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CORPORATE DEFAULTS AND D&O Turbulent Times Could Be Ahead

TOP CONSUMER CONCERNS Eye on Credit Scores, Disclosure

CALIF. WORKERS’ COMP 24.4% Rate Increase Proposed


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Walter Curtis, Master Machinist. Known for his laser-like precision on the milling machine. Expects the same accuracy from his workers’ compensation provider.

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

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


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Inside This Issue April 6, 2009 • Vol. 87, No. 7 • West Region

WEST COVERAGE

N12 Top 100 Agency Profile Planning, People and Dedication Equal Success for Bollinger Insurance

NATIONAL COVERAGE N1 | Compensation Not Key Factor in Agency Satisfaction Study J.D. Power & Associates Says Satisfaction Linked to Business Sent to Insurers

IDEA EXCHANGE

8

| California Construction Workers Chronically Uninsured But Those Workers 4.6 Times More Likely To Die on Job

N16 | Growing Your Property Casualty Agency Don’t Let F.U.D. Extinguish Your Marketing Efforts

8

| Hawaii Reissuing Licenses for Personal Lines Insurance Will Conform with NAIC Standards

56 | Minimizing Recruitment Risks Avoiding Costly — And Unnecessary — Hiring Mistakes in a Down Economy

8

| California Evaluates Health Insurance Compensation Disclosure Bill Would Establish Fiduciary Duty

58 | Corporate Defaults, Bankruptcies and D&O Claims Underwriters Cannot Presume that Risk is Limited to the Financial Sector

12 | California Rating Bureau Recommends 24.4% Workers’ Comp Rate Increase Accounts for Higher Medical Costs and Appeals Board En Banc Decisions 12 | Permanent Disability Rulings Not Bound by AMA Guidelines Workers’ Comp Appeals Board En Banc Decisions Say AMA Guides Rebuttable

60 | Five Tips for Agents From a PartTime CFO Don’t Only Look At Your Books at Tax Time 62 | Closing Quote: 6 Steps To Take Before the Soft Market Hardens How Agents Can Avoid Being Left Behind When the Market Shifts

50 | Liaisons Highlight Consumer Insurance Concerns Credit Scores, Internet Purchases, Disclosure Among Consumers’ Priorities

DEPARTMENTS 6 10 14 N18

N2 | International Report Witch Hunt at AIG; While Lloyd’s Sees ‘Flight to Quality’

| | | |

Opening Note Business Moves People MyNewMarkets

N4 | Closer Look: Special Events/Entertainment/Sports What’s So Special About Special Event Insurance? N12 | SPECIAL REPORT: Top 100 Agency Profile Planning, People and Dedication Equal Success for Bollinger Insurance N20 | SPECIAL REPORT: Directors and Officers An Awakened Washington Promises More D&O Stress N20 | SPECIAL REPORT: Directors and Officers D&O Market Expects the Unexpected N24 | SPECIAL REPORT: Directors and Officers Rising Risk of Bankruptcies N26 | SPECIAL REPORT: Directors and Officers D&O Insurance for Early-Stage VentureBacked Firms 4 | INSURANCE JOURNAL-WEST REGION April 6, 2009

50

56

Liaisons Highlight Consumer Insurance Concerns Credit Scores, Internet Purchases, Disclosure Among Priorities

Minimizing Recruitment Risks Avoiding Costly — And Unnecessary — Hiring Mistakes in a Down Economy

62 6 Steps To Take Before the Soft Market Hardens How Agents Can Avoid Being Left Behind www.insurancejournal.com


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Who insures you doesn’t matter.

Until it does.

Financial Strength and Exceptional Claim Service Property | Liability | Executive Protection | Workers Compensation | Marine | Surety Homeowners | Auto | Yacht | Jewelry | Antiques | Accident & Health Chubb Group of Insurance Companies ("Chubb") is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615


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

Gramm’s Test

EDITORIAL

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emember the good old days when customers knew their bankers and property owners knew who held their mortgages and the economy did just fine? Remember the good old days when banks were in banking and insurance companies were in insurance and investment firms were in investments? Main Street insurance agents tried their best to keep it that way, fighting as long as they could in courtrooms and legislative halls across the country against big banks and investment firms and the forces of “progress.” But the well-heeled Wall Street forces — and their political donations — were just too big for Main Street and the insurance agents lobby. The U.S. Senate voted 90-8 on Nov. 4, 1999 to approve S. 900, the Gramm-Leach-Bliley Act, which repealed the Depression-era barriers that separated banking, insurance and securities. Sen. Phil Gramm, R-Texas, who was chairman of the Senate Committee on Banking, Housing and Urban Affairs, expressed great pride in passage of the bill bearing his name. “This is a deregulatory bill. I believe that is going to There is a new be the wave of the future,” he said. He was right about the wave, but even he could not reality. Grammforesee what that wave would bring. Gramm set out a Leach Bliley has test for determining whether his deregulation bill was a success or failure: helped bring “The test that I believe we should use — the test I about the biggest will use, the test I hope people looking at this bill years in the future will use — is, did it produce a greater economic collapse diversity of products and services for American consince the Great sumers? Were those products better? And did they sell at a lower price? I think if the answer to those three Depression. questions is yes, then this bill will have succeeded.” The answers are no, no, no, Sen. Gramm. The law has done wonders for Wall Street traders and those who created soulless global conglomerates too big to fail, but it has been harmful to just about everyone else. A proud Gramm continued: “Ultimately, the final judge of the bill is history. Ultimately, as you look at the bill, you have to ask yourself, will people in the future be trying to repeal it, as we are here today trying to repeal — and hopefully repealing — Glass-Steagall? I think the answer will be no. I think it will be no because we are doing something very different from Glass-Steagall. Glass-Steagall, in the midst of the Great Depression, thought Government was the answer. In this period of economic growth and prosperity, we believe freedom is the answer.” There is a new reality. Gramm-Leach Bliley has helped bring about the biggest economic collapse since the Great Depression. While Government may not be the only answer, neither is unbridled freedom for giant corporations. It’s time to revisit Gramm’s pride and joy.

Patricia-Anne Tom West Editor ptom@insurancejournal.com

Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists Kevin LaCroix, Alan Shulman Contributing Writers Robert Baker, Edward Burke, Scott Chang, Rachael Owens, Mike Schwander, David Torres, Brigitt Whitescarver

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

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 April 6, 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

California Construction Workers Chronically Uninsured

Hawaii Re-Issuing Licenses for Personal Lines Insurance

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alifornia construction workers are more likely than workers in any other industry statewide to be chronically uninsured, according to a Center on Policy Initiatives study. The California construction industry is expected to gain more new jobs from the federal stimulus package than any other sector, according to the report. Anticipating the industry’s rebound, the CPI study analyzed the quality of construction jobs in terms of wages, health benefits and occupational hazards at the peak of the last construction boom in 2005. Even in those good times, only 35 percent of construction workers in California had health insurance provided by their employers, compared to half of workers in all industries. Some construction workers relied on publicly funded programs like Medi-Cal, but 27 percent were completely uninsured for the whole year, and more than 40 percent were uninsured for at least part of the year. Union construction jobs were 28 percent more likely to have health insurance than similar nonunion jobs. Collective bargaining creates multi-employer trust that provide portable health coverage for a mobile

workforce that frequently changes jobs, the report said. The construction industry accounts for 15 percent of the state’s chronically uninsured workers, more than twice its share of the workforce. Yet compared to other industries, a construction worker is 4.6 times more likely to die on the job than the average private industry worker, the report indicated. In fact, more than one-in-five reported poor health during the past month that affected their work and other activities. Almost one-fourth of construction industry workers are selfemployed, the report stated. Among the rest, 30 percent had worked less than two years with their current employer. More than 120,000 California construction workers are in occupations with average pay below $30,000 per year, the report stated. The report analyzed data from a statewide survey and also includes stories of the personal impact: a 55-year-old concrete carpenter who is diabetic but skips his prescriptions some months and hasn’t sought care for a painful lump in his side; and an electrician whose young family went without dental checkups until he became unemployed and qualified for Medi-Cal. IJ

8 | INSURANCE JOURNAL-WEST REGION April 6, 2009

he Hawaii Insurance Division is re-issuing license certificates to resident and nonresident insurance producers who sell personal lines insurance. The Homeowners-Personal Lines (HO-PL) and VehiclePersonal Lines (VE-PL) insurance classes have been combined as Personal Lines (PL-ALL) to conform with the standards of the National Association of Insurance Commissioners (NAIC). “This is part of our effort to adopt uniform standards for licensing of insurance producers,” explained Hawaii Insurance Commissioner J.P. Schmidt. “Uniformity helps to lower the cost of doing business and ultimately attracts more insurance companies to do business in Hawaii.”

