Insurance Journal

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ECONOMIC STIMULUS Insurance Impact May Be Minimal

VALUING YOUR BUSINESS Tips To Prepare for a Sale

DATA SECURITY BREACHES Risk Brings Sales Opportunities

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with Hard to Place Risks.

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Inside This Issue March 23, 2009 • Vol. 87, No. 6 • West Region

WEST COVERAGE 8

| MetLife Auto & Home Eyes California for Expansion Independent Agents Will Be Primary Distribution Method

8

| Utah Opens Bars To Public, Increases Liability Coverage Requirements Bar Liability Coverage Requirements To Double

14 | The Case for Confronting Fear Study Shows Policyholders Eager to Address Economic Crisis with P/C Agents

N12 GREEN Risks Greener Opportunities: Insurers Compete for a Growing Green Industry

8 Utah Opens Bars To Public, Increases Liability Coverage Requirements Bar Liability Coverage Requirements To Double

58 | Defending Data Data Security Breaches Present Emerging Risks and Opportunities for Agents 60 | States Gear Up for Stimulus Package Impact on Insurance Industry May Be Minimal, Experts Say

NATIONAL COVERAGE N1 | Commercial Lines Pricing Drops 3% in Q4 Towers Perrin Survey Shows Price Stabilization N1 | General Liability Losses, Expenses to Rise Rapidly Conning Research Says Profitable Underwriting Performance Not Likely N1 | National Flood Insurance Program Gets Short-Term Extension Expires September 2009; Industry Hopes for Reform Measures N2 | Special Report: HOT Markets and Programs Hot Prospects, and Markets, Come in Unusual Packages N6 | International Report Sports Terrorism, ‘Names,’ Tongues and Mergers N7 | Special Report: GREEN Risks Hybrid Boats and Coverage for the GreenMinded Customer N12 | Special Report: GREEN Risks Greener Opportunities: Insurers Compete for a Growing Green Industry

IDEA EXCHANGE N19 | Spotlight: Corporate Profiles Advertorial Supplement: In Their Own Words

63 Five Reasons Why Agents Should Pay Attention to the Stimulus Package A Look at Opportunities of the Future

63 | Five Reasons Why Agents Should Pay Attention to the Stimulus Package A Look at Opportunities of the Future 64 | How Much is Your Agency Worth?

Items To Consider When Selling Your Agency 66 | Closing Quote: Say What You Mean Agents Should Act With Character and Integrity in Everything That They Do

DEPARTMENTS 6 10 12 N10

| | | |

Opening Note BusinessMoves People MyNewMarkets

66 Say What You Mean Agents Should Act With Character and Integrity in Everything That They Do

N16 | Special Report: HOT Markets and Programs Fastest Growing Industries to Focus On 4 | INSURANCE JOURNAL-WEST REGION March 23, 2009

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Idea Exchange Opening Note

Opportunity Knocks

N

o one will argue that operating an insurance business today is challenging. The recession has put pressure on consumers’ wallets, causing them to consider reducing coverages; credit is difficult to come by, meaning businesses are feeling financial pressures; and the insurance industry itself has been muddling through the soft market for some time.

With increasing job instability and the value of paychecks and investments going down, consumers may be tempted to cut corners on insurance, according to the Insurance Information Institute (I.I.I.). While there are smart ways to save money on insurance, the I.I.I. is alerting the industry and consumers that there are also mistakes that could result in being underinsured. “This could result in a financial disaster if there is a fire, hurricane, severe winter weather or other catastrophe,” said Jeanne M. Salvatore, senior vice president and consumer spokeswoman for the I.I.I. Given the dismal economic environment, agents would be wise to alert their customers about the dangers of too little insurance. Research indicates that this might be the perfect time, in fact, for agents to converse with their customers. A study by InTouch Corp. showed that consumers actually are eager to discuss their policies and the economic crisis with agents, because then they feel more empowered about their finances (see page 14 of this issue).

Furthermore, even amidst the soft insurance market, It’s a perfect there are areas where independent insurance agents can grow their business — if they find out what their customers need. time to talk Coverage for data security breaches, for example, can be to your immensely useful to businesses knowing that the number of technological breaches increase each year and businesses are customers. holding more information that should be kept confidential.

“Ninety-eight percent of the time, companies have voids in their secure data information that will expose them,” said Thomas Katona of Apogee Insurance. Yet Katona estimates only 5 percent of the world has coverage for secured data, which could be useful if a company needs to notify customers or provide credit monitoring.

“I think agents, in a soft market, should be paying attention to the emerging coverages,” Katona said. “This is one of those coverages, and one that most of their clients probably do not have. I think when they talk to their insureds, [agents] will find that they are concerned about it.”

We’ve also identified some other emerging insurance opportunities agents might want to consider talking to their customers about — from financial investment activities to residential care facilities (see page N16). As Chris Boggs of MyNewMarkets said, “Becoming well-versed and knowledgeable in fast-growing industries can give any independent property/casualty insurance agent a head start toward growth.”

Above all, when it comes to insurance, customers want an insurance agent and company that can help answer questions and handle claims fairly and efficiently if a mishap occurs. The economy might be tight now, but that doesn’t mean it’s not a great time to reassure customers that you’re concerned about their welfare. Because unless you’re in touch with your customers, you Patricia-Anne Tom won’t know when the next opportunity will West Editor ptom@insurancejournal.com come knocking.

Publisher Mark Wells Chief Executive Officer Mitch Dunford

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com

Contributing Writers Steve Bushnell, Chantal Cyr, Mitch Dunford, Stuart Ganis, Brenda Rhodes

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 Admin./ Marketing Asst.

Kristina Delavega | kdelavega@insurancejournal.com Cover designed by: Guy Boccia

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2009 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Publishing, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 9049, Maple Shade, NJ 08052

6 | INSURANCE JOURNAL-WEST REGION March 23, 2009

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

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

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West Coverage Snapshot

MetLife Auto & Home Eyes California for Expansion

By Patricia-Anne Tom

S

noopy is moving to California and is bringing with him opportunities for independent insurance agents. MetLife Inc., which uses the famous beagle in its advertising, said it plans to expand its MetLife Auto & Home products in California. As part of its entrance into the Golden State with auto and home insurance products sold by agents, the company appointed Rodrigo Sebastiani regional sales manager to oversee growth plans in the San Diego market; Daniel Slaten regional sales manager for the Inland Empire territory, including Riverside, San Bernardino and parts of Orange County; and John Sibthorp, regional sales manager for a wide geography of

California, including Bakersfield, Ventura and East Los Angeles County. More regional sales manager appointments are expected.

Paul Gavin, vice president of State Management for MetLife

Auto & Home, said the company has been considering entering the California market for some time.

“To be a large national carrier, we need to get countrywide market share over time,” Gavin said.

He noted Californians are already familiar with the company’s Group Insurance product offerings, including worksite-marketed auto and home products, as well as financial services and life insurance products. So selling auto and home insurance products through agents was a natural extension.

“Our company is ranked 25th in the state in terms of insurance company market share,” Gavin said. “Longer term, we’d like that figure to reflect our market share nationwide, which is 1.4 percent.”

Primarily, independent insurance agents will sell the auto and home products, said Joe Rupp, vice president of western region agency distribution. To complement their sales, MetLife’s financial services representatives who are property/casualty licensed agents also will have access to sell the auto and home products.

“California supports a deep and broad-based independent agency force,” Rupp said, noting agents and financial services representatives will not be in sales competition with each other.

“Customers choose to purchase in different ways,” Gavin added.

The company distributes onethird of its products through the independent agency channel, onethird through the group channel, and one-third through direct sales. “Over time, we’ve matured this distribution strategy and we’ve been successful with multiple channels,” he said.

Rupp said MetLife Auto & Home is hiring regional sales managers, who then will look for insurance industry veterans with extensive contacts to appoint as agents. MetLife’s group business has grown in major metropolitan areas, he said, and the company would like to complement that in other areas of the state, where it can bring in new customers.

Appointed agents will have access to the company’s suite of marketing opportunities that can be customized at the territory level, Rupp added. IJ

Utah Opens Bars to Public, Increases Liability Coverage Requirements

By Brock Vergakis

U

tah bar owners will soon have to increase their liability coverage, as getting into a bar is becoming easier. The state’s legislative leaders and Gov. Jon Huntsman agreed to eliminate the state’s muchcriticized private club system.

Utah is the only state in the country that requires someone to fill out an application and pay a fee for the right to enter a bar unless he or she is the guest of a member on the premises.

Under the agreement approved unanimously by the state Senate, bars could open their doors to the public July 1. A nearly identical version was approved 66-8 in the state House.

“This is a crossroads,” said Rep. Greg Hughes, R-Draper, sponsor of one of the bills. “We shed some of the misconceptions about our liquor laws while actually strengthening them and modernizing them.”

Huntsman has been pushing to eliminate the 40-year-old system to boost tourism and make Utah seem a little less odd to outsiders.

In exchange, the state’s DUI laws will become more strict, bar owners’ liability coverage will double and anyone who looks younger than 35 will have their driver’s licenses scanned before entering a bar to make sure they’re 21 or older and their ID is real. Bars would retain on site for seven days an electronic record of scanned licenses.

8 | INSURANCE JOURNAL-WEST REGION March 23, 2009

The Utah Hospitality Association, which represents the state’s bar industry, had been pushing for the private club system’s demise and was prepared to take it to the vote of a people through a referendum if lawmakers didn’t come to an agreement.

Bars have long complained that memberships are an unnecessary hassle that only annoy customers and distract bouncers who they say have bigger things to worry about than membership forms.

However, morality groups, conservative lawmakers and Mothers Against Drunk Driving’s Utah chapter had contended that memberships reduced underage drinking and driving under the influence because it made getting into multiple bars in a single day expensive and time consuming.

In Utah, anyone who pays at least $4 and fills out an application at the door can become a club member for three weeks. Annual membership costs at least $12. Each bar has a separate membership. IJ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. www.insurancejournal.com

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Declarations Keeping Homes Afloat “PCI applauds Congress for acting to keep the National Flood Insurance Program in place. Allowing the program to expire would have very negative consequences for policyholders and also for the nation’s economy. Most home buyers use federally backed mortgages to purchase property, and such mortgages are prohibited by law for homes in floodplains unless they have flood insurance. Therefore it is crucial to keep this vital program running.”

— David A. Sampson, president and CEO of the Property Casualty Insurers Association of America (PCI), applauding the short-term extension to the National Flood Insurance Program.

General Liability Losses “We project that the next couple of years will see a moderating in general liability premium reduction, gradually leading to a modest increase by 2010. ... In the longer run, the future of the general liability insurance market will play itself out between the cumulative effects of small to moderate losses and the rising prospect of megarisks.”

— Mark Jablonowski, analyst at Conning Research & Consulting, commenting on his company’s study: “General Liability: Staying Relevant (and Profitable) in the New World of Risk.” The study indicated general liability losses and expenses are expected to increase faster than premium increases in the next couple of years.

Seniors Not Necessarily a Safety Risk “Not surprisingly, as people age, their skills and faculties, including strength, range of motion, motor skills, sensory acuity and ability to heal, diminish. While this may suggest that older workers would have a negative effect on workplace productivity and safety, statistics prove otherwise.”

— Ken Nogan, Risk Control Consultant at PMA Insurance Group, commenting on a white paper, “Capitalizing on an Aging Workforce.” The paper suggested older workers can be a benefit to the companies that employ them, but when older workers do get injured those injuries tend to be of higher severity. The paper also reports that since 1977, the number of people 65 and older in the workforce has increased more than 100 percent.

A Steady Share “While the weakening economy dominated headlines in 2008, the property/casualty insurance industry has actually been feeling the impact of relentlessly soft pricing for the past several years as reflected in the 2007 analysis. The independent agency system continues to be the leader in commercial lines, holds a significant share of personal lines, and dominates both lines in some states.”

— Bob Rusbuldt, president and CEO of the Independent Insurance Agents & Brokers of America Inc., commenting on a new study that indicated independent agents and brokers continued to hold their overall market share in the P/C industry even with the reduced premium written. IJ

It Figures $1 Billion

$2.7 million

$170 billion

The effects of the widespread peanut butter recall could cost rural America’s peanut producers $1 billion in lost production and sales, according to testimony at a House subcommittee hearing.

