, and focused on the welfare of ed, as they are currently of international their clients. Both cater to known, France’s Verspieren the middle market — Group, the U.K.’s HSBC trade.’ from large commercial Insurance Brokers Ltd., enterprises to smaller Germany’s Leue & Nill firms. That model has guided Assurex since its GMBH, and Italy’s GPA Pulsar. beginning, and continues to do so. “As we did not want to become part of Aon, Further expansion followed. “We now look we formed our own group,” explained Jérôme at it [Assurex presence] on a region by region Flach, directeur adjoint (assistant director) for basis,” said Rodwell. They are: The United international operations at Verspieren. Their States and Canada; Latin America; Europe; the network, Synérgie, was the largest independMiddle East and Africa (EMEA); and ent broker network in Europe, based on its Asia/Pacific. He explained that the Assurex member’s strong presence in the European board of directors now consists of representaUnion’s four largest economies. tives from each of the regions. But, the four companies realized that, if “We no longer just meet North American they were to expand further, they needed to
80
67
International
66
20
65
Benefits of Having Partners Those “details” are an important part of what Assurex offers its members. “What’s great about Assurex is that it’s not a huge global broker,” said Ron Wanglin, chairman of Pasadena, Calif.-based Bolton & Co., a longtime Assurex member. “We can call on regional brokers across the U.S. or abroad.” Depending on what kind of business is involved, Bolton either cooperates with other Assurex partners in solving problems and placing coverage, or, usually where smaller firms are involved, gives the business to the broker who’s best placed to handle it. “We work with the client and with our partners, and we strive to be the best, but we continued on page N20
Assurex Global Partners’
Number of Asssurex Global Partners US & Canada
needs; we also see what the rest of the world needs. We’ve become much more effective in terms of understanding the nature of the global economy and the exigencies of international trade.” The Web site explains: “We can tailor client programs to meet specific regional or local needs nearly anywhere in the world. Clients deal directly with the Assurex Global partner in their own market. In turn, the partner works with other Assurex Global offices around the world to expertly serve the clients’ needs. It’s a simple way for clients to manage an often complex insurance portfolio without losing personalized, local service. We manage the diverse details so that the client doesn’t have to.”
Premium Volume (billions)
US & Canada
65
60
15.3
15
41
40
International
46
12.5
47
13.2
10.6 10
8.4
6
5.7 20
5
17
1 0
1996
2000
2004
Source: Assurex Global N18 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
2008
0
1996
2000
2004
2008
Source: Assurex Global www.insurancejournal.com
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Special Report Agency Networks Globalized, continued from page N18
chart our own course,” Wanglin said. “It’s not all done in Chicago, or New York.” Part of that process, he noted, is being sure that the partners they deal with have the same high standards. One of Assurex’s greatest strengths is that it assures that each partner meets that criteria, Wanglin said, describing it as a “guaran-
tee of best practices,” adding that partners have to “live and breathe Assurex.” Partner relations within the United States are relatively simple. The language is the same and for the most part so is the legal system. Assurex domestic partners have built personal relationships with their counterparts over the
years. Beyond the United States’ shores it gets a bit more complicated. “International business requires dealing with different languages and different cultures,” said Flach. “Even if the international business language is English, each part‘It’s a question ner has their own of language, point of reference.” Over-coming those culture and barriers is part of communication.’ what Assurex does. Flach described his main activity as being a “gatekeeper.” Not so much in the sense of keeping people out, but guiding them to the right person within Verspieren who speaks their language and has the requisite expertise to handle the specific business they require. “It’s a question of language, culture and communication,” he said, adding that “Assurex is the key” to gaining the necessary understanding to be able to reach a successful conclusion. Assurex’s business model is predicated on having one firm for each country outside the United States. Rodwell explained that this prevents unnecessary competition and promotes openness. As a result, agent and broker partners in developed countries are usually a good deal larger than their U.S. counterparts. They have to be in order to have the expertise and the capacity to handle the multitude of different types of business that comes through Assurex. Verspieren employs more than 1,400 people, with offices in most major French cities, as well as branch offices in Spain and Portugal. However, another foundation of Assurex’s business model is to eschew standardization. Assurex members greatly value their independence and would resist any attempt to impose uniform procedures, modeled on the United States, or on any other type of operation. “Each region has its own approach,” Flach explained. “Just as each state in the U.S. is different, each country has its own peculiarities. Our goal is to meet those regional needs.” Selection Process and Oversight Dedication alone, however, isn’t sufficient to be admitted to one of the world’s most exclusive clubs. As the Web site says: “Every Assurex Global Partner is carefully selected following a
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rigorous (and ongoing) evaluation process.” A prospective partner is chosen by a committee when the need to expand the association becomes evident. “What we want to do is review and refine the partnership network,” said Wanglin. “We’re not interested in filling in dots on a map.” “Initially we define the need,” said Rodwell, “then we see what carriers they [a particular broker] work with. We telephone affiliates and we ask Assurex partners who, in their opinion, might fit our criteria for that region.” That’s just for openers. “We are looking for quality brokers, who are responsible and who function as we do,” said Wanglin. “Can they offer multiple coverage? What is their local reputation? How strong are their financials? Do they have broad capabilities?” Assuming a candidate meets all of the above, Assurex undertakes a comprehensive “due diligence” examination. The final step involves personal meetings with Jim Hackbarth, Assurex current president and CEO, as well as with the board of directors and the selection committees. “We’re very selective, because we realize that one bad apple can spoil the whole barrel,” said Rodwell. Once a broker has joined Assurex, however, they remain under scrutiny. “All firms are evaluated every three years,” said Rodwell. “Our evaluation committee looks at whether they are still a strong global player; are they participating with other partners? And are they helping others to become better partners?” It is essentially a “peer review” process. www.insurancejournal.com