The change affects about 1,400 resident and nonresident personal lines insurance producers. New license certificates are being re-issued and will be mailed to personal lines insurance producers beginning March 20, 2009. Upon receipt of the new insurance license certificate, personal lines insurance producers are being advised to destroy their current license certificate. All other aspects of their insurance producer license (such as license renewal date, renewal fees, and continuing education due date) remain the same. Personal lines insurance producers who do not receive their replacement license certificate should contact the Hawaii Insurance Division, Licensing Branch at InsLic@dcca.hawaii. gov. IJ

California House Evaluates Health Insurance Compensation Disclosure Bill

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alifornia Assembly Member Dave Jones, DSacramento, has introduced AB 1521, “Health care coverage: solicitation,” that would establish a fiduciary duty for persons or entities that submit an application to a plan or insurer that results in the offer, sale or purchase of health care coverage. Additionally, the bill would require that person to disclose to the offeree or purchaser of any compensation received as fees, commissions or any other remunerations of thing as value, before the sale of coverage. Disclosure should “include any compensation to be

received by the agent, broker, solicitor, solicitor firm, representative or other entity at any time prior to, during, or after the period of coverage as a result of the transaction or potential transaction,” according to the bill text. The disclosure also should provide an estimate of the percentage of the premium to be paid by the offeree or purchaser as compensation to the agent, broker, solicitor, solicitor firm, representative or other entity. Failing to provide disclosure would be a crime. For information, visit www.leginfo.ca.gov/cgi-bin/ postquery. IJ www.insurancejournal.com

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It Figures $28.2 Billion Amount insurers contributed to California’s gross state product in 2006, according to a report by the Insurance Information Institute. The report also noted insurers accounted for nearly 300,000 jobs in the state. Property and casualty insurers provided approximately 300,000 jobs in California, accounting for $21.4 billion in compensation. And, in 2007, property and casualty insurance claims payments totaled $30.7 billion in California.

24.4% The pure premium rate increase recommended by the Workers’ Compensation Insurance Rating Bureau of California. WCIRB submitted its filing to the California Department of Insurance (CDI) recommending the increase be effective July 1, 2009, for new and renewal policies. The organization said 17.6 percent of the 24.4 percent rate increase is due to worsening loss development in the workers’ compensation insurance line, primarily due to high medical costs; and 5.8 percent is an estimate of the impact of recent Workers’ Compensation Appeals Board decisions (Ogilvie v. City and County of San Francisco, Almaraz v. Environmental Recovery Services and Guzman v. Milpitas Unified School District).

15 Number of American International Group (AIG) bonus recipients who have agreed to give them back in full, according to New York Attorney General Andrew Cuomo, who is probing into $165 million in executive pay at the troubled company bailed out by the U.S. government. Cuomo said he hopes to recoup $80 million of bonus payments made, or about half of the $165 million paid on March 15. (Reuters)

3% Amount of decline commercial insurance prices saw during the fourth quarter of 2008 compared to the same quarter a year ago — representing the smallest reduction in the past eight quarters — according to Towers Perrin’s most recent commercial lines insurance pricing and profitability trends survey (CLIPS). Fourth quarter CLIPS findings indicate that product lines and market segments experiencing the greatest reductions in pricing over the last few years — most notably workers’ compensation, property and large accounts — may have begun to stabilize. IJ www.insurancejournal.com

Declarations Pleased With Proposal “We are encouraged by Treasury Secretary [Timothy] Geithner’s statements that this proposal will maintain the important role that state regulators play in supervising insurance companies. We agree with his assertion that financial institutions must not be allowed to ‘cherry pick’ among competing regulators in search of the lowest standards and constraints.” — National Association of Insurance Commissioners (NAIC) President and New Hampshire Insurance Commissioner Roger Sevigny, pleased that the most recent financial services regulatory proposal from the Obama Administration retains a role for state insurance commissioners.

Less Compensation “We thought that compensation would be a little more important especially given the independent agency channel. We thought that compensation might be a way that carriers could entice agents to send business their way.” — Kara Steslicki, senior research manager for J.D. Power and Associates, who helped conduct a study on an agency’s satisfaction with its personal lines insurance companies. What the survey found is that what agents want most is a variety of policy offerings and continuous contact with their insurers.

Seeking Equal Employment “The EEOC (Equal Employment Opportunity Commission) has not seen an increase of this magnitude in charges filed for many years. While we do not know if it signifies a trend, it is clear that employment discrimination remains a persistent problem.” — The Commission’s Acting Chairman Stuart J. Ishimaru, commenting on a recent report that noted workplace discrimination charge filings with the federal agency nationwide soared to an unprecedented level of 95,402 during Fiscal Year (FY) 2008, which ended Sept. 30. This level is a 15 percent increase from the previous fiscal year. Charges based on age and retaliation saw the largest annual increases, while allegations based on race, sex and retaliation continued as the most frequently filed charges.

Eye on Advertising “This research shows that ‘out of sight’ can mean ‘out of business.’ The current economic climate makes it more important than ever for financial institutions to bolster confidence among their clients, and this study clearly demonstrates the link between advertising and confidence levels.” — Richard Khaleel, executive vice president of Nielsen IAG’s Financial practice, commenting on a study that found consumer confidence in the health of financial institutions, including insurance companies, is dramatically influenced by advertising and marketing efforts. IJ April 6, 2009 INSURANCE JOURNAL-WEST REGION | 9


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West Coverage Business Moves AIG American International Group is taking down the most prominent sign at its downtown Manhattan offices. According to a Reuters report, a spokesman said the company had decided to replace the large AIG sign — outside the entrance to its property-casualty offices — as part of its plan to change that operation’s name to AIU Holdings Ltd. The move is designed to “distinguish these well-capitalized businesses from AIG,” said a second spokesman. In addition AIG has said it may sell the headquarter building, as part of its drive to raise funds to repay its debt to the U.S. government. The AIG name, once the proud moniker of the world’s largest insurer, has become tainted since large losses on mortgage bets necessitated a government bailout of $85 billion last September. Twice since more aid has been given to AIG, with the rescue now costing U.S. taxpayers up to $180 billion. The AIG name has become even more tarnished after a scandal erupted over bonuses to executives of a controversial financial products unit that caused much of the $100 billion in losses over the past year. A rebranding to distance the giant insurer’s operations across 130 countries away from the AIG name are likely to continue. Willis Insurance broker Willis will become a new and high-profile tenant of Chicago’s iconic Sears Tower. Under an agreement with the building’s owners, the tallest building in the Western Hemisphere will be renamed Willis Tower. The move is expected to be completed by late summer. Willis said it plans to consolidate five Midwest area offices and move nearly 500 associates into Willis Tower, initially occupying more than 140,000 square feet on multiple floors. Willis said its move to the new space, at $14.50 per square foot, will result in significant real estate cost savings, and that there is no additional cost to the company associated with renaming the building. Insurance Specialty Group, Wastepac Insurance Specialty Group LLC has acquired Wastepac, a provider of insurance 10 | INSURANCE JOURNAL-WEST REGION April 6, 2009

coverage to the waste hauling and sanitation industry. “Acquiring Wastepac’s expertise in this highly-specialized niche market gives ISG added coverage lines to offer to its over 4,000 retail clients nationwide. It will greatly complement the lines we already provide our customers,” said ISG CEO Bruce Harrell. With more than 35 years of waste hauling experience, the Wastepac team will offer commercial auto liability, general liability, property, umbrella liability, surety bonds and pollution and contamination coverage to the waste hauling and sanitation industries. Wastepac will operate as a risk purchasing group under its own brand as part of Insurance Specialty Group. Lee Orabona, president of the ISG Underwriting Division, will head the operation located in Port Jefferson, N.Y. ISG is a national insurance brokerage and underwriting firm headquartered formed in 2003 in Atlanta CCC Information Services, Mitchell International The United States District Court for the District of Columbia has granted the Federal Trade Commission’s request for a preliminary injunction enjoining CCC Information Services Inc.’s merger with Mitchell International Inc. Following the court decision, the two claims services firms called off their merger. On Nov. 25, 2008, the FTC filed suit to block the merger of CCC and Mitchell, charging that the transaction would hinder competition in the market for electronic systems used to estimate the cost of collision repairs, known as “estimatics,” and the market for software systems used to value passenger vehicles that have been totaled, known as total loss valuation systems. “The court’s decision today was a triumph for consumers and reaffirms the vital role competition plays in our economy,” said David P. Wales, acting director of the FTC’s Bureau of Competition. “We brought this case because of the impressive body of evidence developed by staff demonstrating that the combination of these two competitors would substantially lessen competition, ultimately

leading to higher prices and less innovation for consumers.” Allied American Underwriters National program insurance manager Allied American Underwriters (AAU), headquartered in Tampa, Fla., has introduced a new national personal lines division. The new programs specialize in writing personal clients on both an admitted and non-admitted basis. According to Kristen Taylor, national marketing director, “The programs are designed for retail agents that may not have a large personal lines unit or certain programs to have a one-stop shop for personal lines needs.” The vacant home and high valued homeowners are available on a national basis. Other coverages on a regional basis include; condos/ho-6, dwelling, seasonal homes, rentals, historical homes, fine arts/ collectables, antique/collectable cars, jewelry, flood/ excess flood, personal umbrella, builders risk, auto/motorcycle, ATV’s, boats & yachts, as well as weddings/family reunions. According to Lindsey Stoltz, personal lines underwriter, AAU also said it is now looking for interested agents to begin submitting business. The firm will be launching an online and phone quoting system in the coming months at www.aauins.com. AAU is affiliated with national insurance wholesaler USG Insurance Services. CMM Entertainment Robert M. Bryar, president of C.M.Meiers Co. Inc. and CMM Entertainment has begun expansion plans to the entertainment division’s Woodland Hills, Calif., headquarters. The company is adding 25 percent more floor space to accommodate projected growth. Expansion and build-out is scheduled to be completed by June 1. “Expanding our space in this tight economic period will give us an advantage in attracting the kind of talent we need and will create an environment that enables our professionals to prosper and grow,” Bryar said. C.M.Meiers insures businesses of all types and sizes in all 50 states. CMM Entertainment is a full-service provider with expertise in all lines of coverage for the entertainment industry and underwrites personal, commercial, film and television production. Both are headquartered in the Los Angeles area. IJ www.insurancejournal.com