That could be just the beginning, the head of the Georgia Peanut Commission told a subcommittee of the U.S. House Committee on Small Business, according to prepared testimony obtained by The Associated Press. The recalls, prompted by a salmonella outbreak tied to peanut butter, have severely hurt the nation’s peanut producers, weakening pricing and limiting their ability to sell their products, according to the testimony. (AP)

The amount Hawaii Insurance Commissioner J.P. Schmidt released for future workers’ compensation claims payments from the estate of the failed insurer HIH America Insurance Company of Hawaii Inc. Of that, $1 million was designated for 25 individual HIH Hawaii policyholders, and assets valued at $9 million were directed toward the California Insurance Department for moneys owed to the affiliated companies.

HIH Hawaii provided workers’ compensation insurance to businesses in the state.

Financial troubles at its affiliated insurance companies in California and Nevada, and its parent company in Australia, made its continued operation hazardous to the public. It went into liquidation in 2001.

The latest amount in taxpayer money American International Group Inc. (AIG) has access to. The company recently reported a $61.7 billion quarterly loss, the worst in U.S. history. The same day, the Treasury provided AIG as much as $30 billion in additional aid from the $700 billion financial bailout program.

Sen. Richard Shelby, R-Ala., called AIG “the greatest corporate failure in American history,” and needled the New York state insurance regulator Eric Dinallo and representatives from the Federal Reserve and Office of Thrift Supervision about the lack of oversight leading to the company’s collapse. IJ

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West Coverage Business Moves State Farm Fire and Casualty Co. Nevada Insurance Commissioner Scott J. Kipper has approved a rate change for homeowners insurance premiums as filed by State Farm Fire and Casualty Co. The rate change will become effective on April 1, 2009, for new business and on May 15, 2009, for renewals.

Depending on the individual characteristics and coverage levels, this statewide average rate change will result in a premium decrease or increase for some of State Farm’s insureds, while certain insureds’ rates will remain unchanged, the Scott J. Kipper Department of Insurance indicated. The changes to individual premiums translate into an overall statewide average rate change of 0 percent. The change affects premiums for non-tenant homeowners, renters and condominium unit owners. The maximum dollar premium change for an insured with specific characteristics will not exceed $50, the DOI noted.

State Farm’s rate change filing consists of the following components: • A revision of subzone definition changes by using ZIP codes.

• Premium adjustments for optional coverages such as childcare and business pursuits.

• Offering increased optional limits for the fire department service charge.

• Changes to how the type of construction impacts the rate development.

Commissioner Kipper noted that the actuarial data furnished by State Farm in support of the changes suggests a downward trend in its current level earned premiums for Nevada in recent years. He stated that State Farm had filed several statewide average rate reductions in the past four years that have contributed to some insureds seeing a cumulative insurance premium decrease of up to 30 percent during that time period. Those reductions played a contributory role in the downward trend of State Farm’s current level earned premium. He observed that Nevada has

endured a relatively “light” catastrophe experience in the past few years regarding the perils covered under homeowners insurance.

State Farm Fire and Casualty Co. provides homeowners, renters and condominium unit owners coverage for approximately 111,195 Nevada policyholders, the DOI said.

The last two Nevada rate changes for the company’s policyholders were a 4.5 percent statewide average reduction in 2007, followed by a 0 percent statewide average change in 2008.

Torrent Technologies Seattle-based Torrent Technologies Inc. has created a new subsidiary, Torrent Insurance Services LLC, to be based in Kalispell, Mont. In conjunction with TIS, the company has created another subsidiary, Torrent Government Contracting Services LLC, based outside of Washington, D.C. TIS will house the company’s primary business operation, which is focused on providing back office services and technologies to insurance carriers that resell and administer flood insurance through the Federal Emergency Management Agency’s National Flood Insurance Program. TIS has approximately 40 technology and operational professionals.

Allstate, Personal Insurance Federation of California The board of directors of the Personal Insurance Federation of California (PIFC) voted unanimously to accept Allstate Insurance Co. as the newest member of PIFC. Allstate is the first new company to join PIFC in 15 years. Allstate joins the five other companies that comprise PIFC — 21st Century, Farmers Insurance Group, Progressive Insurance Group, Safeco, and State Farm Insurance Companies — that combined represent more than $12 billion of personal lines premium written in California. The National Association of Mutual Insurance Companies (NAMIC) is an associate member of PIFC. Allstate is the fourth largest automobile insurer in California, and the third largest

10 | INSURANCE JOURNAL-WEST REGION March 23, 2009

homeowners insurance carrier. In 2008, Allstate invested nearly $4 million into California municipal bonds, and contributed more than $660,000 to non-profit organizations through the Allstate Foundation. The Allstate Corp. is the nation’s largest publicly held personal lines insurer. The company sells 13 major lines of insurance, including auto, property, life and commercial. Allstate also offers retirement and investment products and banking services.

PIFC is California’s personal lines trade association representing the leading automobile, homeowners and earthquake insurers. PIFC represents its member companies before state executive, legislative and judicial bodies on issues of importance to the personal lines industry.

AmWINS Group Inc. Charlotte, N.C.-based insurance wholesale brokerage AmWINS Group Inc. acquired three medical stop loss wholesalers in three separate regions of the country. The firms acquired are American Stop Loss Insurance of Worcester, Mass.; Brokerage Services, Health Benefit Solutions of Benicia, Calif.; and Insurance and National Insurance Wholesalers of Houston, Texas.

The acquisition of these three entities creates the nation’s largest wholesale broker of medical stop loss insurance, according to AmWINS. “Diversification is key to our company’s strategy and continued growth,” said M. Steven DeCarlo, CEO of AmWINS Group. “This acquisition not only complements our existing benefit product capabilities, but also allows us to strategically expand our products and services to a broader network of retail customers and markets.”

Terms of the transaction were not disclosed.

The current management teams of each entity will continue to lead the day-to-day activities for their respective company — Gerry Gates and Walter Coolidge for ASL, Rebecca Bocek for HBS and Elizabeth Ogletree for NIW. Mark McGuire, the founder of NIW, will lead the combined operations. IJ www.insurancejournal.com

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West Coverage People

Richard Dinger

Kevin Baker

Timothy Manaka Jr.

Andrew Valdivia

The Insurance Brokers and Agents of the West (IBA West) installed the association’s new officers and directors. The following will serve in 2009: President Richard E. Dinger of Crescenta Valley Insurance, who is the association’s youngest president; President-Elect: Kevin M. Baker of Suhr Risk Services of California Insurance Brokers; Secretary-Treasurer: Timothy R. Manaka Jr. of FIA Insurance Services Inc., IIABA State National Director: Andrew J. Valdivia of White & Co. Insurance Inc. Elected to the IBA West Board of Directors were: Northern California Regional Director Irene M. Sabourin of John O. Bronson Co. Inc.; Southern California Regional Director Jeffrey F. Lang of Wells Fargo of California Insurance Services Inc.; At Large Director Melissa A. Phillipp of Phillipp & Associates Insurance Services Inc.; and Associate Member Director Pete Thrasher of Swett & Crawford.

Additionally, IBA West presented the Ramsden/Sullivan Memorial Award to James T. Armitage. The award recognizes an individual who exemplifies the highest caliber of service to the American agency system, the insurance industry and the community.

Armitage is vice president of Arroyo Insurance Services Inc., a firm he founded in 1986 and is located in Arcadia, Calif. He began his career in insurance as a commercial casualty underwriter and marketing representative with Aetna Casualty and Surety Co. In 1981 he joined Carr, Beedle, Hastings and Dennis.

Kathleen Haskell and Christopher Smyth joined Venture Insurance Programs’ Preferred Club Program’s team of underwriters. In their new positions, Haskell and Smyth will write new business and renewals, market and sell Preferred Club products and services, as well as maintain relationships with carrier and broker partners.

Haskell most recently served as a senior underwriter for AIG Specialty Excess. She has also held previous positions with Patriot Underwriting Managers, Commonwealth Risk Services and Marsh & McLennan Inc. Smyth most recently served as underwriter at C&R Insurance Services, where he generated new business with a focus on lawyers’ professional liability.

Irene Sabourin

Jeffrey Lang

Willis HRH, the North American retail division of Willis Group Holdings, named Mike Phillips regional growth leader for its South Central Region and David Hofele regional growth leader for its West Region.

Phillips and Hofele join a team responsible for enhancing client retention, expanding existing relationships, driving cross-selling strategies, supporting and growing the Willis Client Advocate program, and generating new business.

Phillips was formerly production team leader for HRH of Colorado. He has also held positions with Zurich and

12 | INSURANCE JOURNAL-WEST REGION March 23, 2009

Liberty Mutual.

Hofele previously served as president of HRH’s Bay Area and Northern California offices. Prior to joining HRH, he held positions with Palmer & Cay Inc., a privately held insurance broker, and with the law firm of Suelthaus & Walsh, in St. Louis, Mo. The company also made a series of senior leadership appointments in its retail brokerage business, in connection with its merger of Willis and Hilb Rogal & Hobbs (HRH) last year.

Tom Coughlin was promoted to national partner for Willis HRH, and will assume responsibility for captives, enterprise and risk finance, claims and risk control, pooling, programs and the private client segment. Coughlin, who joined the Willis New York operations in 1989, was formerly director of marketing for Willis North America.

Tom Ealy was named national partner in charge of the commercial segment for Willis HRH, a business serving small and medium enterprises that represents more than 75 percent of Willis HRH’s combined clientele in North America.

Leslie Nylund, who formerly led Willis’ New York Metro Region, was appointed chief placement officer and national partner for Willis HRH, in charge of the company’s North America, London and Bermuda carrier relationships and placement strategy development.

Succeeding Nylund as head of Willis’ New York Metro Region is Todd Jones, who also will oversee the company’s retail brokerage businesses in New Jersey, southern Connecticut, upstate New York (Buffalo), eastern Pennsylvania (Philadelphia) and Delaware.

Property/casualty insurance company Zenith National Insurance Corp. said board member Leon Panetta resigned to become director of the U.S. Central Intelligence Agency. President Barack Obama chose Panetta, a former chief of staff to President Bill Clinton and a former Democratic congressman from California, to head the agency.

Panetta had served as a member of Zenith’s audit committee and its nominating and corporate governance committee.

Zenith named Jerome L. Coben, a partner at Zeughauser Group, as Panetta’s replacement. Coben will serve on the audit committee and the health care committee.

San Diego-based Cavignac & Associates appointed Amanda Hatcher director of first impressions, responsible for ensuring that client visits run smoothly, answering client requests and performing various office duties, among other tasks.

Before joining Cavignac & Associates, Hatcher served for two years as a health coach for American Specialty Health in San Diego. IJ www.insurancejournal.com

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West Coverage News & Markets

The Case for Confronting Fear Study Shows Policyholders Eager to Address Economic Crisis With P/C Agents

By Brenda Rhodes

W

reaching a fever pitch, one of the nations’ largest insurers implemented a phone call campaign to offer insurance policyholders the opportunity to meet with a financial strategist as a supplement to a policy review appointment. Unfortunately, just three days later, on October 6, Wall Street suffered the biggest one-day loss since the Great Depression. With client portfolios going up in smoke, it initially appeared that the phone campaign should be aborted.

After all, surely no one wanted to talk about finances at a time when millions had just seen their financial futures evanesce.

However, instead of bowing to the presupposed fear that policyholders would be reluctant to talk about their policies (or worse, that clients would decide to try to trim policies to save money during a meeting) the insurance company continued the campaign. Appointment setters for the insurance agents would stand in the face of the fear, and continue placing phone calls.

The first week of the three-month study A Case for Facing Down Fear revealed that the economic crisis was stressConsider the following study. On Oct. 3, ful on clients, and policyholders had no 2007, just as the economic turmoil was interest in meeting with their agent, let alone meeting with a virtual stranger to discuss finances.

That was disappointing, but not surprising.

Something needed to change.

After reviewing the data, it became clear that the phone call script needed to be modified. Seemingly Insurance agents’ success in setting appointments with clients improved when appointment setters minute changes offered ways to find savings and policy reviews, instead of just offering new products, according to a to the call script study by InTouch Corp. made a world of ith the parallels being drawn between the nation’s new Administration and President Franklin D. Roosevelt’s Administration during the 1930s Depression, it makes it even more ironic that results from a recent appointment-setting study so poignantly reflect some of FDR’s most famous words: “The only thing we have to fear, is fear itself.”