impose them, which gives each partner more freedom as to how they serve their customers.” Transferring knowledge and expertise has never been easy — even within the same company. Assurex first tackled the problem with its United States and Canada partner network. Following its expansion those efforts took in the global partners. The association recently developed a new tool — Passport — to make it easier to transfer expertise from one region or country to another. Wanglin explained its usefulness by citing the example of Mercedes-Benz. The auto manufacturer has plants or does business in the United States, Mexico, France, Germany and Italy. “We are able to put all of the documents, policies and related information into the Passport system, so that everyone involved can Over the years, very few partners have left Assurex. “It does happen,” said Rodwell, but he receive by instant communication all of the data necessary. It doesn’t have to be shuttled could only remember three or four occasions when it has. The reasons were either financial, back and forth by e-mail or snail mail.” In another example he posited a broker who or because the firm involved lacked the same needs information on writing country club principles and dedication as the other partrisks — a field that it hasn’t worked with ners. before. “If you send out a call for information to Given the rigorous selection process, the Assurex partners on Passport, you’d have more ongoing peer reviews, as well as the twice information than you’ll ever need about country yearly board meetings, and regional meetings clubs.” The system has been in operation for between the partners, it’s not surprising that almost four years, and, Wanglin said, “we’ve so few have left. Joining Assurex is not like pretty much worked out all the bugs in it.” joining the local Lions Club. “It’s really like an That statement could apply to Assurex as extension of our own firm,” said Wanglin, we well. Its system has proven itself over time. It count on the reciprocity; we work with our combines both loyalty clients and our partners; it’s a and flexibility, and has ‘win-win’ situation. Plus avoided becoming too they’re good people; I’m ‘It works because static to accommodate happy to meet with them.” the partners are new risks, new technology, and above all new Passport to the Future committed to partners. “We’re not yet In return for that commiteach other. But at maturity, we’re still at ment Assurex partners get the development stage in more than a few business ultimately it’s a number of countries” leads. The reciprocity princiall about people.’ said Flach. ple means they can call on “The Assurex business the support of other memmodel has held up for over 50 years, through bers of the network any time they need it. generations of changes,” said Wanglin. “It While the growth in technology has made works because the partners are committed to global cooperation easier, Assurex remains a each other. But ultimately it’s all about people. people to people business. The Internet hasn’t The senior partners explain the value of done away with face to face meetings, which, Assurex to their employees, so that they Wanglin said, “happen frequently.” understand, and are engaged at various levels.” “Each country has its own needs,” he conThat commitment bodes well for Assurex’s tinued, “there are no definitive answers, therecontinued success. IJ fore we look for solutions, but we don’t June 15, 2009 INSURANCE JOURNAL-NATIONAL REGION | N21
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Special Report Agency Options - Staffing
How to Make Telecommuting Work for Your Staff Constant Communication Helps to Keep Remote Employees Motivated to Succeed Henry
By Susan Henry
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elecommuting is increasingly popular in today’s business world. It cuts operational costs for the employer, while allowing employees the convenience of working from their home offices. While telecommuting has proven valuable for many organizations, it requires a non-traditional approach to management. From communicating to measuring productivity, you must alter your management style to accommodate your off-site staff. Here are a few techniques to ensure happy and productive telecommuting employees. Telecommuting Not for Everyone Make sure those you hire are positioned to succeed. Telecommuting is not for everyone. Certain employees will thrive as telecommuters while others need more constant supervision and direction. Keep this in mind when you are hiring on new employees or transitioning current employees for telecommuting roles. In the interview, make sure that candidates have a demonstrated history of success working in an independent environment. Stress to candidates that the individual selected will be expected to work with limited direction. Entry-level employees or those who require constant supervision are not good candidates. Provide comprehensive training for the role, and lay out your exact performance and productivity expectations. Communication is vital to maintaining an effective and functional relationship with offsite employees. Make a point to talk with each of your employees at least once a day —
even if that means reserving time on your calon their own — without your feedback. endar. Do not rely solely on e-mails and Unlike a regular office environment, teleinstant messages — pick up the phone and commuters cannot go to lunch to discuss call your employees. Schedule weekly one-onwork-related issues. Give them outlets to one meetings to review performance and to communicate on a personal level. Try to get set goals and objectives for the group together face-to-face the week. This will proquarterly. If they live in the Telecommuting same area, have them assemble vide formal, uninterrupted time to go over any project once a month for a team meetis not for difficulties or general work ing or lunch. everyone. issues. Make time for casual Utilize Available Technology conversation. Personal connections play a In addition to the phone and e-mail, a large role in job satisfaction and retention. In wealth of technology is available to assist a typical office environment, these connectelecommuters. Explore your communication tions occur naturally. However, when you do options and be open to all available technolonot see each other everyday, it is easy for gy. Invest in internal systems that can track phone calls and e-mails to become strictly productivity and allow you to review workbusiness. Make a conscious effort to incorpoin-progress in real-time. This will also enable rate casual conversation into your corresponyou to observe employees’ strengths and dence. Allow time in your weekly meetings weaknesses. Take advantage of Web-based to talk about upcoming vacations, discuss a meetings and teleconferencing. Yet don’t let popular TV show, or ask about each other’s technology replace face-to-face meetings. kids. At least once a week, you should find time to check in with your virtual employees Celebrate Successes “just to chat.” Promote teamwork and a sense of unity by Promote communication among employcelebrating individual successes — both perees. Telecommuters do not connect face-tosonal and work-related. Make announceface with colleagues on a regular basis. While ments to the team in weekly meetings. it is important that they have strong working Additionally, celebrate contributions such as relationships with their managers, it is also exceeded performance objectives, met goals important that they interact with their coand acquired sales leads. Motivate employees workers. If you have a large team, schedule with monthly competitions and other incenweekly calls for the entire team. During this tives. This will also promote social interactime, each team member should give an tion and team building. update on his/her own goals and projects. While telecommuting requires the right This weekly meeting will prepare your employees and a flexible, hands-off manageemployees for the week and boost morale by ment style, it has many benefits. Make a congiving them a sense of camaraderie. scious effort to keep employees motivated, Let your team connect without you. Resist encouraged and appreciated, and you will the urge to micromanage. If you control produce a team positioned for success. IJ everything, your employees cannot have candid conversations among themselves. Have Henry is senior vice president of Jacobson Solutions, the senior-level employees pair up with newer temporary staffing division of The Jacobson Group. Phone: employees for role playing or other training 800-466-1578. E-mail: shenry@jacobsononline.com.