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West Coverage News & Markets

Calif. Rating Bureau Recommends 24.4% Workers’ Comp Rate Increase By Andrea Ortega-Wells

WCIRB said 17.6 percent of the 24.4 percent rate increase is due to worsening loss development in the workers’ comp insurance line, primarily due to high medical costs. “It’s just rising medical costs,” says Jack Hannan, WCIRB marketing and communications. The additional 5.8 percent is an estimate of the impact of recent Workers’ Compensation Appeals Board decisions in Ogilvie v. City and County of San Francisco, and

Almaraz v. Environmental Recovery Services and Guzman v. Milpitas Unified School District. he Workers’ Compensation “The [WCIRB] actuarial and the Insurance Rating Bureau of governing committees felt that California (WCIRB) has recomthere was a wide possible range of mended to the California cost impact as a result of those Department of Insurance (DOI) to cases,” Hannan said, adding that implement a 24.4 percent increase the 5.8 percent recommendation is in pure premium rates that would a modest estimate of cost impact. take effect July 1, 2009, for new “Everyone thought that would be and renewal policies. the minimum impact those cases The recommendation is based may have on permanent disability on two principal components. costs on California.” Hannan explained that the increase for the cost impact of the WCAB decisions is not the result of a “detailed, exhaustive, full By Patricia-Anne Tom blown analysis.” That analysis has yet to materialize because there is he California Workers’ Compensation Appeals Board recently just no data available, he said. ruled en banc on two permanent disability (PD) workers’ com“I don’t even know that there’s pensation insurance cases that physicians are not necessarily bound been any cases — or any claims by the American Medical Association’s “Guides to the Evaluation of — that have been settled since Permanent Impairment” portion of the 2005 Schedule for Rating those cases were decided.” But Permanent Disabilities — the implications of which could affect Hannan cautioned that there’s a future PD impairment ratings. general feeling that the outcome In Almaraz v. Environmental Recovery Services and Guzman v. Milpitas from the WCAB decisions will be Unified School District, WCAB held that the AMA Guides portion of a significant cost driver on workthe 2005 Schedule is rebuttable by “showing that an impairment rating based on the AMA Guides would result in a permanent disability ers’ comp costs in the future. “We knew that the number award that would be inequitable, disproportionate, and not a fair and [cost impact] wasn’t going to be accurate measure of the employee’s permanent disability … and zero. We’re not sure how big it’s when an impairment rating based on the AMA Guides has been going to be,” Hannan said of rebutted, the WCAB may make an impairment determination that WCIRB’s first attempt to estimate considers medical opinions that are not based or are only partially the impact. “There’s a general based on the AMA Guides.” agreement that this 5.8 percent John C. Duncan, administrator of the Uninsured Employers Benefits Trust Fund and the Subsequent Injuries Benefits Trust Fund, maybe on the very low-end of the requested in a letter that Chairman Miller and the Commissioners to range and the cost impact may actually be quite a bit higher.” vacate their decisions. Among other things, “the announced rebuttal If the full 24.4 percent increase criteria discussed in Almaraz and Guzman are unclear and the lack of is approved by California clarity is having far-reaching, system-wide effects,” he stated. Duncan pointed out that the Board should consider soliciting argu- Insurance Commissioner Steve ment from a broader range of stakeholders in the workers’ compensa- Poizner, the July 1, 2009, pure premium rates will still be, on avertion system, as was done in the past when the board invited amicus age, 54 percent lower than the briefing in matters of potentially far-reaching effect. “These decisions already are having substantial impact both on the approved pure premium rates in effect July 1, 2003, WCIRB noted. administration of the workers’ compensation adjudication system WCIRB’s filing, which was suband on the level of workers’ compensation benefits due to injured mitted to DOI, may be viewed at workers,” Duncan added. www.wcirbonline.org. For a copy of the letter and the decisions, visit the Department of Following the WCIRB’s Industrial Relations Web site at www.dir.ca.gov. IJ

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12 | INSURANCE JOURNAL-WEST REGION April 6, 2009

announcement, Commissioner Poizner promised to convene a hearing to investigate why medical costs are skyrocketing in the workers’ compensation system. “California’s unemployment rate is skyrocketing and more than 1 in 10 are jobless,” Poizner said in a statement. “The last thing that California’s employers need is increasing workers’ compensation costs when so many of them are struggling to keep the employees they have.” Poizner said he will review WCIRB’s recommendation, adding that he has concerns about the quality of data provided. He said the DOI is in the process of completing a top down review of the WCIRB’s operations, which is expected to be complete in June. “Over the past two years, I have carefully scrutinized WCIRB’s proposed rate increases and rejected or reduced every single unwarranted increase in the benchmark. I will give this WCIRB recommendation the same level of careful scrutiny I have given previous requests. I will not allow California’s job creators to be burdened with unnecessarily high workers’ compensation costs.” Poizner said he plans to convene a hearing of all those in the workers’ comp system — doctors, insurance companies, applicant attorneys, labor, etc. — to determine why workers’ comp medical costs are increasing. “These soaring costs are unsustainable and must be controlled if we are to prevent a repeat of the workers’ compensation crisis we saw earlier this decade,” he said. Poizner is holding a hearing to solicit feedback about the WCIRB proposal on April 28 in San Francisco. After the hearing, the Commissioner can accept or revise the recommended change. IJ www.insurancejournal.com


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West Coverage People

Arlene Lieberman

Carl Morello

Barney & Barney appointed Arlene Lieberman, a principal of the firm, to the board of directors. This governing board is made up of senior leadership and has responsibility for overall governance matters and setting strategic direction for the 100-year-old firm. Lieberman is a principal of Barney & Barney and serves as a practice group leader in the Employee Benefits Department. In this position, she manages 17 insurance sales and service professionals. She has dedicated more than 27 years to the insurance industry and is responsible for the development and design of employee benefit packages for large national and international employer groups. Lieberman also is a member of the Sharp Speaking of Women’s Health Advisory Board. Carl Morello, assistant vice president for loss control at Sequoia Insurance Co., took over responsibility for the internal underwriting staff while continuing to lead loss control efforts. He replaces Aaron Kuluk, who moves to Sequoia’s Personal Express Insurance operation in Bakersfield, Calif., as vice president and chief operating officer. Morello spent much of his career working on loss control strategies at The Hartford. He joined Sequoia in 2006.

Kate Westover

Kate Westover, vice president of Alternative Risk Financing at Innovative Captive Strategies, received the 2009 Distinguished Service Award from the Captive Insurance Companies Association (CICA). Based in Colchester, Vt., Westover has 20 years of experience in the captive insurance industry and has published two books on the subject. At ICS, she consults on captive structuring for clients, brokers and reinsurers. John Greenlee

Manhattan Beach, Calif.-based Apollo Agencies Inc., a subsidiary of Kinecta Federal Credit Union, hired John Greenlee as director of sales. Greenlee joins Apollo from Washington Mutual Insurance Services Inc. in Irvine, Calif., where he most recently served as first vice president and national sales manager. Prior to WaMu, Greenlee was senior vice president at Western Insurance Services Inc. in Denver. Elizabeth Demaret

Philippe Stephan

Elizabeth Demaret, managing director of Arthur J. Gallagher, is chairwoman of the World Federation of Insurance Intermediaries (WFII), an international association representing intermediaries from around the world. Based in Chicago, Demaret is one of six WFII World Council members from North America and a member of The Council of Insurance Agents & Brokers. She will serve a one-year term as chairwoman, and another year as outgoing chair. Demaret follows David Harari, director of IFEBO in France, as chair of the WFII.