The escalated, collective economic fear that FDR addressed is one that most will argue has not been felt again — until now.

In short, people are scared. They are scared of losing their jobs, their homes and their nest eggs. Many have already lost those things, and all indications are that more will lose them in the future. Fear is driving people to pinch pennies, cut costs and save money, by any means necessary.

But how does FDR’s speech parallel what’s happening in the property and casualty insurance industry? And more importantly, what can be done about it?

14 | INSURANCE JOURNAL-WEST REGION March 23, 2009

Rhodes

difference.

By mid-October, appointment setters began using the new script to directly address the economic crisis when calling clients on behalf of agents to arrange for a policy review. The tide swiftly turned, and clients expressed gratitude in being able to vent their frustration. And, the ratio of appointments set for agents began to climb.

The decision to open up the dialogue of addressing clients’ fear, from the moment the call was made, was a sound decision.

Agents’ clients reported feeling relieved and eager to have the opportunity to discuss their insurance policies and to receive financial counseling and advisement. And when compared to the lack of appointments being set in September and early October, as the economic crisis was unfolding, the appointment setting ratios had markedly increased.

Becoming Fearless Knowledge or information is generally accepted to be one of the leading antidotes to fear. As seen in the phone call campaign study, addressing clients’ fear in the current economy has a positive impact for insurance agents. By addressing panic and fear, rather than retreating in the face of the global financial meltdown, agents can comfort clients, thus reducing some of their fear.

This is achieved through meetings to review clients’ individual circumstances.

Secondly, the decision for insurance agents to confront their own fears (the fear that calling clients during these economic times may backfire, propelling them to begin thinking about saving money on premiums) is a protective mechanism. Being proactive and reaching out to clients to inform them of changes to their policies, including potential increases in premiums, shows the agent’s willingness to provide knowledge or information. That gives clients a sense of power. In scary economic continued on page 16 www.insurancejournal.com

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times, a sense of power is comforting.

Consider that a client’s homeowners’ policy is set to increase, even slightly. Although the fear that the client may decide to defect to a competitor is real, and perhaps even valid, that fear must be overcome. Deciding to reach out to clients prior to a change empowers agents, as well as empowers

clients, as they are given warning and are thus prepared. On the contrary, submitting to fear and neglecting to inform clients of changes, only to have them learn of increases via their premium bill, takes clients’ power away and more than likely, results in ire.

Suffice to say, in this economy the last thing any P/C agent or broker needs is angry

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clients. Angry clients will often defect to a competitor without batting an eye.

To diffuse a phone call that may be seen as delivery of bad news to a client, another study’s results can be used as a guide to overcome agent and client anxiety. The study findings showed that when calls were made to clients offering a policy review, the appointment setting ratio (during time of economic crisis) was 20 percent.

However, modifying the call script to introduce savings to the client — to combat the negative economic news — and inviting the client to join in a policy review, drove the appointment setting ratio up to 33 percent.

Further evidence that savings are the top priority for clients can be seen in the dismal appointment setting ratios when clients were only offered new products with no mention of savings. That yielded an 8 percent appointment ratio. Clearly, this is not the time to be trying to sell new products, without trying to save the clients’ money.

Will offering savings have a negative impact on an agent’s commissions?

Yes and no. It is more than possible that in saving clients money, insurance agents will take a bit of a hit in the wallet. Yet as any successful agent knows, even during an economic crisis it is important to focus on saving money, as well as planning to make money as well. An initial decrease in commission is nothing compared to losing a client altogether. When the economy settles a bit, there will be time to modify policies, sell new policies and update existing policies. That’s when money will be made, if it’s been planned for.

When agents eliminate their own fears, and are able to staunch client fears, what is left to be afraid of? Not much. Consumers will continue to require insurance for their homes. Business owners need insurance for their office space, and drivers need auto insurance. There will forever be a need for professional agents and brokers, and the products they provide. With no end in sight for the demand of services, it is clear at the very least, that the only thing insurance professionals truly need to fear, is fear itself. IJ Rhodes is CEO of InTouch Corp., a CRM and insurance review appointment-setting service company. E-mail: brhodes@In-TouchCorp.com. www.insurancejournal.com

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National Coverage News & Markets

Survey: Commercial Lines Pricing Drops 3% in Q4 T he commercial lines insurFourth quarter CLIPS findings ance market showed more indicate that product lines and signs of price stabilization in the market segments experiencing the last quarter of greatest reduc2008. tions in pricing ‘The underlying Commercial over the last deterioration in insurance prices few years — underwriting saw just a slight most notably results, coupled with workers’ comdecline of 3 percent during the pensation, unprecedented fourth quarter of property and investment losses, 2008 compared to are contributing to a large accounts a year ago — rep— may have slowing of pricing resenting the begun to stabideclines.’ smallest reduclize. tion in the past The survey eight quarters — according to also revealed that pricing reducTowers Perrin’s commercial lines tions in those areas are now generinsurance pricing and profitability ally in line with activity in other trends survey (CLIPS). commercial lines, with the excep-

tion of specialty lines, where, consistent with recent quarters, price changes remained fairly flat.

The survey also show that accident-year 2007 loss ratios deteriorated 7 percent relative to 2006, and that accident-year 2008 loss ratios rose an additional 12 percent versus 2007. The deterioration is a continuation of a five-year trend as, overall, prices have eased 11 percent since 2004, despite ongoing increases in loss inflation.

“The underlying deterioration in underwriting results, coupled with unprecedented investment losses, are contributing to a slowing of pricing declines,” said Jeanne Hollister, Towers Perrin managing principal and proper-

ty/casualty insurance practice leader for the Americas region.

“Although the property and casualty industry remains strongly capitalized in the aggregate, we expect that the surplus declines in 2008 will result in increased conservatism in companies’ risk appetite. We believe that this, in turn, will lead to a gradual, general firming of prices throughout the balance of 2009.”

Towers Perrin’s CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. The survey track the differing trends in pricing across region, line of business, and account size on a quarterly basis. IJ

General Liability Losses, Expenses Likely to Rise Rapidly

National Flood Insurance Program Gets Short-Term Extension

T

C

he general liability line of insurance has produced industry-wide combined ratios below 100 percent for the past two years, but this profitable underwriting performance is unlikely to continue, analysts say.

General liability losses and expenses are expected to increase faster than premium increases in the next couple of years, according to a new study by Conning Research and Consulting, “We project that the next couple of years will see a moderating in general liability premium reduction, gradually leading to a modest increase by 2010,” said Mark Jablonowski, analyst at Conning Research & Consulting.

However, losses and expenses are forecast to grow more quickly, analysts say, with a resulting rise in combined ratios reaching 107 percent by 2010.

“In the longer run, the future of www.insurancejournal.com

the general liability insurance market will play itself out between the cumulative effects of small to moderate losses and the rising prospect of mega-risks,” Jablonowski said.

The Conning Research study, “General Liability: Staying Relevant (and Profitable) in the New World of Risk,” identifies the issues facing the market.

“History has shown us a cyclical increase in general liability losses in periods following recessions,” said Stephan Christiansen, director of insurance research at Conning. At the same time, longer term secular trends point to an increase in both smaller claims and larger mega risks. “Longer term, the best prospects for general liability insurers may come from expanding the model of specialization in risk that has already proven to be a successful differentiator among companies.” IJ

ongress passed a measure extending the National Flood Insurance Program through Sept. 30, 2009, under the omnibus appropriations bill.

The NFIP extension was set to expire at 11:59 p.m. on March 6, but Congress passed a continuing resolution to extend funding to federal programs under the omnibus bill, including the NFIP through March 11. Then on March 11, Congress passed the omnibus bill, which ensures a temporary extension of the NFIP until further reform can be debated.

If the NFIP had expired, agents and brokers would have no longer been able to write, renew or endorse NFIP policies.

“Allowing the program to expire would have very negative consequences for policyholders and also for the nation’s econo-

my,” said David A. Sampson, president and CEO of the Property Casualty Insurers Association of America.

Insurers and other industry groups hope that more work will be done to provide a longterm solution to problems that have plagued the NFIP for years.

“We will work closely with the House and Senate to advocate a long-term extension that preserves the program’s viability and does not needlessly expand its scope into other areas, such as windstorm insurance, where coverage is already available through private industry or state programs,” Sampson said. IJ

March 23, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1

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Special Report HOT Markets and Programs

HOT Prospects Come in Unusual Packages MyNewMarkets.com’s Top 10 Oddest Market Searches and Requests

By Christopher Boggs

A

“hot” risk from an agent’s view is the one sitting on his or her desk demanding immediate attention. Sometimes those hot prospects aren’t business owner policy or even standard-carrier-eligible; in fact they can be pretty darn strange.

MyNewMarkets.com, Insurance Journal’s Web site designed to bring agents and brokers/wholesalers together, sees its share of odd risk types and requests. A review of the market request forum at any given time will produce some very “unique” risks. Remember, unique is code for bizarre, weird or just unbelievable. But no matter how unique the risk, there is usually a market willing to supply the needed protection.

Insurance Journal’s editorial staff reviewed the forum posts for the past several months and selected the 10 most unusual market requests/searches applying highly scientific methodology — if it made us shake our collective head, it made the list.

From 10 to one, here are the strangest market requests from the past few months: 10. Timberland 9. Halfway House Operation 8. Air Traffic Control School 7. Tourist Trolley Operator 6. Snow Machine Rentals 5. Dating Service Operation

4. Sand Rail (Dune Buggy) Operation 3. Tailgate Party Bus Operation 2. Circus Arts Instructor Liability 1. Exotic Snake and Reptile Breeding Operation

and underwriting guidelines for a few of the listed risks. For example, Risk Placement Services Inc.’s Vice President of Property Bob Hecht stated that both ACE and Axis have a lumber industry-related risk specialist, making them good markets Stump the Market for the strangest risk number 10 — timIn an attempt to stump the market, the berland. list above was sent to several brokers Questions about coverage availability for across the country. The insight provided halfway house operations (#9), air traffic by the respondents was enlightening, and control schools (#8) and dating service the coverage availability for even the operations (#5) produced valuable understrangest risk was intriguing. writing information in addition to marketZach Mather, a broker in CRC’s related data. Halfway houses were broken Alabama office, said, “We into two categories prior can always find a market.” ‘Unique’ is code for to the discussion of covThis seems to be true. The erage availability; the bizarre, weird or combined panel successdiscussion of air traffic fully provided markets for just unbelievable — control schools focused nine of the risks presenton the professional liabut no matter how bility exposures; and the ed, although no single broker/wholesaler claimed ‘unique’ the risk, unusual sexual assault to be able to find coverage exposure faced by datthere is usually a for all 10. The sand rail ing services were dis(dune buggy) operation cussed. market willing to was the only market none Placement for halfway supply the needed houses depends on the of the five respondents said they could or would type of operation, protection. place. according to Ken Beyond a simple “yes, we will write the Kukral, president and CEO of coverage,” or “no, not something we want;” International Excess Companies in each of the brokers provided more Richmond Heights., Ohio. Kukral stated, detailed information regarding markets continued on page N4

N2 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

www.insurancejournal.com

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Special Report HOT Markets and Programs HOT Prospects , continued from page N2

Managers and also one of Lloyds’ “General Star and HCC Insurance Co. have errors and omissions programs. a detention facility program that could do Dating service operations presearly release halfway houses. If it is a drug ent a unique professional liability and alcohol halfway house or a homeless challenge, Parrish said, noting, “I’ve shelter/halfway house, we could go to seen several dating services in the Evanston Insurance Co, Lloyd’s or Red past five years or so, and never Mountain Insurance Co.” found one that anyone was willing Joshua J. Parrish of Arrowhead Wholesale to cover due to the possibility of Insurance Services’ executive and professexual assault exposional risk division in San Diego, said he can proPremium may not sure and lack of background screenvide professional liability ing.” for a halfway house oper- be the only mini“For the most ation providing substance mum required by part we have a marabuse recovery, but not ket; it is just a matfor a convict early release the underwriter. ter of if it is large house. “I would write a Some markets enough to meet the halfway house with Midrequire a miniminimum premium Continent GA, a wholethreshold,” stated sale servicing (no retailer mum of units in Walt Sams, a marapplications) MGA that the operation. keting representawrites for ProNational/ tive with ProAssurance.”