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The Insurance Professional’s Practical Guide to Workers’ Compensation: From History History through through Audit Audit From Author: Christopher J. Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA Price: $55.00 for paperback and $49.95 for a pdf download Available at: http://ijmag.com/wcbook
Key Take-Aways
1 2 3 4
Legal and contractual concepts surrounding workers’ compensation presented in simple, non-legal terms.
Provides selected statutory information for every state.
Allows the reader to understand the framework on which workers’ compensation coverage is built.
Designed to combine statutes, common law, contracts and the human element of workers’ compensation into one resource.
I've worked in the insurance industry for almost 50 years, including periods as an underwriter, educator, agent and consultant. Of all the textbooks, reference sources, etc. that I have read on the subject of WC, these articles are by far the best I have ever encountered. Congratulations and thanks for a job well done!! Russ Taylor Risk Management Tactix Spring, TX
"A must read for everyone wishing to truly understand workers' compensation sales. Chris's writing style makes complex issues easy to understand even for beginners. This book should be the standard for our industry." Chris Burand President – Burand & Associates, LLC www.burand-associates.com Excellent book - even for those of us whose primary occupation is not in the insurance industry. This book explains insurance terminology in a way that anyone can understand. I may not understand all of the finer points of worker's compensation, but I now know what questions I need to ask! Ricky Horton, CMA Vice-President of Finance McCombs Steel Company, Inc
WORKBO
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Closer Look Construction
Construction Projects at a Standstill Risk Management Considerations to Help Protect and Preserve Properties on Hold By Timothy R. KaniaIn
I
n the current economic and credit crisis, construction entities — project owners, contractors, architects, engineers, material and equipment suppliers, and end-use customers — are all facing unprecedented levels of financial uncertainty. The financial deterioration of any of those entities can create substantial challenges for the construction project at hand and, in severe cases, may impact the ability of the project to continue as scheduled. In instances where a project enters a standstill period, both a proactive approach to address exposures, and a continued focus on risk management and loss prevention practices are essential. A fully documented property conservation program implemented by the property owner and contractor can help to reduce the likelihood of property losses as the project enters the standstill phase. Documentation also can help facilitate the successful resumption of the project in due course. Winding Down The first stage of winding down should begin well before the decision to stop work at the project site is contemplated. As financial difficulties emerge, cost savings strategies such as lowering skilled labor qualifications or reducing site safety protocols can be tempting. Such measures, however, can quickly transform a well-run project into a severely stressed project. For example, accepting a low-bid labor force without paying attention to required skill sets can lead to quality control and workmanship issues that create costly work-site inefficiencies. Other cost-saving measures under consideration by the project owner may involve reducing overall management oversight at the worksite. However, this can result in problems such as an increase in workforce safety issues due to site congestion or increased property risk exposure as attention to debris cleanup, proper storage of combustibles, and maintenance and
storage of critical equipment wanes. Meanwhile, owners and contractors also have to be aware of the potential for moral hazards once the decision has been made to shut down a project. The frequency of arson, theft and water damage events may increase as workforce reductions become apparent. Therefore project oversight, including the maintenance of high loss prevention standards and proper site security, is paramount throughout the standstill transition period. Conservation Practices As soon as the decision to wind down a project has been made, it is critical to establish a written policy to address property conservation practices and establish authorities and responsibilities across the project team. Specific actions should be undertaken for the purpose of protecting property assets from the threat of accidental loss, including natural hazards exposures. The project site should be adequately secured to control site access and deter unauthorized entry. All construction debris should be removed, and prudent
N24 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
housekeeping practices should be followed. All fire protection services should be maintained, the local fire department consulted and emergency response plans formulated. In addition, temporary measures to protect and preserve property from weatherrelated exposures should be implemented, and maintenance of critical on-site equipment should continue throughout the standstill period according to the original equipment manufacturer’s recommended maintenance and storage practices. Communication Effective communications among the various construction entities including owners, facility engineering and maintenance, finance and purchasing, suppliers and contractors can help to minimize the potential for loss during the standstill period. The project’s insurance provider should be at the top of the notification list. Proactive communication between a policyholder and its insurers reaffirms and respects the partnership created during www.insurancejournal.com
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the work site and maintain equipment can policy negotiations. This communication may also satisfy contractual obligations typ- help to facilitate the restart of construction operations. By using a well-documented ically contained under property construcand executed standstill protocol, compretion programs with respect to cessation of hensive records of site conditions, building work conditions at a project site. and equipment preservation Policy coverage warand maintenance procedures, ranties generally provide a While a standstill and incident details can be maximum cessation coverproject exposure reviewed to establish requireage period and, once the can present numer- ments to restart the works. insurer is notified and Following a lengthy standassured that the property ous challenges, still period, a comprehensive will be protected and implementing a due diligence exercise will maintained, it may be open proactive approach need to be undertaken to to negotiating extended identify the structural, eleccoverage for the standstill to protecting and and mechanical integriperiod. If a project owner preserving property trical ty of the property at the does negotiate an extension, he or she will need to can help to mitigate work site. A detailed analysis to determine appropriate provide the insurer with the risks. actions, including the repair, periodic updates on the refurbishment, or replacement of property, project status and confirm that property will also be required. This process may conservation programs are maintained. require the assistance of third-party experts, as well as may require original Restart Operations equipment manufacturers to assist in the As a project emerges from standstill, the loss prevention efforts undertaken to secure review process.