14 | INSURANCE JOURNAL-WEST REGION April 6, 2009

Risk Management Solutions named Philippe Stephan chief technology officer (CTO). Stephan has more than 20 years of experience in software development and will apply his technology and leadership skills to the field of advanced analytic applications, driving the architectural design and development of RMS’ next generation of software. Before joining RMS, Stephan was the CTO and head of product development at Moody’s KMV, where he was responsible for the development of a suite of enterpriseclass portfolio credit risk modeling and risk management products. Prior to that, he was head of systems for Credit Agricole Lazard Financial Products Bank, where he designed and built front-to-back trading systems, and was a software architect at Societe Generale Bank, where he redesigned an option pricing system that led to the opening of a new structured product desk. Stephan will be based in RMS’ headquarters in Newark, Calif. Phoenix, Ariz.-based MiniCo Inc. promoted Dan Sommer and David Good. Sommer is vice president, publishing, marketing and communications, as well as chief marketing officer. Good is vice president, information technology, and chief information officer. Sommer joined MiniCo in 2007 as director of marketing and communications. In June 2008, he assumed leadership of MiniCo Publishing. His responsibilities include corporate communications, marketing strategies and executive management of MiniCo Publishing including e-commerce, Webinar programs and other Internet activities. Good joined MiniCo in 2005 as director of information technology. In his new position, he will develop and implement next-generation front-end systems for MiniCo’s IT department to include hardware, software and online application development. Invensure Insurance Brokers of Irvine, Calif., added Trent T. Julian, David M. Peters and David R. Bloodgood to its professional staff. Julian joins as vice president of the Dealer Protection Division. His responsibilities include marketing and servicing all types of insurance to automotive and equipment companies. He previously was with G.S. Levine Insurance in San Diego, and Sentry Insurance in Port Stevens, Wis., where he was a top producer for four years. Peters has become a consultant in the Employee Benefits Division and will work with mid-market employers. He brings experience in benefit programs, and financial and estate planning. Bloodgood has joined as a business insurance specialist, where his responsibilities include new business development and acquisitions. He has extensive experience dealing with workers’ compensation and employee benefits issues. He was formerly with Sentry Insurance in Los Angeles, where he consistently ranked among the top producers. IJ www.insurancejournal.com


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National Coverage News & Markets

Study: Agency Satisfaction Linked to Amount of Business Sent to Insurers By Andrea Ortega-Wells

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hen it comes to an agency’s satisfaction with its personal lines insurance companies, commissions do not rank as tops. Nor do commissions rank second. In fact, out of six satisfaction factors, compensation from an insurer ranks dead last, according to a new industry study. Kara Steslicki, senior research manager for J.D. Power and Associates, who helped conduct the study, said the fact that compensation ranked last as a factor that determines agency satisfaction was a bit surprising. “We thought that compensation would be a little more important especially given the independent agency channel,” Steslicki said. “We thought that compensation might be a way that carriers could entice agents to send business their way.” But Steslicki says the survey revealed that what agencies are most interested in is satisfying their policyholders, especially in today’s tough economic times. Customers are looking at how much money they want to spend on insurance, and their agents are trying to help them by adjusting

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their coverage in order to save money, she said. What the survey found is that what agents want most is a variety of policy offerings and continuous contact with their insurers, Steslicki said. The inaugural “Insurance Agency Satisfaction Study” measured the satisfaction of independent insurance agents and agency staff with the personal property/ casualty insurance companies they represent. Agent satisfaction was examined across six factors. In order of importance, they are: key carrier contacts (32 percent), policy offering (23 percent); claims (16 percent); technology (13 percent); price (10 percent); and compensation (5 percent). The study found that agent satisfaction typically increases the more often agents interact with the business contact from their insurance company. Agents prefer to receive business contacts via phone or email at least once or twice a month. However, satisfaction levels are particularly high when the business contact visits more than once per month. In 2009, fewer than 15 percent of agents report receiving such frequent visits.

“Agent satisfaction is very closely linked to the overall business growth of an insurer, as agents have tremendous influence over policyholders when it comes to switching providers,” said Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. “In fact, 60 percent of consumers report that they would follow their agent recommendation to switch to a new insurance company.” As agent satisfaction increases, the likelihood of agents increasing their premium business with an insurance company also rises, the study found. In 2009, nearly 70 percent of agents with satisfaction scores averaging more than 800 points on a 1,000-point scale indicate they intend to increase business with the insurance company. In contrast, only 28 percent of agents with scores averaging 600 points or less indicate the same, the study reported. “Agents are obviously really interested in working with insurers that are supporting them and that was a common theme throughout the entire study,” Steslicki said. Offering a marketing or advertising budget also greatly impacts agent satisfaction, according to the study. In 2009, nearly 60 percent of agents report that they did not receive any budget for local marketing or advertising. However, among those agents who received and used all of the

funds provided by the insurer for advertising and marketing purposes, satisfaction scores average 808, compared with an average of 692 among those agents who were offered no funds for such endeavors. “The more agencies use those dollars to promote their agency the more satisfied they are,” Steslicki said. Steslicki also said while few agencies reported their insurers gave them business leads, those that did had higher satisfaction rates. “About 20 percent of the agencies studied said that they did receive leads from their insurers and obviously the more qualified that those leads were the more satisfied that they were,” she said. “But even providing leads at all definitely impacted satisfaction.” The study also found that satisfaction declines considerably as the amount of time it takes for insurance companies to notify agents of a customer-filed claim increases. “Whatever the insurer can do to support the agency is definitely recognized,” Steslicki said. “Those agencies that are more satisfied are more likely to send their business to those types of insurers.” While this was J.D. Power & Associates’ inaugural “Insurance Agency Satisfaction Study,” Steslicki says they hope to do another study next year and plan to replicate the study for commercial lines insurers writing business owner policies. The “2009 Insurance Agency Satisfaction Study” is based on responses from 1,589 insurance agents evaluating more than 10 insurers across the industry, including AIG, Allied, Chubb, Erie Insurance, Farmers/Foremost, Fireman’s Fund, The Hartford, Liberty Mutual, Progressive and Travelers. The study was fielded in November 2008. IJ

April 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1


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International Coverage News & Markets

Witch Hunt at AIG; While Lloyd’s Sees ‘Flight to Quality’ would have been better off, if it had. Then it would have had to establish reserves and would have been subject to regulation. As a he witch hunt that has engulfed AIG result its wholehearted rush into risky investneeds to be toned down. If for no other ments might have been curtailed. reason than it’s making the problem worse, AIG, however, was a counterparty on innunot better. It also reduces the likelihood that merable risks. In very simple terms, it bought U.S. taxpayers will get back any of the money and sold contracts of one kind or another the government has put into it. (default swaps, CDO’s, notes) — it doesn’t matPeople from President Obama on down are ter. On the other side of those transactions perhaps properly outraged that a company, were the buyers and sellers — AIG’s counterwhich lost $58 billion in one quarter and has parties. been taken over by the government for $130 The simplest example is currency trading: billion, paid its executives, some of whom Bank A needs $1 million for some of its cuscaused the mess, $160 million in bonuses. However, the outrage over AIG paying off its tomers; Bank B needs an equivalent amount in Euros. They make a deal to provide the amounts on a certain date, thus becoming counterparties and undertaking to honor their contract. The financial instruments or contracts AIG entered into along with many banks is more complicated, but they remain essentially the same type of transaction. AIG Financial Products (AIGFP), its financial unit, bought and sold hundreds of thousands of financial instruments all over the world, using the parent company’s ‘AA’ rating to obtain better credit terms for the deals, which in turn A protestor holds up a sign resembling a check as he rallies outside the AIG building in Los made their cost subject to a ratings downgrade. Angeles March 19, 2009. REUTERS/Mario Anzuoni When the originators of those contracts couldn’t pay their obligations, it other obligations — notably to “foreign banks” created a domino effect. The sequential holdand Goldman Sachs — is a bit misplaced. As ers, like AIG, couldn’t honor their obligations. Chris Boggs, associate editor of The whole system began to collapse, threatenMyNewMarkets.com pointed out, credit default swaps worldwide total $58 trillion (See: ing the stability of the entire global financial system. www.insurancejournal.com /news/national/ Whether the financial counterparty is in 2009/03/25/99039.htm]. The government bailed Paris, Texas, or Paris, France, is immaterial. out AIG primarily so it could at least pay a Financial transactions — as the current crisis part of what it owed. proves in spades — are global. One only has to As a number of commentators have pointed look at the result of the failure to support out, AIG didn’t insure these contracts. It By Charles E. Boyle