Appalachian Underwriters Inc. His Kukral and Parrish also zeroed in on the point is well-taken; because of the professional liability markets that would unusual nature of those and other and could entertain an air traffic control like risks, underwriters generally school. Parrish said, “If they’re looking for expect a minimum premium to take on educators’ liability, my favorite market for such unusual risks. that is United National.” Kukral reported Premium may not be the only minimum that he would approach Aviation Insurance

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required by the underwriter. Sams reported that in order for a tailgate operation (#3) to gain coverage, his markets require the insured to have a minimum of three units in operation.

Snake and Reptiles But what of the No. 1 strangest risk; who will write an exotic snake and reptile breeding operation? Kukral led Insurance Journal to Lester Kalmanson Agency Inc. A review of this specialty agency’s Web site is a walk through weird — it says so on the site. The home page contains pictures of alligators, zebras and a rhinoceros — what better place to find coverage for snake and reptile breeding.

The old adage, “One man’s trash is another man’s treasure,” can be rewritten for use in the insurance world too.

“One agent’s weird is another agent’s livelihood.” Even the bizarre have a home — somewhere. IJ Boggs is associate editor of MyNewMarkets.com. Phone: 619584-1100 ext. 137 Email: cboggs@mynewmarkets.com. www.insurancejournal.com

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International Coverage News & Markets

Sports Terrorism, ‘Names,’ Tongues and Mergers

By Charles E. Boyle

A

re professional sports the next terrorist targets? The terrorist attack on Sri Lanka’s cricket team in Lahore [Pakistan] “highlights the vulnerability of sporting events to terrorist disruption,” warned Dr. Gordon Woo, terrorism risk expert at Risk Management Solutions (www.rms.com). “A characteristic of terrorist behavior is learning from success elsewhere.”

Woo stressed that “with concern rising over copycat attacks on other major sporting events,” their insurance coverage is liable to become increasingly expensive, including the 2012 Olympic games in London.

Arsene Wenger, the French manager of the Arsenal Football [Soccer] Team, added his concerns. He noted that sports, especially international competitions such as the Football World Cup, are high-profile events. His own team has received threats, but hasn’t publicized them.

As a result, sports make tempting targets for “extremists.”

Woo noted, however, that the “terrorism insurance market has softened considerably since 2003, when FIFA securitized the risk of the 2006 Football World Cup being cancelled.”

The end of more than 20 years of litigation may be in sight, following a recent UK Appeals Court ruling in favor of Lloyd’s against claims of fraud by former individual ‘names.’

As Lloyd’s [www.lloyds.com] explained, the latest judgment upheld a July 2008 ruling that struck down “a claim brought by 50 names against Lloyd’s alleging that the description of reinsurance to close (RITC) in Lloyd’s brochures and its verification forms back in the 1980s was fraudulent.”

In that decision, Justice David Steel, found that Lloyd’s had not made any false representations with regard to RITC and that there was no evidence that Lloyd’s had acted dishonestly.

He also held that the claim was “unquestionably an abuse of process.”

However, the Court of Appeal found that the names’ application to appeal was “totally without merit” and was “just part of the continuing abuse of process of the court by dissat-

N6 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

isfied names who are perpetually trying to find new ways of accusing Lloyd’s of fraud.”

Lord Justice Longmore made the decision even more emphatic, stating that the litigation pursued by names “must now come to an end.”

He held that extended civil restraint orders against the 50 names, preventing them from pursuing fresh litigation, must remain in place.

Lloyd’s General Counsel Sean McGovern called the decision a “complete vindication of Lloyd’s position through a decade of litigation,” adding that it “marks the end of perpetual litigation trying to reopen matters that have been definitively laid to rest by the Court on a number of occasions.”

Lloyd’s not only won its court case, it also insured a coffee taster’s tongue for £10 million ($13.78 million). The coverage on Gennaro Pelliccia, Costa Coffee’s Italian Master of Coffee, continued Lloyd’s centuries-old tradition of accepting unusual risks.

Pelliccia is glad to have the policy. He explained that his 18 years of experience enables him to distinguish between thousands of flavors, and to “search out any defects, which help guarantee Costa’s unique Mocha Italia blend.”

Lloyd’s noted that the “average tongue has approximately 10,000 taste buds, which means Costa has in effect insured each of Pelliccia’s taste buds for £1,000 (approximately $1,400).

He’s not unique; over the years Lloyd’s has insured other tongues, notably for wine tasters and wine merchants. A Dutch wine maker, Ilja Gort, even insured his nose for £5 million ($6.32 million).

Sompo and NipponKoa, two major Japanese property/casualty insurers, have announced preliminary merger plans, as the trend toward consolidation continues. Japanese insurers are trying to reduce costs in order to cope with decreasing demand and an aging population.

The merger of the two would create a company with premium income of more than 2 trillion yen ($20.7 billion), putting it third in the Japanese non-life insurance industry with 25 percent market share. They would have a market value of about $10 billion. IJ www.insurancejournal.com

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Special Report Green Risks

Innovative Boats Need Innovative Agents Hybrid Boats Offer New Way to Sell Coverage to the Green-Minded Customer

By Chantal Cyr

H

ybrid boats are hitting the market and the growing popularity of hybrid and electric boats have directly impacted what boaters expect from their insurance. According to the NMMA boater registration report (Feb. 4, 2008) and U.S. Census Report (2006), one in 10 American families owns a boat.

Understanding new marine technology could help an independent agent land new boat and yacht customers and possibly grow the books of other personal insurance products.

Climate change, carbon footprint and biodiesel are all words and phrases that have become part of today’s lexicon as everyday Americans are constantly reminded about what they are putting into the environment.

As the new administration came into office, environmental issues have gained even more attention.

Increased focus on the environment, a slowing economy and record high fuel prices have all led the marine industry to develop new, innovative products. During the past few months, green boating has been grabbing headlines. Most of the news has surrounded electric boats, which use no fuel at all, and hybrids, which use an integrated propulsion system made up of fuel and electricity. Some hybrids even included solar Hybrid boats have panels like Island Pilot’s new DSe trawler. and yachts Boats from Frauscher will likely and Sea Ray have begun expand in implementing parallel hybrid systems powered popularity

by Steyr motors into one over the next of their models. These motors function much few years. like those found in hybrid cars. Eventually, it appears boat and yacht manufacturers will have a hybrid option in their lineup of vessels with the ability to both save on fuel and deliver the performance many boaters want.

What can an independent agent do to let www.insurancejournal.com

Cyr

customers know that they have what it takes to properly insure one of these innovative boats and yachts? There are four steps agents can take, with minimal investment, to gain the trust and loyalty from boaters interested in the newest technology on the market.

Talk to boaters about mechanical breakdown coverage. Early adopters are often the ones who want the newest gadget and the most innovative technology on the market. However, some of them might be anxious about the durability of new systems that are being used. Mechanical breakdown coverage that is included in some boat and yacht policies could ease the mind of an early adopter who is looking forward to

mixing water with electricity. Taking the time to find a carrier that includes this coverage can build trust with a customer through a shared understanding of what matters most — being able to get the boat back in the water quickly should something break without a major out of pocket expense.

Understand which carriers know boats and yachts the best.

Matching customers with insurance carriers that have highlevel claim service will build loyalty with that customer should the unfortunate event of a claim occur. If an auto or home adjuster who is not a boat expert visits a boater that has a claim, are they going to believe that carrier or agent has any idea continued on page N8

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what’s best for their watercraft? Probably not.

This factor is even more important with boaters who are more sophisticated and have made the investment in new, more complex technology. Partnering with carriers that have a good understanding of the innerworkings of the various applications of “hybrid” technology will help deliver a positive experience for the customer.

Provide tips and information focusing on customers’ environmental interests. Someone buying a hybrid boat may not only be an early adopter of new technologies, but they may be paying serious attention to how they can reduce their environmental impact. Connecting with customers about two of their passions, boating and the environment, could help to develop a loyal relationship with that person. This also creates an opportunity to inform customers about new environmentally friendly behaviors for boating, home maintenance or car care to include in their life and the insurance implications of doing so.

Get out of the office and attend a local boat show, if possible. Some of the best feedback heard from agents is how they have made connections in the marine industry and are regularly updated on some of the latest trends at local shows. Meeting boat dealers at shows will let them know the insurance agent is committed to the marine industry and is a name that the dealer’s customers can trust. Dealers appreciate this because they can then set a customer up with an agent they know ensuring the customer has a good boat-buying experience.

Hybrid boats and yachts will likely expand in popularity over the next few years. Instead of waiting to learn about them after they have flooded the market, use this time to take a leadership position in understanding these vessels. Doing so now could help to provide a competitive advantage for an agency by delivering knowledgeable service to the consumers who are buying them. IJ Cyr is vice president of the boat and yacht division for Travelers. She joined Travelers in 1986 and has more than 13 years of experience in the marine industry.

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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.

Misc. Medical Malpractice Market Detail: NAS Insurance Services

Inc. (www.nasinsurance.com) gives agents the ability to provide stand-alone medical

malpractice coverage. Coverage can also be provided packaged with general liability, and excess liability up to $5 million is also available. Special features include incident reporting and full prior acts coverage. The policy can be endorsed to make defense in addition to the limits of protection and to extend coverage for sexual abuse and molestation up to the full limits of liability. Punitive damages are automatically included where insurable by law. Surgery centers, MRI facilities and dialysis centers are also eligible. Minimum premiums begin at $2,000 and deductibles start at $1,000.

Available Limits: $1 million to $3 million (with the availability of excess coverage).

Carriers: HCC and HCS. “A” rated by A.M. Best. Non-admitted.

States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.Y., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., Wis. and Wyo. Contact: David Leventhal at 818-808-4464 or e-mail dleventhal@nasinsurance.com.

Golf Courses and Country Clubs Market Detail: Fairway Underwriters Inc. (www.fairwayunderwriters.com) allows agents access to an insurance program for daily fee golf courses and country clubs.

Fairway’s Club Champion CMP policy can now be extended the same coverage to selected distressed courses which are for sale, in foreclosure or in receivership.

Program highlights include: tee to green property coverage, herbicide/pesticide pollution liability, non-reporting equipment coverage, rating based on rounds played, along with many other coverages. Workers’ compensation, umbrella liability and directors’ and officers’ coverage are also available.

Some coastal courses are eligible for wind coverage. Minimum premiums begin at $2,500.

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Available Limits: As needed.

Carriers: QBE. “A� rated by A.M. Best.

Admitted.

States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., La., Maine, Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., N.H., N.J., N.M., N.Y., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis. and Wyo. Contact: Fran Coulter at 800-662-2141 or e-mail fcoulter@fairwayunderwriters.com.

Private Money Lenders REO/FP Market Detail: Innovative Risk Solutions Inc. (www.irs-incorporated.com) offers agents a source for their private lending clients in need of an REO and “forced placed� coverage market.

Private, non-bank lenders need a market for property protection when/if the mortgagor fails to secure the correct property protection. In this program, rehab property and vacant property are acceptable. Policies can be administered online and the insured has instant access to an Evidence of Insurance. Monthly billing is available. Deductibles begin at $2,500.

Available Limits: Up to $100 million.

Carriers: Lloyd’s. “A� rated by A.M. Best. Nonadmitted.

States: All. Contact: John Watt at 954-931-4795 or e-mail jwatt@irs-incorporated.com.

Mortgage Broker/Banker Professional Liability Market Detail: Gresham & Associates (www.greshaminc.com) has facilities for mortgage broker/banker professional liability which includes sub-prime loans and prior acts coverage. Investor required errors and omissions coverage is also available through a Special Mortgage Bankers Bond naming the investor as the loss payee. Minimum premiums begin at $2,500.

Available Limits: $1 million to $5 million.

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

States: All. Contact: Art Hays at 888-473-7444 or e-mail ahays@greshaminc.com. IJ

Miscellaneous Professional Liability 24 Hour Gas / Convenience Stores Commercial Property Lessor’s Risks Commercial Umbrella Non-profit Director’s & Officer’s Liability

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Special Report Green Risks

Greener Insurers Compete for a Growing Green Industry

By Andrea Ortega-Wells

J

im Henson’s famous Kermit the Frog said it the best, “it’s not easy being green.” Today’s property owners and insurers understand that while it’s not easy, being green can be profitable.