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For critical high-value equipment, project owners will need to determine what specific actions are required to reinstate the original equipment manufacturer’s warranty provisions. Upon completion of the above process, the selection process for contractors and applicable consultants can be undertaken to restart the works, develop a revised time schedule and complete the project. While a standstill project exposure can present numerous challenges, implementing a proactive approach to protecting and preserving property can help mitigate the risks. This philosophy must resonate throughout the project team from the first indication of financial distress throughout the entire standstill period. With proper adherence to a comprehensive risk management policy, the project will have the solid footing required to emerge from standstill and re-initiate the works toward a successful completion. IJ Kania is senior vice president of construction for Liberty International Underwriters.
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National Coverage News & Markets
Supreme Court Nominee Sotomayor Shows Record of Favoring Insurers Philadelphia-Based Insurance Attorney Finds Rulings to be ‘Very Insurer-Friendly’ thinks, Maniloff said. “The stereotypical view of a liberal would probably not have them being sympathetic to the insurance industry.” he Supreme Court almost never takes up There are numerous doctrines in the law of insurance related cases. Even so, President insurance coverage which, according to Obama’s recent Supreme Court nominee— Maniloff, make an insurer a seven-point underfederal appeals Judge Sonia Sotomayor — dog in every case because those doctrines typibrings a long record of decisions favoring cally favor policyholders. “That’s why insurers insurers, a possible plus for the insurance are always swimming against the tide in insurindustry, said Philadelphia based insurance ance coverage cases, because of these various attorney Randy J. Maniloff. rules on how you determine coverage that all Maniloff, who is a partner in the commerfavor the policyholder,” he cial litigation department said. of White and Williams LLP, In Maniloff’s experience, said that in his review of many courts find against Sotomayor’s insurance-relatinsurers because it’s so easy ed opinions, he discovered to point to one of the insurthat she ruled “consistentance doctrines. ly, across the board in favor In Maniloff’s review of of insurers.” Sotomayor’s insurance opinManiloff, who concenions, he found she was not trates his practice in the willing to “jump to the conrepresentation of insurers, clusion that one of these reviewed many insurancedoctrines applied and thererelated cases by Sotomayor fore coverage was owed.” and found that the overSotomayor was “extremely whelming majority of the thorough in going through cases resulted in opinions considered to be favorable Supreme Court nominee Sonia Sotomayor walks the decision to determine whether or not coverage to insurers. with U.S. Senator Arlen Specter to Specter’s Given her lengthy time hideaway office on Capitol Hill for a meeting in was owed and didn’t have that sort of knee-jerk reacon the bench, including on Washington REUTERS/Hyungwon Kang tion that coverage was owed the District Court and (UNITED STATES POLITICS) because of these doctrines Court of Appeals, Sotomayor has a long list of insurance coverage that favor insureds.” One such case Maniloff reviewed is Greenidge cases on her resume, Maniloff explained. “But v. Allstate Ins. Co., 446 F.3d 356, 364 (2d. Cir.) what I discovered in the course of looking at (Sotomayor, J.). In the opinion she wrote: Judge Sotomayor’s overall body of opinions on “Unfortunately, it was the Greenidges’ own coverage issues was far more interesting than actions, and not Allstate’s, that put them at any one case. Judge Sotomayor has been very, risk of a large adverse judgment. The law of very insurer-friendly during her time on the bad faith is not intended to reduce the incenbench.” tives of insured parties to protect their own In general, courts are not sympathetic to interests in situations where they are empowinsurers, according to Maniloff. While insurered to do so. In the instant case, the ance coverage cases rarely, if ever, make it to the Supreme Court — generally because insur- Greenidges had ample opportunity to protect their own interests. Allstate was aware of the ance is not considered a federal issue — Sotomayor’s insurance opinions could make the options available to the Greenidges, and it was also aware that the Greenidges were representcase that she’s not as “liberal” as everyone By Andrea Wells