T

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Lehman Brothers to gauge what effect on world finances a similar failure to support AIG could have had. Lack of liquidity/lack of credit are now strangling the economies of every country in the world. Fear has replaced trust to the extent that the world’s banks and other financial institutions are afraid to do business, even with sound commercial risks. Their reluctance to enter into counterparty transactions has to be eradicated, if the world is ever to emerge from the current crisis. Supporting AIG and the banks is a necessary, if somewhat unpalatable, step towards global recovery. Lloyd’s made a lot less money in 2008, than in 2007; still $2.78 billion is not a negligible sum, even if it’s only about half that of the prior record year. Luke Savage, Lloyd’s of London’s finance director is relatively sanguine about the decline. In a telephone interview he acknowledged that we’re in for a “very tough 2009,” but that Lloyd’s 2008 results weren’t all that bad compared to the rest of the market. He pointed out that the “insurance market is going through a period of uncertainty, and policy holders are hesitant about placing all of their business with one carrier.” The result is what Savage termed “a flight to quality.” With around £2.6 billion ($3.8 billion) in its Central Fund (the facility that assures claims’ payments), Lloyd’s is well positioned to offer just that type of security. In fact, Lloyd’s structure is tailor-made to solve the problem. “We’re a subscription market,” Savage explained. “A risk is typically shared by more than one Syndicate.” A “lead Syndicate” places the initial coverage. It has standing agreements with a number of other syndicates to take on a certain percentage of the risk and on what terms they will do so. The policyholder thereby automatically spreads the risk of non-payment of a claim among a number of syndicates, who are in turn backed by a selected number of carriers - all of whom have met Lloyd’s rigid financial standards. In the rare instances when a syndicate can’t pay a claim, the policyholder has recourse to the Central Fund. IJ Boyle is international editor for Insurance Journal. E-mail: cboyle@insurancejournal.com. www.insurancejournal.com


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Closer Look Special Events/Entertainment/Sports

What’s So Special About Special Event Insurance?

By Robert Baker and Brigitt Whitescarver

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he pitfalls of not placing special-event coverage, when it’s truly needed and available, can result in catastrophic losses to your insured, and possibly even damage the credibility of your agency and errors and omissions coverage. You might think that an Insurance Services Office (ISO) commercial general liability (CGL) policy would do an excellent job of providing insurance protection to the sponsor or promoter of a private or public event. After all, a CGL policy comprehensively addresses the third-party

bodily injury, property damage and personal injury exposures of an event. Insurers who specifically write policies for events believe the CGL policy perhaps does the job all too well, and they’re unwilling to provide the CGL without additional limitations and definitions. Thus comes the impetus for special event insurance. What’s so special about it? It’s a special breed of CGL coverage, an insurance product that doesn’t come straight off the shelf. Agents and brokers who provide one-off event policies need to familiarize themselves with it,

learning what protection is and is not offered by the altered CGL. Agents should also learn where to find the broadest policy available, augment that coverage where needed, and be able to educate their clients about the exposures they must retain and need to manage. One further “special-ness” of special-event coverage stems from its very nature. The risks that occur at events involve varying numbers of people, often large, that participate in or watch activities such as sports, acts of daring, continued on page N6

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Closer Look Special Events/Entertainment/Sports Event Insurance, continued from page N4

all genres of musical performance and theater, amusements like rides and games, dancing, walking and rallies. Events challenge their organizers to work fast, often under pressures of schedule, weather and budget. They require complex orchestration of people, equipment and resources. Event holders have the responsibility of safety and security of guests, volunteers and employees. Event insurers analyze what they can risk or take on as part of the CGL. They review trends in loss and claims experience and decide what they need to charge for the insurance provided. With the intent that exposures are managed at an event, insurers take into account controls that should be in place. Contracts play a major role in the transfer of event risk; the contract that carries a great deal of consequence for the promoter and the insurer is the premises lease contract. More often than not, an event holder enters into a lease agreement with a facility, city, county or parks department that owns or controls the site where the event will take place. This contract

will have an indemnification clause which transfers to the lessee (the event holder) most of the liability for the premises and all event operations. This contractual responsibility is often triggered in a loss, and if brought into a suit the event holder doesn’t want to be “bare” of insurance protection nor take on the liability of another responsible party. Special Event Endorsements Many of the limiting endorsements attached to the special-event CGL address specific event operations that are a part of the overall event. Insurers exclude coverage for selected activities feeling that these operations would be better insured elsewhere and in addition priced accordingly. The event promoter will often hire independent service providers to perform operations and should be aware of the proper transfer of liability. Not all special event endorsements are included in each event insurer’s policy, and those discussed in this article are only a sample. Individual insurers may also have their own

manuscript form for a limiting endorsement, with language they feel best achieves their intended result. Besides endorsements that name the lessor as an additional insured, a few of the more common special event endorsements are discussed here. Exclusion - Collapse of Temporary Structure. This includes structures such as tents, stages, bleachers, barricades and temporary fencing. This exclusion is very common in event policies. The insured must be aware that insurance is not provided to them if they, their employees, contracted labor or volunteers erect a tent or other temporary structure and a loss occurs that causes bodily injury or property damage to a third-party. Tenting, staging and event rental companies can be hired to put up necessary structures, and in doing so, the event holder should verify that insurance is in place and that a proper risk avoidance and transfer has taken place. Exclusion - Seating, Fixtures and Glass. The ISO CGL provides third-party property continued on page N8

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Closer Look Special Events/Entertainment/Sports Event Insurance, continued from page N6

damage coverage to the property of the leased event premise if the lease period is seven days or less. This exclusion, however, if endorsed, removes coverage for those items shown. The seating, fixture and glass exclusion is often used for concerts and stems from facility property losses. This exposure is impossible to transfer to a subcontractor. If there’s a concern, it could be managed in the lease or through possible losscontrol methods. Exclusion - Liquor Liability Amendment. Liquor or dram shop liability is excluded in the ISO CGL if the insured is profiting in any way from the distribution or sale of alcohol. If an insured is “hosting” alcohol the CGL is silent and the activity is not excluded by the standard ISO form. This coverage is known as “host” liquor liability. When the amendment is attached to a policy, it will “strip” even the host coverage and create an absolute liquor exclusion. Thus, if liquor is hosted at the event and the insured were brought into a third-party bodily injury suit, the insured would have no defense or coverage.

To avoid alcohol-related exposure, the event holder can hire a third-party vendor to serve alcohol. The holder can also buy a separate liquor liability policy. Because of the severity of liquor-related claims, it’s also recommended that, in addition to the vendor showing evidence of liquor liability, the vendor also name the insured/event holder as an additional insured on their liquor policy. Exclusion - Events with Live Performances of Rap/Hip Hop. This exposure is excluded by most special-event policies but can be mitigated differently by a variety of forms. Certainly coverage is available for these types of performances, but only with additional underwriting and usually at higher premium costs. A history related to battery and weapon assaults has given this entire genre a bad reputation. Promoters now pay a premium to find coverage in a limited marketplace. Underwriting requirements have been heightened as well, such as requiring metal detectors and patdowns before entering the concert venue. Exclusions - Athletic or Sports

N8 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

Participants with Respect to the Insured Operations. Coverage will not apply to bodily injury to a person while practicing or participating in any sports or athletic contest or exhibition. This exclusion is present in all event policies unless a specific athletic event policy is purchased. There is little room for interpretation. Neither insurance coverage nor defense costs are provided if a suit is brought against the event holder by an injured athletic participant — think softball game. Activities such as dance performances or cheerleading are also often interpreted as athletic activities by an insurer. When in doubt, agents should clarify their carrier’s interpretation of this exclusion. Event insurers comfortable with athletic participant exposures will write a CGL policy without this exclusion, thus making the policy silent on this third-party class. Athletic participation also triggers additional underwriting. The insurer tailors premium pricing to the specific athletic exposure — the premiums to insure ski racers will be much higher than for continued on page N10

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Closer Look Special Events/Entertainment/Sports Event Insurance, continued from page N8

marathon runners. Insurers will also usually require participant medical accident insurance to act as a buffer for possible litigation. Exclusions - Assault & Battery. This is another common exclusion. An assault and battery endorsement releases insurers from the duty to defend claims made by third parties for

this personal injury peril. Language varies among insurers. Producers should be familiar with how this endorsement may apply to their client’s operation. Event holders should reconsider using volunteers for “crowd control” and instead outsource this operation to a licensed and insured security company.