The green building market is steadfastly growing even in tough economic times.

“The green building movement is alive and well despite current economic conditions,” says Fireman’s Fund’s Steve Bushnell, the first property/casualty insurer to create insurance coverages specifically for green buildings.

While Fireman’s Fund Insurance Co. released the industry’s first green commercial building insurance product endorsement in October 2006, the insurer is no longer alone on this front as a number of other insurers have since developed green insurance products in both personal lines and commercial lines.

Marsh’s “Green Built Environment in the United States” report updated in December 2008 says there’s a growing interest among insurance companies in green building.

Insurance companies such as AIG, Zurich, CNA, Travelers, Liberty Mutual and Chubb — to name just some — already have green insurance coverages on the market.

“The U.S. Green Built Marketplace continues to grow at a rapid pace,” the Marsh report concludes. “There is increasing interest by the insurance marketplace in understanding the risks and benefits of building green.”

Christine Alderman, new products and services manager for Chubb Personal Insurance, agrees and believes as the green industry conN12 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

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Opportunities tinues to evolve so will the insurance industry and its product offerings for the green sector.

“I think that we will see more of a market for green and green rebuilding products as well as insurance,” Alderman said.

Growing Green Market By 2013, the overall green building market (both residential and non-residential) is expected to more than double, which could offer opportunities for insurance companies and their agents.

Today the green building industry is estimated to be 10 percent to 12 percent of the current commercial and institutional building market, or about $36 billion to $49 billion. But McGrawHill estimates the industry will grow to represent 20 percent to 25 percent of new commercial and institutional construction starts, or from about $96 billion to $140 billion in size.

And these estimates could perhaps be on the low end, the U.S. Green Building Council (USGBC) says.

Even in a dismal U.S. economy, recent studies and reports point to green building as one of the bright spots. The USGBC reported that in 2008, the numbers of both Leadership in Energy and Environmental Design (LEED)-registered and LEED-certified projects doubled — from about 10,000 registered projects at the end of 2007 to more than 20,000 by the end of January 2009.

Some 75 percent of commercial real estate executives — including developers, rental building owners, brokers, architects, engineers and others — say the credit crunch will not discourage them from building green, according to Turner Construction Co.’s “Green Building Barometer.” In fact, 83 percent said they would be “extremely” or “very” likely to seek LEED certification for buildings they are planning to build within the next three years.

While in years past, the majority of green commercial buildings could be found in federal or state office buildings, that’s no longer the case, says Fireman’s Fund Bushnell.

Green building has “spread to the private www.insurancejournal.com

sector and office buildings …. hotels, multifamily, hospitals, public and private schools,” Bushnell says. “We’re seeing that the green building movement has become well entrenched and has spread to nearly everyone who owns a building.”

The greening of existing buildings is one of the fastest growing areas in the green building movement as well.

Studies indicate commercial property owners have an interest in updating their existing stock of buildings in many green ways. More than 80 percent of commercial building owners have allocated funds to green initiatives, according to “2008 Green Survey: Existing Buildings,” a survey jointly funded by Incisive Media’s Real Estate Forum and GlobeSt.com, the Building Owners and Managers Association International and the USGBC. And 45 percent of commercial building owners say they plan to increase sustainability investments this year.

Homeowners also are looking to buy green properties or green their current properties as a way to save money and protect the environment, studies suggest. Some 70 percent of homebuyers are more or much more inclined to buy a green home over a conventional home in a down housing market, according to McGraw-Hill Construction’s 2008 SmartMarket Report, “The Green Home Consumer.” That number is 78 percent for those earning less than $50,000 a year, the report claims. The report also notes that 56 percent of respondents who bought green homes in 2008 earn less than $75,000 per year; 29 percent earn less than $50,000.

“Homeowners are increasingly conscious of the need to preserve natural resources and protect the environment,” said Alderman of Chubb, which introduced its Masterpiece GreenWise Upgrade coverage option in February 2009. This product will pay the difference between rebuilding the house as it was

and rebuilding green. “Homeowners are increasing recognizing the economic value of going green, as it can save them thousands or tens of thousands of dollars over the long haul,” she said.

Green Commercial Markets In the commercial property insurance sector, in particular, Marsh notes that more carriers have entered the marketplace with increased capacity and varying products.

One insurer to recently enter the green market is CNA Insurance.

In early March, CNA introduced its EcoCare commercial property upgrade extension endorsement, which will allow policyholders to repair or replace damaged property using environmentally responsible and resource efficient materials and processes.

“The green initiative is all around us,” said Katie Wilson, who helped develop CNA’s new EcoCare property endorsement. She said the insurer decided to create the endorsement because of customer demand.

Today’s customers are searching for more green alternatives in the event that they have a loss, she said.

While the EcoCare product is the first green product to come from CNA, Wilson says more green coverages are in the works. “The building product is really our first launch,” she said, noting the coverage applies to any property coverage across the enterprise. “But I think what you’ll see from us is probably more green products tailored for industry groups and maybe even some different customer groups,” she said.

Determining proper values to avoid being underinsured at the time of a loss or to avoid being charged too much premium is a critical aspect in the process of obtaining green cover-

‘The green building movement is alive and well despite current economic conditions.’

continued on page N14

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Special Report Green Risks Greener Opportunities, continued from page N13

age, Marsh wrote in its “Green Built” report.

Examples include valuing the cost of vegetative roofs and alternative water and energy systems, which can be difficult to value because they often involve new materials and technologies, the broker wrote.

Liberty Mutual’s Ann Butterworth, lead underwriter for the insurer’s commercial property green building coverage, agrees and advises agents to consider the possibility of coverages gaps for green upgrades after a loss. This is more important considering today’s trend of commercial property owners that want to go green in the future.

“Most of the normal commercial insurance policies are written on a replacement cost basis,” Butterworth says. “That policy is only going to replace that product that they currently have. It’s not going to upgrade them for the additional costs that it might be to go green.”

Another thing agents should consider is changing state or federal building codes, especially in states like California. “We know that those [codes] are changing,” she said, adding that some codes require or will require customers to rebuild green after a loss. “And if they don’t have the correct coverage on their insurance policy, they will end up absorbing that cost themselves,” Butterworth said.

Liberty Mutual introduced its commercial property coverage for green buildings just a year ago and Butterworth says the product has been “attracting attention.”

However, she’s surprised that more businesses are not buying it, especially given the changing regulatory land-

scape. “We’ve definitely had some great success with a number of prospects and our old clients, but we haven’t sold as much as you might have expected, given the fact that every day in the press you keep hearing about all this new green building,” she said.

Butterworth advises agents to help their insureds understand the cost differential between typical run-of-the-mill building products and green products.

While some say that cost differential is leveling off, most green products will still cost more, as high as 25 percent more in some instances, Butterworth said.

This might make the case for why they need to purchase the green coverage, she says.

‘We will see more of a market for green and green rebuilding products as well as insurance.’

First to the Market As a number of insurers have jumped into green insurance products in the past year, the first to launch green coverage was Fireman’s Fund.

Today Fireman’s Fund offers green coverages for both personal lines and commercial lines, including products to insure green homes and endorsements to upgrade green after a loss, green coverages for commercial buildings and manufacturers, and coverages for green cars, both personal auto and commercial auto.

According to Bushnell, the green coverage product that has displayed the most success thus far has been its green upgrade product, which provides coverage for upgrading with green materials or green products following a commercial property loss.

“That product has been very popular in the marketplace,” Bushnell said. “We launched in 2006 and the premium associated with the accounts that purchased it at that time was about $5 million through 2006. At the end of 2007, the premium was $20 million. We expect that the premium when we have all of our yearend numbers for 2008 will be $100 million.”

Bushnell said when the insurer first launched the initial green property coverage endorsement in 2006 he believed green properties would be a better risk than those that were comparable non-green risks. So far, that’s proven to be true, he said.

“We’re probably smarter on risk elements of

N14 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

green buildings than we were when we launched the product,” he said, “but overall, we do believe that green buildings are better physical risks than traditional buildings.”

So far, the loss experience on green properties has backed up Bushnell’s belief. “We’ve had just a handful of losses with all the accounts that have purchased the coverage and most of them have been relatively easy to adjust and settle,” he said.

Whether a green risk is a better risk remains to be seen, said Charlie Kingdollar of Gen Re at the Golden Gate CPCU All Industry Day. Kingdollar, who was a participant on a CPCU panel discussing green risks, says he knows of 14 insurers with green property coverage endorsements today and some are giving away the coverage or offering huge premium discounts because they believe green properties are better risks. But Kingdollar is not convinced that green risks are better insurance risks.

“No one really knows at this stage,” he said.

“For instance, for insulation, people are using denim that has a fire retardant on it. Well how long does the fire retardant last? Is it equivalent to fiberglass insulation?” he asked.

Overall, he believes green products are here to stay, but he thinks the jury is still out on whether they’re better risks, and he questions whether they’re worth the huge premium discounts — some as high as 40 percent — that some carriers are offering.

“It is such a new field that I think the one thing that we have learned most clearly is that we have to stay on top of this,” Liberty Mutual’s Butterworth said. “It is an evolving market and it requires a lot of attention.”

Right now, all indications are that green risks are better but most of the evidence is anecdotal, Butterworth adds. There are not enough green buildings and there hasn’t been enough time to study their exposures, she said.

“But over time we will be able to do more studies and the USGBCs of the world will be able to prove that a green risk is better,” Butterworth explained. IJ www.insurancejournal.com

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Special Report HOT Markets and Program

Fastest Growing Industries to Focus On Top 7 High-Growth Industries’ Risks and Unique Exposures

By Chris Boggs

P

lanning for the “upside” must Management, Scientific and be closely monitored; begin now. The soft insurance Technical Consulting Services (5416) • If the employee works from home, one market will end, and the rebound Entities in need of professional advice of two specific homeowners’ policy from the financial bottom will and assistance seek the help of practitionendorsements may be required; and happen. But don’t try to predict when, just ers from this industry. The most common • Consulting firms, especially smaller get out in front and plan for it. clients for these consultants are business ones, will require an agent who can walk or manufacturing operations, and municithem through contractual risk transfer The U.S. Bureau of Labor Statistics (BLS) issues. lists those industries Management, Scientific and Technical Consulting Individual and Family Services (6241) expected to Services As America ages, more and more people experience This industry is expected to grow by around 22 percent by will seek and require the assistance of an the fastest 2016. Source: U.S. Bureau of Labor Statistics individual or family non-residential servgrowth ice professional. However, services offered between now pal and governmental by this industry are not limited to older and 2016. entities. Scientific and people; nonresidential social assistance is Because of technical consultants proalso available to children, those diagnosed the nature of vide more specialized with mental retardation or persons with those indusexpertise than managedisabilities. Counseling, day care, advocacy tries, the curment consultants. Specific and recovery help are some of the services rent financial knowledge, experience this industry offers. The BLS expects the crisis will do and/or training are number of workers employed in this field little to temrequired of these consultto increase between 25 percent and 30 perper growth, ants. Growth in this cent — mostly in the government sector. and some may even be pushed ahead faster industry is expected to be around 22 perWith municipal outsourcing on the rise, by the state of the economy. cent. Approximately one out of every four many private individual and family service Seven of the fastest growing industries professional consultants is self-employed, operations are likely to open to meet the are: 1) management, scientific and techniand 75 percent of consulting firms are onegrowing demand. Some insurance and risk cal consulting services; 2) individual and or two-person operations. Insurance covermanagement exposures agents and brokers family services; 3) home health care servicages and risk management needs for this should consider for non-governmental es; 4) securities, commodity contracts and industry include: entities providing these services are: other financial investments and related • Professional liability or errors and omis• Professional liability (for counseling and activities; 5) facilities support services; 6) sions protection (differs based on consultother professional services); residential care facilities; and 7) independing specialty); • Employment ent artists, writers and performers. practices liabiliEach of those seven presents unique Individual and Family Services ty protection to insurance and risk management exposures Workers employed in this industry will increase include thirdbeyond just the “vanilla” property and genbetween 25 percent and 30 percent by 2016. party coverage; eral liability coverages.