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asserted against Maska nor reported to U.S. ed by private counsel. Allstate was therefore of forms having to be filed and whether or not Fire during the policy period.” entitled to assume that the Greenidges would they are effective, and she concluded that This appeal case involved a dispute between application of the pollution exclusion was not take steps to protect their own interests. The an insured, Maska, and two of its insurance Greenidges’ failure to do so does not convert precluded by Vermont public policy,” Maniloff carriers, Zurich Insurance Co. and United Allstate’s refusal to accept the Seay plaintiffs’ said. “When you read the decision, she cites States Fire Insurance Co., concerning coverage settlement offer into a display ‘of recklessness case after case after case — which seemingly for liability costs and related defense costs on the part of the insurer.’” support the policyholder position — and she incurred in connection with environmental This case in particular illustrates just goes through them one by one and distincontamination at Maska’s Sotomayor’s willingness to be guishes them by why they don’t apply.” manufacturing facility in extremely thorough in the Maniloff said while the Maska case isn’t a ‘Judge Bradford, Vt. analysis when finding in favor true coverage case, it did represent again the Sotomayor Maska, which manufacof the insurer, Maniloff said. thoroughness of the opinion. tured national hockey league The case involved a dispute There were at least seven cases Maniloff has been very, jerseys, used perchloroethyl- reviewed as to whether or not there was that were the most telling in her very insurerene (perc), a dry cleaning going to be $300,000 or finding in favor of insurers, he added. (See side to clean its fabrics. $600,000 available under the bar below). In all, Maniloff said Sotomayor was friendly during chemical Use of the chemical and its policy. “Allstate was adamant careful to examine the policy wording closely. her time on discharged wastewater, led to that there was only $300,000 “She goes through them, she analyzes, she a huge amount of environavailable — it went to trial and parses the policy wording and she decides the bench.’ mental contamination that the verdict came in at $2 milthat the policy language is ambiguous (or not) resulted in a multi-million lion,” Maniloff explained. in a much more detailed manner than just The question surrounded Allstate’s responsi- dollar settlement. The court determined that jumping to that conclusion or having a kneethe pollution exclusion did not apply. bility for anything more than $300,000. “The jerk reaction,” Maniloff said. “She takes that The case is not a true pollution exclusion plaintiffs had tried to get Allstate to agree to standard very seriously. That’s what I saw in a case, Maniloff said. The decision wasn’t based litigate the additional $300,000 they said was lot of these cases.” on coverage grounds but rather on grounds owed,” Maniloff said. Maniloff’s full review of Sotomayor’s insurthat certain forms had or had not been filed “It’s easy for a plaintiff to make the arguance-related opinions can be seen in his with the Vermont department of insurance. ment that an insurer didn’t do enough to pronewsletter titled, “Binding Authority” at “Vermont is unique in that regard, in terms tect the insured’s interest,” he said. “There was www.whiteandwilliams.com. IJ an opportunity according to the plaintiffs to protect the plaintiffs because they could have settled the case and then litigated the dispute and the insured would have had no personal exposure. The court ultimately said that reenidge v. Allstate Ins. Co., 446 F.3d 356 (2d. Cir.) (Sotomayor, J.) — rejected argument Allstate did not breach any duties and if anythat the insurer did not do enough to protect its insured’s interest to prevent a verdict body should have protected the interests, it’s in excess of policy limits. the insureds that should have protected their Hugo Boss Fashions Inc. v. Federal Insurance Co., 252 F.3d 608 (2d. Cir. 2001) (Sotomayor, J, own interest.” Dissenting) — strong dissent from majority opinion that adopted a test that expanded the Maniloff said the case involved coverage for a “duty to defend” under New York law. child that had been exposed to lead paint, Maska U.S. Inc. v. Kansa General Ins. Co., 198 F.3d 74 (2d. Cir. 1999) (Sotomayor, J.) — held which always adds a sympathetic factor, but that the insurer’s pollution exclusion was enforceable, despite regulatory and public policy ultimately the court ruled in favor of Allstate. challenges to it. In another case, Maniloff reviewed Maska Coregis Insurance v. American Health Foundation, 241 F.3d 123 (2d. Cir. 2001) (Sotomayor, J.) — U.S. Inc. v. Kansa General Ins. Co., 198 F.3d 74 (2d. held that no coverage owed based on a detailed analysis that the term “related to” is broader Cir. 1999) (Sotomayor, J.). In the opinion, than “arising out of.” Sotomayor wrote: Webster v. Mt. Vernon Fire Insurance, 368 F.3d 209 (2d. Cir. 2004) (Sotomayor, J.) — held that “We hold that the absolute pollution excluno coverage owed as the insurer did not violate New York’s very strict requirements of sions in the Zurich policies do not violate any Insurance Law Section 3420. established Vermont public policy, and that Mount Vernon Fire Ins. Co. v. Chios Constr. Corp., 1996 U.S. Dist. LEXIS 414 (S.D.N.Y.) Maska has waived its contention that Zurich’s (Sotomayor, J.) — held that there was “not even a metaphysical possibility” that a subconfailure to comply with the statutory filing tractor’s injury had to be paid by the general contractor’s insurer. requirements voids the exclusions. We further Noonan, Astley & Pearce v. Ins. Co. of Pa., 1994 U.S. Dist. LEXIS 3803 (S.D.N.Y.) (Sotomayor, J.) hold that coverage is not available under U.S. — no property coverage owed for disruption of an insured’s operations based on a very Fire’s Defender policy because the underlying strict interpretation of the policy’s “government agency” prohibition. IJ environmental liability claims were neither Source: Randy Maniloff, e-mail: maniloffr@whiteandwilliams.com.