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Exclusions - Bodily Injury to Independent Contractors. This endorsement varies by carrier, but excludes bodily injuryrelated claims from hired 1099 labor and independent contractors and their employees. In a perfect world, bodily injury incurred by independent workers during an event should be covered by the independent contractor’s workers’ compensation insurance. But most hired labor or sub-contracted sole proprietors will not have workers’ comp in force. This exclusion removes all coverage and defense costs for their possible third-party suits. Event holders with this exclusion can try to protect themselves by requiring evidence of workers’ comp from all subcontractors, hiring labor from an agency that provides workers’ comp for their labor pool, or by making their 1099 labor at the event employees. A new insurance product targets this gap and sells workers’ comp to all event labor on a blanket basis if evidence is not shown. Without something like this, it’s best to remove this exclusion. Exclusions - Medical Payments. Although medical payment coverage is defined and shown in the ISO CGL, it is then excluded by this endorsement. Because events involve the gathering of a large number of people, many insurers don’t wish to be contractually bound to pay claims regardless of their insured’s fault. Trips and falls are the most common loss occurrences at events. Full policy limits are still available for bodily injury-related claims when negligence is the trigger and the occurrence is covered by the policy. There are a number of special event coverage specialists in the insurance industry that can help. Plus, a number of insurance products and programs allow you to augment an event CGL. Additional insurance coverages to consider include event cancellation, inland marine property, crime insurance, and first party volunteer accident insurance. All these options should be considered by the event holder and their agent in providing insurance protection for the myriad of hazards and exposures when putting on a “special” event. IJ Baker, CPCU, is vice president and agency principal of Gales Creek Insurance Services. Whitescarver is the national program manager for Gales Creek Insurance Service’s online event program, wholesaling to agents countrywide. E-mail: Brigitt@ galescreek.com. Web site: www.galescreek.com. www.insurancejournal.com


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Measurement

INSURANCE JOURNAL

TOP100 AGENCIES

Jack A. Windolf, chairman & CEO


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of Success Planning, People and Dedication Equal Success for Top 100 Agency Bollinger Insurance By Charles E. Boyle

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hy do some independent insurance agencies stand out from others? As Insurance Journal’s “Top 100” series shows, good management, hard work, the right people, dedication and the satisfaction of performing valuable services well all seem to be part of the picture. Short Hills, N.J.-based Bollinger Insurance Inc. is an example of just how those precepts can build a successful agency.

their business further. They strip out the profits and show no incentive to grow.” He doesn’t really denigrate them; it’s just not his idea of how he wants his company to be run. “An ‘S’ corp.* is fine for some people, he continued; “if you set up a ‘C’ corp.*, you have to make sacrifices, but you have to make those sacrifices, if you are to achieve growth.” (*Taxation is the main difference between the two. A ‘C’ corp. is taxable at the corporate level, while an ‘S’ corp. can elect to “pass through” income to its shareholders.) Two Eras of Growth Windolf and his management team run Bollinger Charles W. Bollinger founded the agency in 1933 Top 100 Agency Profile along strict business lines — budgets, financial disin Newark. His brother James M. Bollinger joined Ranking No. 14 cipline, advance planning and, at the top of the list, him in 1942. Early on, the fledgling agency develAgency Name: “good employees.” This disciplined focus has prooped a specialist reputation with a focus on acciBollinger Insurance Inc. dent insurance for students and athletes. It has Headquarters: Short Hills, N.J. duced the desired result. In 1990, Bollinger’s annual premium volume was around $51 million. Premium since expanded across the country. Year Founded: 1933 John A. (Jack) Windolf, Jim Bollinger’s son-in-law, Additional Locations: Princeton, volume in 2008 was well over $800 million, with $1 billion in sight. The acquisition of other agencies joined the agency in 1963 after four years in the U.S. Moorestown, Vineland, N.J.; New accelerated. Prior to 1992, Bollinger had acquired Marine Corps and a stint at Wharton. Bollinger York City, N.Y.; Philadelphia, Pa.; just two — in 1976 and 1985. Since then it has then had seven employees and generated total comGreenwich, Conn. acquired 38 more — more than two a year, on avermission revenues of $200,000. Windolf eventually 2008 Premium Volume: age. In 2006, it acquired seven agencies and anothtook over Bollinger’s daily operations, and continues $830 million to serve as chairman and CEO. He and his wife, Property/Casualty: $470 million er four in 2007. “We made four more acquisitions in the fourth quarter of 2008,” said Windolf, and Muriel Bollinger Windolf, purchased full ownership Other than P/C: $360 million “we have others in the pipeline.” of Bollinger in 1969 and continued to build the % Commercial: 70% While Bollinger is very much a national agency agency, primarily through organic growth. Since %Personal: 30% for many of its lines, primarily commercial and 1963, Bollinger has on average doubled its top line 2007 Premium Volume: group coverage, it has kept geographical expanrevenues every five years. $840 million The pace of growth accelerated in 1992. “There Principals [management]: Jack sion pretty close to home. “Our key branch office locations are within a car ride from Short Hills,” are really two eras [in Bollinger’s growth],” said A. Windolf, president/CEO; Matt Windolf. Until 1992, “almost all of our growth had Gardner, managing director; Doug said Windolf. “Although we have customers all over the country [golf and country clubs, schools, been organic.” Commission revenues had risen to Cook, managing director; Lori employee benefits] our retail and personal lines $6.54 million (2009 estimated commission revenues Windolf Crispo, senior executive business is localized.” The majority of Bollinger’s are around $110 million). “We owned 100 percent of vice president. offices are in New Jersey, with branch offices in the stock and we decided to expand.” Principal Ownership: New York City, Connecticut and Philadelphia. The plan called for augmenting organic growth Jack A. Windolf, Evercore Capital The expansion, combined with an acknowlwith mergers and acquisitions. Windolf’s first step Partners edged reputation as a leader in certain areas of was to set up an employee stock option plan Number of employees: 435 coverage, has put Bollinger in the top 20 of U.S. (ESOP) to enable key employees to obtain a stake in independent agents. While it looks towards future growth, it hasn’t the business. This was a sea change. “It created an atmosphere that moved away from past successes. ‘we’re all in this together,’ and we’re all pulling in the same direction.” Many agencies have well educated, experienced leaders who someA Schools and Sports Legacy times give their employees a stake in the business. What sets Bollinger Specializing in “niche products” is a two-way street. An agency gains apart is the unqualified enthusiasm of its CEO. “It’s a great business,” a reputation, but may find it hard to break into new fields. Bollinger Windolf said, and it’s evident that he means it. has avoided this trap. Its early school and sports coverage has been a Windolf explained that many agency owners seem content to pull in $200,000 to $300,000 a year, and “aren’t really interested in building continued on page N14

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shops on all kinds of topics, mainly to advise our sports clients on springboard for its success. how to ‘bullet proof’ themselves from liability.” “Our sports division goes back to the 1940s,” explained Lori She also indicated that the current economic situation may prompt Windolf Crispo, senior executive vice president - sports division. “We people to make more claims, “and they are more likely to see an attorwere first approached by the New Jersey State Interscholastic ney. It’s really important to minimize exposures.” Athletic Association about accident coverage for student athletes. These risk management services go beyond placing insurance covThere wasn’t much coverage in the ‘40s for this type of program.” As a erage. In the sports division, “it’s all done in house,” and “there’s no result, Bollinger developed the first catastrophic accident plan for charge for these services.” Bollinger helps sports clients set up their students in New Jersey with a cat limit of $10,000, and the firm has own safety committees and is constantly assessing the need for new remained a major player in the field. products to cover emerging risks. This hands-on approach has helped The program for educational institutions is also part of Bollinger’s the agency maintain and grow its leadership position in the field. group benefits division, which now writes coverage in 40 states. The sports program has expanded into other areas, as well, notably risk management. “Part of our ‘[Y]ou have to make sacrifices, but you have to make success comes from the fact that we don’t look at them [sports programs] as just another those sacrifices, if you are to achieve growth.’ property/casualty line,” said Crispo. “Our focus is on expertise, and to be as helpful as we can Primacy on Commercial Lines be for our clients.” While Bollinger’s sports sector is a niche business with deep roots, The coverage includes individuals, small groups and large groups commercial lines are the agency’s bread and butter, producing 70 per— “from the local Little League to the Olympics,” as Crispo put it. cent of top line revenues. The unit’s 165 employees “primarily operate She also explained that, while the types of accidents and liability covout of our seven main offices,” said Matt Gardner, managing director erage are fairly common to all sports and sporting venues, there are commercial lines. “We cover from the upper middle-market down to additional issues that have to be considered. small Main Street type businesses.” “We issue Safety Bulletins, and we have a whole library on risk Gardner spent 14 years at Aon before joining Bollinger and the management best practices they should adopt,” she explained. strategies are different. Bollinger develops “a relatively small team of Providing that kind of advice has become increasingly complex, as highly qualified professionals,” who cultivate unique access to their the potential liabilities related to sports have grown exponentially clients. “It’s sort of a boutique approach. Clients are serviced by the over the years. “We’re now giving guidance on how to prevent sex same team that sold them originally. We bring them best in class abuse, what can go wrong with golf carts at sports tournaments, or services and resources at all times,” Gardner said. how club treasurers should properly handle funds. We give workBollinger has positioned its commercial presence firmly in the “second tier” of large brokers. “We really don’t compete with Aon or Marsh or Willis; we’re interested in the mid-market, rather than huge multinationals,” he explained. This sector typically has both a need for coverage and for a good deal of risk management. However, “they [Bollinger’s mid-market clients] don’t usually have a risk management staff, so they’re looking for someone who can help them do the job,” Gardner added. Some of Bollinger’s risk management services are performed “in house,” but Bollinger’s commercial lines business is spread over most of the U.S., so it maintains “a network of risk management consultants all over the U.S. and in other parts of the world too,” Gardner said.