Source: U.S. Bureau of Labor Statistics • Fiduciary liaAfter a brief description of each indusbility (if helping try (taken from North American Industry • Kidnap and ransom coverage if workwith finances or Classification System - NAICS), the following internationally; managing proping paragraphs list the unusual insurance • Employment practices liability insurerty); and risk management needs faced by each ance providing third-party protection; • Coverage for of the seven industries. NAICS codes are • Fiduciary liability if advising on or sexual abuse and sexual harassment; parenthetically provided for reference. handling money; • Accident and health protection for This information will allow agents to plan • Due to the number of self-employed those being cared for and any volunteers for the upside pursuit of these growth consultants and small consulting firms, that may be hurt; markets. workers’ compensation requirements must N16 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

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• Directors and officers coverage; and • The insured should be fully licensed and trained as per state and/or federal guidelines.

Home Health Care Service (621610) Individuals requiring in-home skilled nursing services will search out these entities. The range of services offered by a home health care operation includes: per-

sidered work-related and an exception to workers’ compensation’s “coming and going” rule. This needs to be discussed with the client; and • Some type of licensing of the business may be required.

Securities, Commodity Contracts and Other Financial Investments and Related Activities (523) This classification encomHome Health Care Service passes a wide The number of employees in this field is expected to grow by between 23 percent and array of finan28 percent. Source: U.S. Bureau of Labor Statistics cial services including investment banking, commodities brokers, sonal care serv- trust officers and portfolio managers. The ices; homemak- economic downturn is not permanent, so er and compan- this will likely soon return to a growth profession. The BLS anticipates 25 percent ion services; to 30 percent growth in the number of physical therapy; medical social services; these professionals in the next seven years. medication administration; medical equipFinancial advisors in this class work under ment and supplies training; counseling; 24relatively high stress. About one-in-three of hour home care; occupation and vocational these financial advisors are self-employed. therapy; dietary and nutritional services; Some of the special insurance coverages speech therapy; audiology; and high-tech and risk management issues to be explored care such as intravenous therapy. The numinclude: ber of employees in this field is expected • Professional liability; to grow by between 23 percent and 28 per• Fiduciary liability and/or a dishonesty cent; and about one-third of these employbond; ees work part-time, according to the BLS. • Workers’ compensation needs must be Insurance and risk management considclosely analyzed. A high percentage of erations include: workers in this industry are self-employed.

• Medical malpractice coverage; Depending on the legal structure and the • Sexual assault and harassment coverage; subject statute, • Crime and/or even one-man fiduciary coverage Securities, shops may (depending on the Commodity Contracts, require protecservices being Financial Investment tion; and offered); Activities •Another work• Workers’ com- The industry will grow ers’ compensapensation cover- by 25 percent to 30 pertion issue is age — especially cent in the next seven occupational critical if the years. Source: U.S. Bureau stress. Because home health of Labor Statistics these profesagency pays the sionals work under high stress, any stresshealth care providers as independent conrelated injury or illness may be considered tractors; they may still be employees for compensable. workers’ compensation purposes. Lifting injuries may be prevalent; Facilities Support Services (561210) • If the health care professional works for Many businesses contract out their mainmore than one patient in any given day, the travel between patients will likely be concontinued on page N18 www.insurancejournal.com

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Special Report HOT Markets and Programs Fastest Growing Industries, continued from page N17

products and/or making speeches or public provide residential care and personal care tenance and other services such as janitoriappearances for which they receive a fee. services to facility-housed patients sufferal; general maintenance; trash disposal; The BLS anticipates 10 percent and 12 pering from many physical and mental issues, guard and security services; mail routing; cent growth in the number of individuals including those who: live with mental reception; laundry; and other related servengaged in these activities. About 30 perretardation; require on-going medical care ices. BLS anticipates a 20 percent growth cent of writers and 62 percent of actors are in this particular area. Employees working self-employed. in this industry may be unskilled or uneduA few of the unique insurance issues cated, or working it as a second job. Those faced by these free spirits includes: providing guard and security services may • Workers’ compensation coverage (a require special licensure. This industry majority are self-employed and need the tends to provide low pay and few, if any, protection); benefits. Special insurance considerations • Media professional liability protection; include: • Inland marine coverage for an artist • Fiduciary liabil- Facilities Support Services whose work is in a gallery or otherwise on ity/dishonesty This sector expects to grow by 20 percent by display; bonds; 2016. Source: U.S. Bureau of Labor Statistics • Disability income coverage; and • Professional (any age); suffer from a mental health issue; • Although not a property/casualty coverliability (i.e. law enforcement liability for age, health insurance is also a major expoor are elderly and desire group living but guard services); sure for these individuals. do not require continuous medical treat• Bailee’s coverage; ment (retirement home). Also included in • Because many workers are working in Completing the Top 10 this broad classification are employees of this industry as a second job, attention Rounding out the BLS’s top 10 growth children’s homes, “boot camp” facilities, must be paid to the benefits offered under industries are: 8) computer systems design half-way homes and orphanages. BLS anticworkers’ compensation in relation to the and related services operations; 9) museipates a 22 percent growth in this area. loss of wages from the primary job (if the ums, historical sites and similar instituSpecial insurance coverages and risk employee is unable to work it). This extentions; and 10) child day care service management issues include: providers. Each • Professional liability (for medical, counof these creates seling or other professional services); • Employment practices liability insurance its own unique exposure and with third-party coverage included; has individual • Fiduciary liability (if helping with risk managefinances or managing property); ment needs.

• Coverage for sexual abuse and sexual harassment; • Accident and Residential Care Facilities health coverage for This industry group is expected to increase those being cared by 22 percent through 2016. for and volunteers; Source: U.S. Bureau of Labor Statistics Independent Artists, Writers and and Performers Planning for the post-crisis boom? If not, • Directors and officers coverage.

The number of individuals working in this let this information provide some ideas on sector is anticipated to grow by 10 percent to the up and coming hot markets.

Independent Artists, Writers and 12 percent. Source: U.S. Bureau of Labor Statistics Once an agent looks beyond the usual Performers (711510) coverages, the highlighted industries are The NAICS description of this code sion generally only exists in states with a interesting and unique. Becoming wellstates that this industry is comprised of second injury fund; and not all of these versed and knowledgeable in these indusindependent/freelance individuals engaged states provide this additional protection. in performing in artistic productions; creat- tries can give any independent property/casualty insurance agent a head ing artistic and cultural works or producResidential Care Facilities (6232, start toward growth. IJ tions; or in providing technical expertise 6233, 6239) A wide range of operations is anticipated necessary for these productions. This industry also includes athletes and other by this particular classification. Facilities Boggs is associate editor of MyNewMarkets.com. Phone: 619celebrities exclusively engaged in endorsing 584-1100 ext 137. E-mail: cboggs@mynewmarkets.com. and employees working in this industry N18 | INSURANCE JOURNAL-NATIONAL REGION March 23, 2009

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Dear Reader: Every business has a story to tell. For many corporations, small and large, that story ties closely to the personal lives of their founders. Throughout Insurance Journal’s history, we have come to know and appreciate many of the unique stories in our industry.

And year after year, we have watched as our advertisers’ and readers’ companies have grown and changed.

As a leading industry news and information source, we are not able to profile all of the corporations that cross our path. Our position as journalists sometimes makes it difficult as well. Consequently, we have created this special supplement to allow our clients, and some of the corporations you may work with on a daily basis, to tell their story ... in their own words.

We hope you find this supplement interesting and informative.

Best wishes from all of us at Insurance Journal.

Mitch Dunford CEO Insurance Journal mdunford@insurancejournal.com

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When it comes to insuring educational institutions, knowledge is power. That’s why Travelers has underwriters who specialize in insuring schools, from the grounds to the staff. It’s our IndustryEdge approach, which provides experts from the field and industry-specific coverages, such as Educator’s E&O Liability and global coverage for students studying abroad. For insurance that’s in-synch with educational institutions, contact your local Travelers Commercial Accounts Representative.

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Š2008 The Travelers Companies, Inc. All rights reserved. The Travelers Indemnity Company and its property casualty afďŹ liates. One Tower Square, Hartford, CT 06183

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West Coverage News & Markets

Defending Data Data Security Breaches Present Emerging Risks and Opportunities for Agents

By Patricia-Anne Tom

D

ata security represents both a new market opportunity to sell insurance coverage and a new risk — especially for independent insurance agencies that may not be compliant with data security laws or have plans to protect their own companies from data breaches.

While data security is an evolving issue, failing to protect data can have a huge financial impact on a company. The average total per-incident cost of a data security breach was $6.65 million, compared to an average per-incident cost of $6.3 million in 2007, according to the “U.S. Cost of Data Breach Study” conducted by data protection company PGP Corp. and information management research firm The Ponemon Institute.

The PGP/Ponemon study indicated that data breach incidents cost U.S. companies $202 per compromised customer record in 2008, meaning that companies incur additional costs with an abnormal churn in lost customers. More than 84 percent of data breach cases in 2008 involved organizations that had more than one data breach. And, more than 88 percent of all cases in the study involved insider negligence. The cost of lost business continued to be the most costly effect of a breach, averaging $4.59 million or $139 per record compromised. Lost business now accounts for 69 percent of data breach costs, up from 65 percent in 2007, compared to 54 percent in the 2006 study.

“After four years of conducting this study, one thing remains constant: U.S. businesses continue to pay dearly for having a data breach,” said Dr. Larry Ponemon, chairman and founder of The Ponemon Institute. “As costs only continue to rise, companies must remain on guard or face losing valuable customers in this unpredictable economy.”

Web Resource: More information on state data breach laws is available from the National Conference of State Legislatures at www.ncsl.org/programs/lis/cip/priv/ breach.htm.

Understanding the Exposure respond must be timely,” said Shena Crowe, There are many types of data security Infragard Coordinator for the Federal Bureau breaches. Over a five-year period, Kroll Inc., a of Investigation. “Companies only have about risk consulting operating unit of Marsh & 30 days or less.”

McLennan Companies Inc., found that in “After a breach, a lot of companies don’t data security breaches, 4.8 percent occurred know what to do,” said Adam Sills, underin disposal of documents on computers; 1.8 writer for Darwin Professional Underwriters percent occurred with e-mail; 20.8 percent Inc. For instance, companies do not have to occurred because of hacking; 22.4 percent send out a notice to customers for every sort occurred because of lost, of breach — but if they do, ‘Agents, in a soft missing or stolen laptops; that will incur costs. And and 15.3 percent occurred although it may not be market, should be via the Web. required by law, many conpaying attention Since January 2005, the sumers expect the company Privacy Rights Clearingthat has had a data breach to to the emerging house has identified more offer them credit monitoring, coverages. This than 250 million records of which can be a huge addiis one of those U.S. residents that have tional cost for a business. been exposed due to secuNotification costs $1 to $2 coverages, and one rity breaches, according to per individual; credit monithat most of their the PGP/Ponemon study. toring costs $10 to $20 per Oftentimes, the breach- clients probably do person per year, said es are a result of not havNicholas Economidis, an ing the appropriate proce- not have.’ underwriter for Beazley dures in place to prevent USA. employee mischief. “Typically, we find that Regulations in 44 states, the District of technology people doing the work don’t have Columbia, Puerto Rico and the Virgin Islands security background checks but they’re given require that individuals (customers, employaccess to the systems. So we find that a lot of ees, citizens, students, alumni, etc.) be notisecurity breaches are done by insiders,” said fied if their confidential or personal data has Thomas Katona, president, managing membeen lost, stolen or compromised. ber of Apogee Insurance Group. “We don’t do “Having a response plan in place can save a background checks on IT people, but we give lot of money,” Sills said. them the keys to the castle.”

“The costs can go off the wall in terms of remediation when there are secure data Forming a Prevention Plan claims, and without a contingency plan in One hurdle to ensuring data security is place, quite often there is a knee-jerk reaction that many companies don’t understand the to how companies deal with claims, how exposure, said Leslie Lamb, global risk and they deal with notifications, how they stop insurance manager for Cisco Systems Inc. the security breach, and how they remedy “Cyber liability is fairly new, and we’re all how much data was breached,” Apogee fairly vulnerable,” Lamb said. Companies may Insurance’s Katona said. “Most companies not have the right protocol in place to prewill have a disaster recovery plan, and no vent breaches, and they might not have clear contingency plan in place for data security guidelines to handle a breach if one occurs. breaches. It is imperative that they do it.”

Nevertheless, it’s important for business The top priorities for a company, if a owners to get up to speed about how to hanbreach occurs, should be to protect its brand, dle a breach. “If a breach occurs, the ability to protect its customers, and improve its prod-

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ucts and security, Sills and Economidis said.