Sonia Sotomayor’s Pro-Insurer Coverage Cases
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National Coverage News & Markets
Mystery Surrounds Air France Crash Liability Claims to Come Could Exceed $1 Billion, Some Experts Predict By Charles E. Boyle
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he tragic disappearance of Air France flight 447 over the Atlantic early on June 1 remains a mystery. The plane’s 216 passengers and 12 crew members perished as all contact was lost with the Airbus 330-200 in the middle of the Atlantic Ocean. The crash site was finally located on June 6. Automatic data feeds, which were accessed hours after the plane went missing, registered an “electrical fault,” and described a succession of events that could have led to the plane’s demise between 11:10 and 11:14 p.m. local time. These included: failure of onboard computer systems (which, have backups); a loss of cabin pressure; the disengagement of the plane’s autopilot, and malfunctions in the speed and stabilization monitors. Those four minutes signaled the aircraft’s probable breakup. Whatever led to the AF447 tragedy may forever remain a mystery. Modern airliners, certainly the A330 series, which has an outstanding safety record (no fatal incidents since a test flight in 1994) don’t simply disappear in mid flight. Most fatal accidents, although there have been remarkably few lately (See chart below), occur at either landing or taking off. So far, the focus of current speculation centers on the “pitot” tubes, which monitor the speed of the aircraft. Airbus had indicated that these should be replaced with a more up to date device, as there had been reports that extreme cold made the speed readings unreli-
able. But Airbus did not make the change mandatory. Paul Louis Arslanian, the head of France’s air accident investigation agency, described the cause of the crash as stemming from “a series of events.” The series of failures, as recorded from the automatic signals, do seem to show a sequence and all of them in succession could have caused the fatal crash. However, other aircraft traversed the same zone at around the same time without having significant difficulties. If the flight recorders are ever recovered, they could provide some answers. But that seems an unlikely prospect.
Victim Compensation Given the circumstances, figuring out how to compensate the families won’t be easy. There are, however, certain international conventions and treaties that will apply. France’s AXA Group is the lead underwriter, but many other insurers are also involved, as aviation coverage is routinely spread among a number of carriers. Loretta Worters, vice president-communications of the Insurance Information Institute, provided the following summary by e-mail of the general guidelines that have been established to cover aviation disasters. For the A330200, she said it is “valued at around $180 million,” with the hull of the aircraft “insured for at least $100 million, probably more.” In terms of liability claims, there are differences between international and U.S. claims. U.S. commercial airline carriers have historically settled liability claims Worldwide Scheduled Air Service Fatal Accidents, 1998-2008 against them totaling between $1.5 million and Passenger Passenger $2 million per victim (if fatalities fatalities Fatal per 100 Fatal per 100 the accident took place in aircraft million aircraft million the U.S.). accidents Passenger passenger accidents Passenger passenger Year (1) fatalities kilometers Year (1) fatalities kilometers However, liability for personal injuries and 1998 20 904 0.03 2003 7 466 0.02 deaths involving interna1999 21 499 0.02 2004 9 203 0.01 tional flights falls under 2000 18 757 0.03 2005 17 712 0.02 the Montreal Convention, 2001 13 577 0.02 2006 12 751 0.02 2002 14 791 0.03 2007 11 587 0.01 which provides that air 2008 11 439 0.01* carriers are strictly liable for proven damages up to (1) Involving a passenger fatality only. 100,000 in “special draw*The Accident Rate decreased marginally, from approx. 0.01391 in 2007 to about 0.01370 in 2008 Source: International Civil Aviation Organization. ing rights” (SDR), a mix of
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Brazilian Navy picks debris from Air France flight AF447 out of the Atlantic Ocean, some 745 miles (1,200 km) northeast of Recife. REUTERS/Brazilian Air Force/Handout
currency values established by the International Monetary Fund (IMF). It established a payout of approximately $138,000 per passenger at the time of its ratification by the United States in 2003. As of June 2009, it had risen to around $154,800. The Montreal Convention was brought about mainly to amend liabilities to be paid to families for death or injury while on board an aircraft. As of December 2008, there were 87 signatories, including the United States, European Union (EU), Canada, China, Japan, Korea and Mexico. Where damages of more than 100,000 SDR are sought, the airline may avoid liability by proving that the accident that caused the injury or death was not due to their negligence or was attributable to the negligence of a third party. This defense is not available where damages of less than 100,000 SDR are sought. The Montreal Convention also amended the jurisdictional provisions of the Warsaw Convention. It now allows the victim or their families to sue foreign carriers where they maintain their principal residence, and requires all air carriers to carry liability insurance. Those lawsuits, however, could be costly. Plaintiffs may seek between $3 million and $4 million per passenger, according to sources in the London market, which, as a center of aviation underwriting, will have some exposures. When the A330’s value is added in, the claims could exceed $1 billion. IJ www.insurancejournal.com
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Closer Look Construction
Contractor’s General Liability Coverage Limitations — A Road Filled with Landmines Grindle
By Gary Grindle
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encon, a general contractor, was nearly finished constructing a five-story apartment building when an employee accidentally damaged a sprinkler head causing a leak. Gencon made an emergency call to the plumbing store next door, and Joe the plumber promptly arrived and quickly repaired the damaged sprinkler head before any significant water damage occurred. Unfortunately, one year after completing the project, the repair failed and the building experienced significant water damage. Gencon was sued and submitted a claim to its insurer. Much to Gencon’s dismay, the insurer denied coverage based on the fact that the faulty work was done by a Contractor’s subcontractor, Joe the general liability who policies, particularly plumber, did not have in the E&S marketinsurance that complied with place, often include the subcontraca variety of onerous tor’s warranty endorsements. limitation form on Gencon’s general liability policy. In its rush to fix the damaged sprinkler head, Gencon had failed to ask Joe the plumber for a COI. Gencon learned a hard lesson and worked with its agent to negotiate the removal of that form at its next renewal. This type of restriction is not uncommon. Contractor’s general liability policies, particularly in the excess and surplus (E&S) marketplace, often include a variety of onerous www.insurancejournal.com