Bollinger Executive Committee Seated L to R: Doug Cook — managing director, benefits division, Lori Windolf Crispo — senior executive vice president, sports division, Jack Windolf — chairman & CEO Standing L to R: David Hatlem — senior executive vice president, club programs division, G. Alex Crispo — chief administrative officer and general counsel, Chris Wetzel — chief financial officer, Rhonda Linnett Graber — managing director, personal lines, Matthew Gardner — managing director, commercial lines N14 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

The Technical Revolution While technology has created an efficiency revolution in the agency business, often the cost has been the loss of personal contacts, which are a vital part of the insurance industry. Bollinger faced the problem head on, but with a major caveat. As Gardner put it: “All the technology in the world can’t replace personal relationships.” By contrast Bollinger employees work in a “paperless environment.” Everything that “comes in the front end is scanned immediately, which gives all of our employees electronic access to all of the policy information and claims files. This speeds our service delivery to our www.insurancejournal.com


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INSURANCE JOURNAL

TOP100 AGENCIES

clients,” he said. Using this technology has created a “quantum leap” in employee efficiency (measured by revenue per employee), but it has also given them more time to create value, both for their clients and for the 200 or so carriers with which Bollinger writes business. “The interaction with the carriers is unrecognizable to what it was five years ago,” Gardner said. “It has opened up the market and given us the possibility of doing business on a much wider scale.” It’s true, however, that in dealings with the carriers some of the “personal touch” has been lost. Bollinger has also resisted the trend to outsourcing. “We’ve looked at it for a range of non-client-facing functions, but we decided against it,” Gardner said. One consideration is the “politically charged” nature of the practice. But Bollinger is also concerned with the effect outsourcing could have on its highly valued employees. “We think the way we work should be protected, that’s how we retain customers. It cuts across the entire company, and I think it gives us a competitive advantage,” Gardner said. Basically, “we’ve got the ‘A’ team on call all the time.”

Craig Johnston, vice president — benefits division, Rhonda Linnett Graber — managing director, personal lines

The Benefits Boom That spirit carries over into another major sector for Bollinger — employee benefits. “Our division has about 20 percent of the employees,” said Doug Cook, managing director - benefits. “We also produce around 40 percent of the revenues and are responsible for about 50 percent of the

The Economy and a Bonus Payment A slowing U.S. economy has affected Bollinger’s commercial lines the most. Gardner explained that some client companies have gone out of business, while others were closing down operating sites, laying off employees and reducing operating expenses such as vehicle fleets. Crispo, meanwhile, said the economsituation may result in fewer ‘It’s sort of a boutique approach. Clients are serviced by the icsports teams, but she doesn’t think it same team that sold them originally. We bring them best in will be “as serious as it is on the commercial side.” The benefits business class services and resources at all times.’ is also less impacted. The slowdown seems only to have new business.” Group insurance plans are the main focus, with a reinforced Bollinger’s commitment to its core principles. As CEO and smaller life insurance operation, as well. Chairman Windolf indicated, “more acquisitions are in the pipeline.” “Our division is split between traditional group employee benefits For well capitalized agencies like Bollinger there may be some very and specialty group programs such as our K through 12 Student good opportunities. There are also a lot of highly qualified people Accident Insurance program and our College Student Health looking for new positions. Insurance program, both of which are national programs where we Any new employees should consider themselves lucky. At a time act as managing general underwriters,” Cook explained. “On the when “bonus” has become a dirty word, Bollinger’s bonus payment to employee benefits side we also act as general agents for group health its employees deserves special mention. Last year Evercore Capital insurance and as managing general underwriters for group dental and Partners, a private equity fund, bought 51 percent of Bollinger’s shares. stand alone prescription drug card plans. The remaining 49 percent are owned by the employees. Bollinger’s employee benefit brokers frequently work from referAs part of that transaction, “a deferred payment of $500,000 was to rals, often from the P/C side of the agency. The carriers, many of be made to Jack Windolf in 2009,” as noted in a private e-mail from the whom Bollinger has worked with for years, supply policy forms company. Windolf insisted that a clause be inserted in the agreement approved by state regulators. Bollinger issues the policy, pays claims that he could direct that payment to Bollinger employees. On March from funds set up by the carriers, and performs the other adminis17, he announced that the entire amount would be paid to them. trative functions inherent in managing any particular plan. The The reasons for that decision sum up his business philosophy: “1) structure of any given plan varies from state to state, making local It would be appreciated by the employees; 2) The employees would contacts a necessity. spend the money to help the economy; 3) Employees are in a lower This holds true for Bollinger’s student accident coverage as well. tax bracket than Jack, and 4) It is the right thing to do.” That ges“The farther away we get from our home base, the more we need local ture also pretty much sums up why Bollinger has achieved the sucbrokers,” Cook said. cess it has. IJ www.insurancejournal.com

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Idea Exchange Growing Your Property Casualty Agency

Don’t Let F.U.D. Extinguish Your Marketing Efforts Overcome Fear, Uncertainty and Doubt in Agency Offices Shulman

By Alan Shulman

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n a recession, it’s an easy decision to stop promoting your agency until the economy kicks back into gear. But is it the right one for your business? Marketing hibernation eliminates the effort, expense and risk of an unsuccessful agency promotion while theoretically preserving cash for salaries and bonuses. However by avoiding new business solicitations, you risk the wrath of Newton’s first law of motion that states that an object in motion stays in motion and an object at rest stays at rest. In other words, if you smartly market your agency, you’ll survive this economy; if you sit back and try to live off of your renewals the odds aren’t as good. Sales Inertia Combating P/C sales inertia is essential, regardless of the economy. In boom times, one successful effort happily drives the next, while in times like these, suspending most new account solicitations has consequences beyond a stagnant book. As should be anticipated in a

recession, your most desirable insureds will shop for better deals. Some will take off, leaving you with an overall lesser quality book and next to no new accounts to offset their departure. This classic case of adverse selection deteriorates your agency’s long term profitability. Furthermore, minimal marketing puts managers, producers and staffers in a non-sales

with you — but are too embarrassed to come back. So, invite back selected dead files with open arms and good humor. Don’t simply accept that once an account is cancelled that it is irretrievable. More clients will return than Everybody’s Shopping you think and at a greater percentage and lessWhen jobs are at a premium and virtually er cost than soliciting a brand new prospect. every business has declining revenues, insurFinally, smartly invest in targeted new busiance shopping becomes the new national pasness efforts. Be creative, different and timely. time. This means that agencies are getting to Focus on leads where you have the best chance look at personal and business accounts that of success. Carefully identify the prospect previously weren’t interested in comparison groups that you wish to write and match them quotes. So essentially, bad times are a good time against your carriers’ strengths. to market, at least in the agency certain that there are business. After all, virtually If you smartly Make enough salable leads within every adult and business in the market your each to make specialized soliciUnited States still needs to buy their insurance from someone. agency, you’ll tations worthwhile. There’s extra potential if you already Try for your share, while watchsurvive this insure accounts within a group ing how you go about it. economy ... and can develop viable referrals. Additionally, agents who Look Three Ways market for new policies are rewarded with less Invest your marketing time and dollars in competition, in virtually every medium, because three major directions: retention, recovery and so many advertisers are cutting back today. For new business. While most agencies routinely in-stance, if you opt for print ads, you can negowork to keep their largest accounts from jumptiate a great rate in almost any publication. ing ship, they tend to neglect the many profitable insureds who file no claims and require Market or Else virtually no service. Pay some attention to these P/C agencies exist for only one real purpose. guys, especially in this economy. Let them And that’s to continuously sell insurance. If new know that you don’t take their business for agency-generated sales slow down to an intolergranted. Communicate via letter, e-mail, able level, additional agency-only carriers will newsletter, or a blog. Suggest thoughtful ways consider going direct, at least to some extent. that they can save on their premiums with you. Like certain insurers today, they’ll become your Common auto examples include increasing policy deductibles, taking defensive driver courses, rivals as well as your suppliers. Independents can minimize this scenario by using the state of changing classifications from drive to work to the economy as a marketing motivator instead pleasure use (if laid off) etc. The “let sleeping of an excuse to lay back. It’s really all up to dogs lie” approach doesn’t fly when people are you. IJ starting to panic. Desirable accounts may defect to other providers who give them more attention. Shulman, CPCU, is the publisher of Agency Ideas, a subscripNext, deal with the recently departed who tion-only sales and marketing newsletter. He is also the author left your office for a better deal. These greener of the Illustrative Insurance Sales Letter series and other P/C grass consumers and businesses may be sursales resources. Phone: 800-724-1435. E-mail: prised to discover that they were better off alan@agencyideas.com. Web site: www.agencyideas.com. mode which, according to Newton’s law, isn’t exactly going to turn on a dime when times get better.

N16 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

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Headed for the branch office in London.