Because once a company’s reputation is tarnished and customers don’t trust the brand, it can lead to the demise of the business.

Despite the gravity of the issue, business owners have a false sense of security about data breaches, showed a recent national survey of more than 1,500 business leaders conducted

by Zogby International on behalf of Identity Theft 911. In the study, most business owners indicated data breaches were not the highest priority. Nearly two-fifths did not have an incident response plan or outside vendor management procedures in place. Another third did not encrypt customer/employee data that contains personally identifiable information.

Culling Through Coverages Even if business owners are concerned about the risks, they may not be aware of the insurance coverages available to help protect their livelihoods.

“The vast majority of people are not aware that insurance can be bought on the back end.

It’s surprising how many don’t know the coverage exists, and that the CGL (commercial general liability policy) and GL (general liability policy) don’t cover electronic data,” said Apogee Insurance’s Katona. Bodily injury and tangible property damage don’t exist with identity theft, he explained.

When seeking coverage for data breaches, security and privacy insurance can provide coverage to help with liability defense costs and damages; notification costs; credit monitoring expenses; and first-party losses. Primary limits available go up to $25 million, and excess limits go up to $150 million or more. Sublimits often apply or notification credit monitoring, Katona said.

Agents should advise customers to be careful about what coverages they purchase, Sills advised. There is no standard application that ISO puts out, so insurers have different approaches to what risks they will insure.

“Policies have changed in the past four to five years. A lot of people are now buying coverage because of privacy and for notification costs, which is new,” Sills added. The number of carriers offering coverage also has increased from a handful five years ago to about 25 to 30 carriers today.

“People tend to confuse cyber insurance with data security and data breach insurance,” Katona added. He explained that cyber insurwww.insurancejournal.com

ance is typically what happens with viruses or malicious code, and there is damage that occurs with systems being down. Data security coverages are available for almost every component of the business, and are designed to help with notification, crisis management, etc.

Because the technological environment changes rapidly, agents should go over forms carefully because they are providing coverage for a moving target, Katona said. “In a form that says, ‘cyberspace activity,’ what does that really mean?” he asked. “The vast majority of old coverages are insufficient or incorrect today, because of new technology.”

Agent Opportunities While it may be challenging to keep up with evolving technology, it is a great time for independent insurance agents to sell coverages.

“Data security has become a hot topic in the past three or four years. A lot of legislation has been passed, and data security breaches have become a main street type exposure,” so clients are a little more aware that a breach could occur, Economidis said. And with the world doing business on the Internet and the presence of Wi-Fi (wireless Internet access), “it’s virtually impossible to secure all of that information,” he said.

“It isn’t a matter of an exposure might occur, it will occur,” Katona said. “Ninety-eight percent of the time, companies have voids in their secure data information that will expose them, with things like HIPAA (Health Insurance Portability and Accountability Act) information, credit card information and people’s home addresses. … I would guess that 5 percent of the world has coverage for secured data. That’s only a guesstimate, but it’s an enormous market, even for main street businesses that are doing credit card transactions.

“I think agents, in a soft market, should be paying attention to the emerging coverages.

This is one of those coverages, and one that most of their clients probably do not have,” Katona added. “I think when they talk to their insureds, they will find that they are concerned about it.”

Customers often are not aware what the rules and regulations are when a breach occurs. They also often are not aware of the costs associated with a breach. “It’s a wonderful opportunity for agents and brokers to educate their insureds and sell,” Katona continued.

Of course, that means agents and brokers must educate themselves. “Our major challenge as an industry right now is educating agents and brokers as to what kind of questions they need to ask their insureds, to get their arms around what kind of information their clients have,” Katona said.

Among questions to consider are: • Does the client transacts business over the Internet?

• Does the client move information to another party over the Internet?

• What are the underpinnings of the client’s technology?

• Does the data environment have a firewall?

• What processes and procedures are in place for things like encryption?

• What processes and procedures are in place for people accessing company computers?

“Spend time to manuscript coverage to match the client’s exposure,” Cisco’s Lamb said. And above all, agents and brokers should take steps to ensure they’re covered themselves.

“Insurance agents and brokers, obviously, capture a lot of information to write coverage for their insureds,” Katona said. The GrammLeach-Bliley Act requires companies to have certain security measures in place. For smaller agencies, absorbing the costs of securing doors or having password protection and certain security measures in place can be difficult. But “98 percent of the agents we deal with are not Gramm-Leach compliant,” Katona said. “As a group of insurance agents and brokers, we have a responsibility to protect that data.” IJ Crowe, Economidis, Lamb, Katona and Sills spoke on a panel about data security at the 2008 PLUS International Conference in Nov. 2008. This article is based on the presentation, as well as independent interviews with Insurance Journal.

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States Gear Up for Stimulus Package Impact on Insurance Industry May be Minimal, Experts Say

By Kenneth J. St. Onge

T

he $787 billion stimulus package passed by Congress looms as the largest mountain on the country’s newly changed economic landscape.

But despite hope that the stimulus bill will jump-start spending, some insurance industry experts say the package will have little impact on the insurance world.

In a Web seminar on the stimulus package, jointly sponsored by the Insurance Information Institute (I.I.I.) and Fireman’s Fund Insurance Co., I.I.I. economist Robert Hartwig said despite the large size of the stimulus package, it will result in no more than a 1 percent

impact on property and casualty premiums written — roughly $4.5 billion. And because the rollout of the stimulus could take more than a year, those benefits might not materialize until 2010 or beyond.

According Hartwig, the insurance lines most likely to benefit are workers’ compensation, commercial auto, inland marine, commercial property and liability, and surety.

The stimulus bill includes about $38.1 billion in new infrastructure spending, according to the I.I.I. Most of that money will go toward new construction, and it is that spending that will have some ancillary benefits for insurers, agents and brokers. The five most populous states are receiving the most money —

Stimulus Money: The 5 Largest States California Texas New York Florida Illinois

Infrastructure Spending New/Retained Jobs (est.) $3.9 billion 396,000 $2.8 billion 269,000 $2.8 billion 215,000 $1.8 billion 207,000 $1.6 billion 148,000

Source: Insurance Information Institute

Stimulus Money: Western States Alaska Arizona California Colorado Hawaii Idaho Montana Nevada New Mexico Oregon Utah Washington Wyoming

Infrastructure Spending New/Retained Jobs (est.) $240,495,117 8,000 $648,928,995 32,000 $3.9 billion 396,000 $538,669,174 60,000 199,866,172 16,000 219,528,313 17,000 246,559,815 11,000 270,010,945 34,000 299,589,086 22,000 453,788,475 44,000 292,231,904 32,000 739,283,923 75,000 186,111,170 8,000

Source: Insurance Information Institute

60 | INSURANCE JOURNAL-WEST REGION March 23, 2009

California, Texas, New York, Florida and Illinois. Those states are projected to add or retain more than 1.2 million jobs because of the spending — meaning a noticeable improvement for those selling workers’ comp lines. Hartwig said the expected 3.5 million jobs overall would translate into roughly $1 billion in workers’ comp premiums.

Much Is Expected Ken Caldwell, executive vice president of Chicago-based Aon’s construction services practices, chairs the firm’s infrastructure task force dedicated to assisting public entities with their risk management on stimulus-supported projects. Caldwell said while it would have been good to have a bigger slice of the funds for construction, the $130 billion to $140 billion being made available is needed and will be put to use.

“We do think the stimulus package, the infrastructure piece, will help tremendously,” Caldwell said, noting that the commercial project sector has “slowed down to a crawl” and the government sector is “hurting because tax revenues are down.”

He sees the funds going toward transportation repair work, as well as new construction. “I think there will be a variety of projects,” he said. “There’s a lot of repair and maintenance that needs to be done in the United States, but there’ll also be some new construction of transportation corridors and in energy, healthcare and things of that sort.”

The construction that comes from the stimulus should boost workers’ compensation in particular, he predicted. “Our anticipation is for the larger projects, there will be more use of owner-controlled and contractorcontrolled insurance programs, which will help the money go further than it otherwise would. And in that area, workers’ compensation is 70 percent to 80 percent of the cost of those programs,” the Aon executive said.

Caldwell said the other big construction insurance pieces will be liability and excess liability.

“We are hoping the stimulus will help all the various parts of the insurance market to have an opportunity,” said Jeffrey Langer, the www.insurancejournal.com

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Hartford, Conn.-based chief underwriting officer for Travelers Construction.

John Carmody, executive director of The Advantage Group LLC, a network of 14 agencies in Washington, said his group hopes for improvement, but it may be in farther away than people expect.

“Will it have an effect on insurance agencies? We sure hope so,” he said. “My personal view of that is we’re going to have more pain in front of us before the stimulus package begins to kick in. Then, where you are and what state you’re in will make a big difference … It will have some impact, but a lot of the heaviest spending is on contracting and things like the electronic grid and highways, and environmental. That will probably have a more beneficial impact to brokers than main street agents that write small contractors.”

Some agents expect a benefit in that their clients will benefit — meaning they can keep paying premiums. “The biggest impact will be how it will affect clients,” said Mike Heffernan, president and CEO of the San Rafael, Calif.-based Heffernan Group. “A lot of clients could potentially get help — nonprofit clients, small businesses — from a credit standpoint, that can use the funding to keep going. Our whole livelihood is focused on our clients’ success. Anything that will help the people we serve will help the entire industry.”

A Big Impact William Duckworth, senior vice president agency executive for Oklahoma City-based C.L. Frates and Co., and Frank Smith, vice president and head of that agency’s construction division, are already seeing an impact in their state and among their clients.

C.L. Frates, founded in 1924, is one of the oldest and largest agencies in Oklahoma, Duckworth said. He explained that about 15 to 20 percent of C.L. Frates’ book of business is made up of contractors, including those involved in heavy construction, and street, road and bridge work.

“Our feeling is that there’s going to be an appropriate reinvestment in infrastructure, including streets and highway work, which is particularly important for us in Oklahoma because there’s a substantial number of old bridges that are ready to expire in terms of www.insurancejournal.com

their period of service,” Duckworth said. saw somewhere in the neighborhood of 30 to Smith agreed that the stimulus will have a 40 applicants. They are gearing up.” major impact on his clients’ and his agency’s Smith said he believes that any agency that business. has clients involved in construction, especial“It will have a big impact on us because of ly in street and road construction, will beneadditional jobs being let by the Oklahoma fit. He noted that even beyond road construcDepartment of Transportation. [My] book of tion, “some of the stimulus money is going to business is 90 percent or go toward education and more Oklahoma contracimprovements to sideThe stimulus tors, and they’re going to walks and parks from have a lot of work. That’s package will result what I understand. It will going to take a lot of new filter down to the cities in no more than a employees. They’re going and counties.” to have to buy new or Duckworth said in 1 percent impact additional equipment — March alone there will be on premiums motor graders, dozers, all three different “lettings” or that kind of stuff, as well requests for bids on state written — roughly as vehicles.” and city construction con$4.5 billion.

He said his clients, tracts in Oklahoma, which especially those who speis an unprecedented numcialize in major highway jobs are “hiring a ber for one month. “That’s three, for substanwhole lot of people. That is the biggest tial dollar volumes,” Duckworth said. “We figimpact so far. I was at one of my customer’s ure that is due to some of the funding that’s offices [recently]. In a two-hour time period, I continued on page 62

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Stimulus Package, continued from page 61

going to be released this month [as part of] the stimulus package.”

Some States ‘Ready to Roll’ The state highway departments already have reported plans for using their share of the stimulus money.

As of the first few days in March, for instance, Texas transportation officials were ready to sign off on $1.2 billion from the stimulus package for major road projects.

The Arkansas State Highway and Transportation Department has allocated more than $28 million of the stimulus money for statewide rehabilitation projects.

Louisiana Department of Transportation and Development (DOTD) Secretary William D. Ankner said in a statement that his state is “ready to roll out the orange barrels” on more than $300 million in

road and bridge projects. Most of the projects will be let to bid within 120 days, and two projects will go to bid within 30 days.

The Oklahoma Department of Transportation indicated that $340 million of its stimulus money is designated for highway projects to be released for bid in March. Improvements include interstate rehabilitation, and bridge and safety projects.