endorsements. This article touches upon just a few of the more common and difficult. Remember different carriers apply different labels to many of these forms. Broadened Injury to Employee Endorsements The ISO Commercial General Liability Coverage Form (12/07) provides for an important exception to the exclusion for bodily injury to the insured’s employees (exclusion e, Section 1, Coverage A). The standard exclusion does not apply to liability assumed by the insured under an “insured contract.” It is not uncommon for carriers to attach forms that eliminate this
important exception to the employee exclusion, particularly for contractors operating in New York where “action over” claims are relatively common. These endorsements are often referred to as “labor law” exclusions, and their intent is to preclude coverage for claims by injured employees. These typically involve claims made against the general contractor and/or job owner, alleging that they violated “safe place to work” requirements (e.g., N.Y. Labor Law S240 commonly referred to as “the scaffolding act”). The general contractor or owner would then typically look to the employee’s employer (i.e., the general contractor or subcontractor) for continued on page N30
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Closer Look Construction Contractor’s, continued from page N29
coverage via the indemnification agreement in the construction agreement. The elimination of coverage for these “action over” type claims presents a major gap in coverage, and every attempt should be made to have this type of limitation removed. Classification Limitation Carriers will use this type of endorsement in an attempt to restrict coverage to the specific operations/exposure that they’ve classified and rated for on the policy. One carrier’s form reads as follows: “This insurance applies to ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ not otherwise excluded herein, arising out of only those operations which are described by the classification shown on the Commercial General Liability Coverage Declarations, its endorsements and supplements.” The problem with these forms is that ISO commercial lines classifications were never intended to be fully descriptive of a contractor’s operations and as a result, they leave significant room for coverage disputes in situations in which a contractor is involved in ancillary activities not clearly described by the classification itself. If possible, attempts should be made to have these limitations removed or to have the carrier utilize a manuscript form that more clearly outlines the covered activities.
It’s important to note that there are exceptions to this section; refer to the policy language for details. This is the section of the definition most applicable to contractors utilizing construction and subcontractor agreements. Carriers, particularly in the E&S markets, often attach ISO form CG2139 (10/93), Contractual Liability Limitation, which eliminates section “f.” of the definition of “insured contract.” By eliminating section “f.” most all contractual coverages are removed. There would be no coverage for liability assumed in a construction agreement or for “action over” type claims. This is a major gap in coverage and every attempt should be made to negotiate for the removal of this endorsement.
Contractual Limitation The ISO Commercial General Liability Coverage Form (12/07) provides relatively broad contractual coverage within the basic contract. Most notably, item “f.” within the definition of “insured contract” (12/07) specifies that an insured contract includes: “That part of any other Cross Suits Exclusion contract or agreement perResidential These endorsements are taining to your business sometimes very broad and (including an indemnification exclusions can be of a municipality in connecvery broad or more may exclude coverage for suits by any insured against tion with work performed for narrowly focused. any other insured. There are a municipality) under which also examples where carriers you assume the tort liability include language that precludes coverage for of another party to pay for ‘bodily injury’ or ‘propsuits by employees (with no exception for liaerty damage’ to a third person or organization. bility assumed under an “insured contract” Tort liability means a liability that would be — a major concern in states such as New imposed by law in the absence of any contract or York where employee “action over” claims are agreement.” N30 | INSURANCE JOURNAL-NATIONAL REGION June 15, 2009
common). Language that excludes coverage for suits by any insured against any other insured should be avoided, most notably because it could exclude coverage for a suit brought by any party included as an additional insured under the named insured’s policy. If this type of endorsement cannot be removed, every attempt should be made to limit its applicability to suits by one named insured against another named insured, or at least only to suits between organizations in which the named insured has a controlling interest. Exclusion – Damage to Work Performed by Subcontractors on Your Behalf ISO form CG2294 (10/01) or a carrier’s equivalent endorsement eliminates the exception to the exclusion for damage to “your work” (exclusion l., Section I, Coverage A of the Commercial General Liability Form 10/07) for work performed on the insured’s behalf by subcontractors. If your insured utilizes subcontractors, this type of restriction presents a significant gap in coverage. If your insured is a general contractor, it virtually eliminates completed operations property damage coverage, at least in terms of the work done by or on behalf of the insured. Once again, this type of restriction needs to be understood and, if subcontractors are utiwww.insurancejournal.com
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lized, every attempt should be made to negotiate for its removal. Independent Contractors Limitation/ Subcontractor Warranty Endorsements These endorsements establish minimum requirements for subcontractors relative to insurance and other risk management controls. These forms most often require at a minimum that a written indemnification agreement in favor of the insured be in place, certificates of insurance be obtained, specified insurance limits be required of the subcontractors and that the insured be named as an additional insured on the subcontractor’s general liability policy. Typically, failure to comply with the terms of these endorsements results in one of four types of penalties: 1. Coverage is nullified relative to any loss resulting from the work of the subcontractor (commonly referred to as a hammer clause); 2. A higher deductible or retained limit applies to any loss resulting from the work of the subcontractor; 3. A lower limit of liability applies to any loss resulting from the work of the subcontractor; 4. A higher rate applies to the sub cost for the subcontractor. You should work with your underwriter or wholesale broker to negotiate for the removal of these forms or the use of the least punitive version. In particular, every effort should be made to avoid the first type of penalty.