The Rush’s Downside In the rush to get new projects started, Travelers’ Langer said there is the possibility that the stimulus package could create some additional risks for insurers — particularly in the area of safety. “One thing that insurers need to consider is that there are many contractors out there looking for work, and some will be bidding on work they may not be qualified to do,” Langer said.

Despite construction unemployment down

in the mid-teens across much of the country, there could also be a problem as projects begin to ramp up, he added.

“Many firms had to reduce staff,” Langer said. “As contractors begin to ramp up and bid, there’s a question whether they will be able to find the labor. ... From a contractual standpoint, it could be a problem.”

Added John Komidar, second vice president of Travelers Construction Risk Control: “The construction industry has been impacted by delays and job shutdowns, which have driven up unemployment and tightened operating budgets. Contractors need to continue to maintain a strong emphasis on safety management, including safety practices and training, to help limit losses and the impact these could have on their bottom lines.”

Office Changes Some insurance agencies could see benefits from the stimulus package that have nothing to do with premiums or the business they write, however. The package also includes some changes to the tax codes that could benefit owners — and buyers — of insurance agencies.

One of those changes is a provision that allows a company to change from a C corporation to an S corporation in seven years, rather than 10. That change could help speed sales and acquisitions of agencies, said Terry H. Buckner, president and CEO of The Buckner Co. headquartered in Salt Lake City.

“Some agencies looking to sell can now do that sooner, and move forward on a quicker basis, so we might see some action that’s helpful to brokers with regard to sales and acquisitions,” he said.

There are also administrative changes that insurance agencies — as employers — need to keep in mind. These include: • Tax credits worth up to $400 for workers, which will be achieved by adjusting tax tables.

• Subsidies, in the form of tax credits for employers that can offset the cost of providing COBRA coverage to recently laid off workers.

• Minimum wage increases to $9.50 per hour by 2011. IJ Insurance Journal editors Stephanie K. Jones, Andrew G. Simpson and Patricia-Anne Tom contributed to this report.

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Idea Exchange Stimulus Package

Five Reasons Why Agents Should Pay Attention to the Stimulus Package

By Stephen G Bushnell

T

he American Recovery and Reinvestment Act of 2009, or the Stimulus Package, is the largest infusion of government funds into the private sector in history. Although it does not include direct benefits to the insurance industry, it includes provisions that will impact our customers in fundamental ways. The package is the first step in defining the priorities of the new administration, setting a direction that will have a financial and risk management impact on all Americans. Forward looking agents can and will recognize the opportunities and new ways of thinking about risk that this new direction offers. There are five significant areas — five reasons to pay attention:

Bushnell

incent investment in wind and solar, spur research and development (R&D) for new forms of alternative energy (biomass, biofuels, lithium ion batteries) and research carbon sequestration technologies. This investment will impact multi-scale manufacturing, construction and operation of alternative energy facilities, mostly in the private sector. New projects and new technologies create new risks that the insurance industry must be ready to understand and manage.

Agents who pay attention and develop expertise will be very well positioned to be impactful in this fluid landscape. Much like the high-tech revolution, the R&D expenditures will produce rapid changes in technology and risk. Trusted advisors who can help their customers manage these new risks will be big winners.

Investment in Energy Retrofits Nearly $16 billion will flow to energy retrofit projects. Energy Secretary Steven Chu is on record saying he wants this money to be spent Investment in the Grid in the next 18 months. Retrofits will stimulate Today’s electrical grid is a mess. It is essenthe home improvement industry and have a tially a patchwork of different systems that marked impact on energy use. It is cheaper to exposes Americans to significant financial conserve than to build new power plants. risk. The Electric Power Research Institute Some insurance comestimates that power outages panies are ahead of this cost Americans more than $100 ‘Forward looking curve, having launched billion per year. Most are uninagents can and green building products sured. The Insurance Informaand consulting services.

Institute estimates that 85 will recognize the tion Many agents have already percent to 90 percent of U.S. opportunities recognized that energy businesses are not insured costs are a financial risk against power failure. The $11 and new ways of that can be managed billion in the stimulus package thinking about through the right insurfor smart meters is probably ance program. Reduced risk that this new just the down payment. Dr. energy costs translate to Daniel Kamman of Lawrence direction offers.’ a stronger bottom line for Berkeley National Labs, and an business and more disObama advisor, estimates the posable income for citizens. Agents who help final cost to modernize the grid could exceed customers find insurance solutions to energy $400 billion. In our role as risk managers, we efficiency have changed the total cost of risk. need to advocate for a reliable grid.

Investment in Alternative Energy Generation Again, nearly $16 billion will be used to www.insurancejournal.com

Private Investment Will Follow Government Dollars We are already seeing venture capital flow-

ing to energy-related investments. The longterm returns are attractive, and the reasons to invest are compelling. It’s probably no surprise that T. Bone Pickens and a group of Minnesota investors are planning a major new facility to produce better, stronger blades for wind turbines. Silicon Valley, Calif., has retooled to manufacture solar panels. The United States is full of unused manufacturing facilities, and the green jobs fever is just catching on. Consider how quickly American industry retrofitted itself to make tanks and bombers in the early 1940s. The risk challenges and insurance opportunities are already here.

The Feds are Late to the Party For the past several years, state and local governments have carried the ball when it comes to these investments in energy and energy efficiency. Western and New England states have implemented carbon cap and trade legislation. California and at least 10 other states allow local government to finance energy retrofits (including solar) through property tax loans and liens. Most major cities have enacted building codes that require new construction (and rehabs) to conform to LEED (Leadership in Energy and Environmental Design) standards. Some insurance companies and many agents already have recognized how these developments impact risk and our ability to professionally serve our customers.

The (high speed) train is just about ready to leave the station. Agents with an eye to the risks and opportunities of the future are on board. Are you? IJ Bushnell is senior director of Emerging Industries, Commercial Insurance for Fireman’s Fund Insurance Co. based in Novato, Calif.

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M

ost of the calls from prospective insurance agency sellers start with, “What are agencies selling for these days?” or “What kind of multiple can I expect if I sell my agency?”

Insurance agencies are like snowflakes, no two are alike. Unfortunately, there isn’t a database of comparable information as there is for the residential real estate business. There’s no uniform formula, method or standardized pricing model when selling an insurance business. Nevertheless, there are several factors buyers request when viewing insurance agencies for sale.

Among the handful of items buyers consider when making a purchase are: • Size of book; • Location; • Carriers written (direct or general agents); • Percentage of direct bill or agency bill; • How much of the revenue is commission; • How much of the revenue is broker fee; • Number of employees; • Languages spoken; • Sellers’ discretionary earnings (earnings without owner expenses); • Commission trends for the past three to five years; • Are financials available and organized?

• Will the seller provide financing (carry a note)?

• Details of the office lease; • Other debts (i.e. Yellow Pages, equipment leases, 1099 producers); • Loss ratios with key carriers; and • Software used, agency management system, rater.

Upon review of that information, buyers should be able to determine a price and submit a letter of intent to the seller — and if accepted, begin the due diligence process. Due

64 | INSURANCE JOURNAL-WEST REGION March 23, 2009

Ganis

diligence will include but isn’t limited to: • Confirming the income statements against the actual commission statements; • Reviewing taxes, profit and loss, and other financial data for one to five years; • Reviewing loss ratios; • Office leases; and • Interviewing ownership regarding day to day operations.

Not all buyers will ask for tax returns, but they will ask for commission or bank statements to confirm the seller is receiving the commissions in its profit and loss statement.

Having an organized presentation for prospective buyers makes a difference. It should not take a week to send an income and expense statement. When requested by the buyer, information should be readily available in a format that doesn’t disclose the agency name, client names or other confidential information.

If buyers have a difficult time obtaining the information, they’ll immediately lose interest in the business. By organizing the necessary data ahead of time, the seller will be a few steps ahead of the competition and make a great first impression to prospective buyers.

Hiring an intermediary to prepare for the selling process is a great idea. It allows the owner to continue to run the business, maintain confidentiality and only meet pre-qualified buyers. The last thing an insurance agency owner wants is prospective buyers calling the office asking information about the agency for sale. If selling an agency, the owner has a much better chance at selling the agency than someone randomly coming along and buying it. Sellers need a proactive campaign to successfully sell a business.

An intermediary can match an agency to a buyer that does similar business, which will make for a positive selling process. IJ Ganis Consulting is a Los-Angeles based insurance consultancy that specializes in insurance agency sales and acquisitions. E-mail: stuart@ganisco.com. www.insurancejournal.com

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Idea Exchange Closing Quote

Say What You Mean Agents Should Act With Character and Integrity in Everything That They Do

By Mitch Dunford “I meant what I said, and said what I meant …”

A

lthough that quote was written in 1954 by Dr. Seuss in his book “Horton Hears a Who,” it is a powerful reminder today to act with character and integrity.

“Horton Hears a Who” tells the story of Horton the Elephant, who hears a small speck of dust talking to him. It turns out the speck is a tiny planet, home to a city called Whoville that is inhabited by microscopic-sized people known as Whos. The Whos ask Horton (who cannot see them but can hear them) to protect them from harm, which Horton promises to do — despite opposition from the other jungle animals who believe Horton has lost his mind. As it becomes more difficult to protect the Whos, Horton is encouraged to leave the Whos to fend for themselves. Yet Horton stands behind his promise, declaring, “I meant what I said, and I said what I meant, an elephant is faithful 100 percent.”

Horton’s motto is a good reminder for all of us. There is little debate on where we find our country economically. The auto industry is in crisis; financial markets are a mess; the unemployment rate is growing daily; banks are closing; foreclosures are at an all-time high; and bad economic news continues. Despite the constant diet of bad news and stark economic realities we are left to deal with, if you look at the situation through the clear lens of truth, you’d find that what led us here was not a crisis of cash, but a crisis of character.

Decades of dishonesty, greed and the notion that character doesn't matter have caught up to us. As business leaders, politicians and others in positions of trust have relied upon the crazy notion that competency is everything and personal integrity is expendable, we find ourselves reaping the fruits of that ideology — and it’s not good.

Integrity and trust are fundamental principles of leadership and power, and are the foundation of a strong economy.

Our unique economic system is tied to freedom, and freedom is tied to responsible and ethical behavior. When we allow in ourselves and in our leaders a pattern of irresponsible behavior, we give up our freedoms in an effort to repair the damage. And as our freedoms erode, so does our unique economy.

You have chosen to work in the insurance

66 | INSURANCE JOURNAL-WEST REGION March 23, 2009

Dunford

industry. While others seek to minimize risk you embrace it.

You study it, you calculate it, you even profit from it. You are now, and have been for hundreds of years, our economy’s last line of defense. You make it possible for businesses to open and grow, for loans to be made, for new inventions to come to market, and for young peo‘The insurance ple to buy their first car or their first home. Without you and your indusindustry is one of try, the way of life we have grown the most lucrative accustomed to would come to a professions in the grinding halt.

Inside the insurance industry, there world. But with that opportunity comes is tremendous potential for growth, a responsibility.’ both personal and financial. The industry is one of the most lucrative professions in the world. But with that opportunity comes a responsibility: to act with integrity and with character in how you do business. Our economy cannot afford to lose confidence in our industry.

To close a sale, there may be temptation to not fully explain a policy’s new conditions or exclusions. There may be temptation to suggest coverage exists that really doesn’t, and then to blame someone else for the error when the claim is denied.

Our industry must resist temptations to deceive.

It starts with a personal decision in each of us to do the right thing: to value our character, reputation and the important role our industry plays in the health of our economy more than money. To say in our quiet moments, “I meant what I said, and I said what I meant.”

There is astonishing power when a single person makes a single, honest decision. It can be contagious. As dishonesty breeds mistrust, honesty gives rise to trust, and trust provides the foundation for more honesty. It starts with one, each one of us doing the right thing for the right reason.

A government “stimulus” package will not save us. A bailout of AIG or GM will not solve the underlying problem. Instead, the quiet personal resolve to act with character and integrity in everything we do, and to demand the same behavior in our leaders, will lead to long-lasting, positive change. There is still something noble in the American spirit. I believe in us. I believe in our character as Americans to dig deep and to dig out of any problem, to do the right thing, and to do the extraordinary. IJ Dunford is CEO for Insurance Journal’s parent company, Wells Publishing Inc. E-mail him comments at mitch@insurancejournal.com. www.insurancejournal.com

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