attempt to have the form removed or modified dependent upon the activities of your contractor. Total Pollution Exclusion The pollution exclusion within the ISO Commercial General Liability Coverage Form (12/07), although very restrictive, does provide limited pollution coverage. For example, coverage is not specifically precluded for injury or damage arising out of: the products and completed operations hazard, or for the accidental escape of fuels; lubricants or other operating fluids needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of mobile equipment; and for the accidental release of gases, fumes or vapors from materials brought into a work-site in connection with operations being performed by the contractor. Additionally, for ongoing operations at an additional insured’s site, there is the following exception: “‘Bodily injury’ or ‘property damage’ for which you may be held liable, if you are a contractor and the owner or lessee of such premises, site or location has been added to your policy as an additional insured with respect to your ongoing operations performed for that addition-
al insured at that premises, site or location and such premises, site or location is not and never was owned or occupied by, or rented or loaned to, any insured, other than that additional insured.” Carriers often (E&S carriers most often) attach a “total pollution exclusion” to their policies which is much more restrictive than the standard ISO GL pollution exclusion and eliminates the exceptions to the standard exclusion noted above. If possible, this exclusion should be removed. Consideration should also be given to the purchase of a separate contractors pollution policy. Even non-environmental contractors have a need for this coverage. Conclusion Hopefully it is clear that a careful review of the terms and conditions, especially when dealing with E&S markets, is critical. These examples are only a few of the restrictive forms that agents and brokers need to be aware of in order to successfully navigate their contracting account’s coverage mine fields. IJ Grindle is vice president, sales manager and national retail coordinator at Colemont Insurance Brokers of Connecticut. E-mail: gary.grindle@colemont.com.
Residential Exclusion Residential exclusions can be very broad (e.g., all types of residential possibly including apartments) or more narrowly focused (e.g., only applicable to work involving new condominium, multi-unit habitational or tract homes). Some forms specify the maximum annual number of new starts for home builders or the maximum number of condominium units in a given project. It is critical to carefully read these forms to ensure your client’s operations do not include any of the excluded coverages. Ideally you should www.insurancejournal.com
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Idea Exchange Closing Quote
Risk, Reward and Reflection Lessons Gained from the Current Economic Storm
Ladner
By Gerald F. Ladner
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he property/casualty business has never been easy. As history shows, the underwriting community has been successful in creating and delivering insurance products that give consumers and business owners peace of mind. Over time, the level of underwriting sophistication grew exponentially in direct response to an increasingly complex and equally unpredictable world. Survival in our business is never a guarantee. Year by year and month by month, underwriters navigate through a spectrum of hazards that range from inclement weather to market cycles that test the durability of even the most seasoned underwriters. Our collective sense of hope and optimism seems almost palpable as we prepare for the next season. We are also searching for any sign that our economy is stabilizing and just maybe we can see stronger consumer confidence with indicators pointing to a faster recovery. Over the past nine months, upheavals in our financial markets brought into focus a number of emerging risks associated with credit and the stock market. As in every crisis, underwriters by their very nature seek out the valuable lessons to be gleaned. More importantly, there is an effort to avoid repeating any of the hard and expensive lessons going forward. Are we now ready to move beyond the disbelief stage to engage in the kind of thoughtful reflection as to address the obvious — that we have become a society financially over extended and one that resides too close to the coast? Consumer and business interests have actually raised legitimate concerns about the financial services industry. There has been a serious breach of trust and a loss of confidence in a few segments not involving the highly regulated P/C industry. From the view of the shareholder, the sheer magnitude of money lost will limit options for many businesses in the short term. What is unfortunate is that a welldeserved backlash focused on the financial services industry in general, may have the potential to wash over into the P/C industry. It is highly possible that the average consumer is unaware that the P/C industry is the most highly regulated of all the members comprising the financial services sector. Although the P/C market has also been wounded by current economic conditions, this segment remains strong in comparison to banks
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and life insurance companies. Despite this fact, we do have to come to terms that our new operating environment will have an additional layer of regulation, federal oversight, which may or may not create value in the long term. Over the years, having tracked the work of notable social trend researchers such as Madelyn Hochstein and Daniel Yankelovich, principals at DYG Inc, I’ve concluded that the P/C industry needs to take a closer look at the growing entitlement mentality infecting the American psyche. Why is there a belief Survival in that consumption should be without our business limit? How will this play out in a new age of limits when we can no longer is never a afford to subsidize or insure society’s expensive choices? Is there a possibility guarantee. that the federal government may be hard pressed to bail out Louisiana should another category 5 hurricane challenge that coast? So why is it that the homeowner who lives in a known flood zone or on the Gulf Coast expects and demands affordable property insurance? Is it possible that society no longer wants to understand the cost of its choices? If this is in fact the case, no government bailout or management of systemic risk will make a difference as we move to an economic collision that will impact our industry’s surplus. I happen to believe that we have both a professional and ethical obligation to educate and inform the public of the emerging risks, especially those risks caused by societal values and attitudes posing a threat to them and the overall economy. If 60 percent of the population is residing in coastal areas, why is it that the alarms are not blaring that climate change (for whatever reason) is becoming an increasing threat? Why are states relying upon quasi-government insurance companies such as state wind pools in Texas, Florida and North Carolina that would not meet the test for solvency? Clearly, there are no simple answers to these questions. However, if there is any lesson to be gained from the current economic storm, it is that we all need to take a closer look at these social trends. We have an opportunity to re-commit ourselves to educating the public on good public policy, not from the profit vantage point, but from what ultimately serves the common good. IJ Ladner is regional president of State Auto Insurance Cos.’ western region headquarters located in Austin, Texas. E-mail: Gerald.ladner@stateauto.com. Web site: www.stateauto.com. www.insurancejournal.com
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