Page 17

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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. Child Welfare Organizations Market Detail: Markel Insurance Co. (www.markelcorp.com) offers agents access to a program for not-for-profit child welfare organizations such as boys and girls clubs, community programs, counseling services, family service agencies, group homes, residential care facilities, Head Start programs and shelters. Available coverage includes general liability, umbrella, sexual abuse/molestation, directors and officers, special events, professional liability, property, key employee replacement, auto, crime and business income. Minimum premiums and deductibles vary based on the risk. Available Limits: Based on risk. Carriers: Markel Insurance Co. “A” rated by A.M. Best. Admitted. States: All except Hawaii. Contact: Rhonda Sciortino at 804-339-0534 or e-mail rsciortino@markelcorp.com.

Roll Offs - Debris Removal Market Detail: Trinity Transportation Services LLC (www.trinitytransp.com) connects agents to a full line of auto coverages for this specialty niche - roll off operators. Auto liability, physical damage and property damage coverages are available. Minimum premiums begin at $150,000. Available Limits: $100,000 to $1 million. Carriers: QBE the Americas. “A” rated by A.M. Best. Admitted. States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., Fla., Ga., Idaho, Ill., Ind., Iowa, Kan., Maine, Md., Minn., Miss., Mo., Mont., Nev., N.H., N.M., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wis. and Wyo. Contact: Patricia Busche at 904-272-7797 or e-mail trish@trinitytransp.com.

Garage Clients Market Detail: USX/S (www.USXS.net) offers a competitive garage program encompassing many risk classes. Eligibility includes new or used car dealerships, repair shops, N18 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

impound yards, accessory dealers, farm equipment sales or repair, motorcycle sales or repair, valet operations (including on-street exposures), auctions, emergency vehicle sales or repair, RV sales or repair and many other classes. Available Limits: Not provided. Carriers: Unable to disclose. “A-” rated by A.M. Best. Non-admitted. States: All. Contact: Sandy Hupcej at 440-888-7300 or e-mail SandyH@USXS.net.

Watercraft Programs Market Detail: Burns & Wilcox (www.burns-wilcox.com) offers agents access to a watercraft insurance program that provides specialized coverage for a broad range of yachts and motorized boats that includes: houseboats, airboats, sailboats, outboards/inboards, jet skis/wave runners, etc. Coverage is available to “problem operators” and replacement cost can be provided for boats new to three years old. Available Limits: Not provided. Carriers: Unable to disclose. “A++” rated by A.M. Best. Admitted and non-admitted. States: All. Contact: Donna Dodd 770-650-7511 ext. 2236 or e-mail dldodd@burns-wilcox.com.

Nursing Homes/Assisted Living Market Detail: US Risk Brokers Inc.’s (www.usrisk.com) Houston office offers an exclusive in-house underwriting program designed specifically for nursing homes, assisted living facilities, independent living facilities and CCRC’s. US Risk also gives agents access to an exclusive miscellaneous medical malpractice program. Eligible classes include: home healthcare agencies, staffing agencies, and many more. Carriers: Underwriters at Lloyds. No rating provided. Non-admitted. States: All. Contact: Sheila Boatman at 281-249-4933 or e-mail sheilab@usrisk.com. IJ www.insurancejournal.com


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High Value Property

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Who can keep your high value clients from getting robbed on their policies?

Alan Jay Kaufman Chairman, President & CEO

Burns & Wilcox. That’s who. With specialized coverage available from Burns & Wilcox, you can protect your clients from losses due to fire, theft and other unforeseen calamities. As North America’s largest specialty insurance wholesaler, we have unlimited access to admitted and non-admitted markets for the broadest possible protection. Call Burns & Wilcox, the specialty insurance wholesaler with the expertise to protect against home invasion losses. burnsandwilcox.com

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Special Report Directors & Officers

An Awakened Washington Promises More Stress for Directors & Officers Corporate Leaders Brace For Fallout From Heightened Regulation, Even Corrupt Foreign Practices By Andrew G. Simpson

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orporations and their directors and officers are living in fear. Fear of the next financial scandal, the next stock market plunge, the next lawsuit. Fear of bankruptcy. Fear of angry policymakers inside Washington and angry citizens outside their homes. It’s no wonder that they’re asking about directors and officers liability insurance protection like never before. “The last year has been interesting because I think the entire business community, and maybe the world in general, has recognized how risk is so vital, and understanding risk is vital to our economy. And at the center of that are directors and officers. Now they’re looking at their coverage in a way that, perhaps, they never have before,” said Mike Smith, president of AIG Executive Liability, who knows a lot about D&O and about today’s headlines. “I think that in the past time, they relied on lawyers and brokers and maybe carriers to provide them a product, but today they’re asking more questions, to ensure that they have the coverage that’s going be there when they need it,” Smith said. “A lot of money has been lost and that leads to a heightened awareness of what’s going on,” according to Michael Price, vice president, Hartford Financial Products.

D&O clients and their advisors are, of course, asking a lot of questions about their protection against securities litigation. They are also asking about the D&O risks they could face if their business were to go belly-up. And, increasingly, they are asking what risks they face when the federal government starts snooping around business a lot more as it is widely expected to do. Washington Risk D&O experts at the recent Professional

Liability Underwriting Society (PLUS) D&O Symposium in New York said they don’t expect Congress to pass any major legislation to change the shareholder rights climate. “Congress has other priorities,” said John Coffey, partner, New York law firm Bernstein Litowitz Berger & Grossmann LLP, capturing the consensus. President Barack Obama could bring about a “subtle shift” in the shareholders’ rights climate with his appointments to federal courts, according to plaintiffs attorney Sherrie R. Savett of Berger &

D&O Market Expects the Unexpected

T

he litigation climate is affecting directors and officers liability markets and pricing, most notably the financial D&O market. “Our data show that the D&O insurance market is clearly hardening for financial services companies, which have been at the center of the economic crisis,” said Lauri Floresca, senior managing director and author of the latest Carpenter Moore D&O Benchmarking Report. In 2008, financial services companies paid an average premium of $147,187 for the first $5 million of coverage, up 24 percent from 2007, according to Carpenter Moore. Aon’s D&O Pricing Index showed that the average price for $1 million in coverage limits increased 3.15 percent in the fourth quarter last year over 2007. “In the short term, we expect to see D&O pricing for the financial sector continue to rise,” said Mike Rice, managing director of Aon’s Financial Services Group and an author of the Aon Quarterly D&O Pricing Index. Aon’s analysis found that rates for D&O liability insurance in non-financial sectors actually declined by 6.3 percent in Q4 2008 compared to Q4 2007. Experts see the financial sector’s D&O woes spilling over into other sectors. “If the emerging executive liability insurance pricing trends continue, we can expect D&O rates to rise for other industries, especially if we see a reduction in insurer capacity due to consolidation or insolvency,” said Floresca. “After several straight years of declining premiums, many companies may not be prepared for cost increases. In this environment, companies will need to take a much more active role in their insurance renewal to get the best outcomes.” “It is possible … that a tough underwriting environment could emerge for all public companies as the economy continues to negatively impact both financial results and stock prices,” said Aon’s Rice. Ann Longmore, D&O, employment practices and fiduciary leader for Willis HRH Executive Risks Practice, writing in a recent Willis Marketplace Realities 2009 report, con-

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Montague in Philadelphia. But observers don’t expect Obama to lead a revolution in the judiciary. The D&O risk from Washington is not so much legislative or judicial in nature as it is regulatory. The Securities Exchange Commission (SEC) and other federal regulators are expected to step up their game, as former Vice President Dick Cheney would say, “big time.” All signs point to a far more aggressive regulatory approach and with that, higher costs. “You can absolutely take to the bank that the SEC will increase its activity dramatically and quickly,” Randall Bodner, ‘You can partner, Ropes & Gray in Boston, absolutely told the PLUS take to the crowd during the bank that the “So, What’s Next? Emerging D&O SEC will Liability Trends” panel. increase Bodner thinks its activity there is “pent-up dramatically prosecutorial in and quickly.’ zeal” Washington after the Bush Administration. He doesn’t think it is as much “anti-business” as it is a desire to make up for missing the Madoff, Stanford and other scandals. “I agree that there is a huge risk of increased SEC enforcement actions, not to mention the Department of Justice bringing their own criminal suits,” Denise Amantea, a partner with the San Francisco insurance agency, Woodruff Sawyer Insurance, told Insurance Journal in an interview after the PLUS panel. “It’ll come in different areas. For example, the SEC is going through a rough time right now because it has missed the Ponzi schemes that we read about in the papers, like Madoff and Stanford,” Amantea said. “The new [SEC] commissioner is going to make sure that these Ponzi schemes and any other fraud or corruption that’s bubbling up get caught before it’s an embarrassing predicament for them.” The SEC acknowledges that it’s a new day in Washington. “The commission’s enforcement program is in a critical transiwww.insurancejournal.com

tion period. Our new chairman, Mary Schapiro, joined the agency in January and has been taking a series of steps to bolster our enforcement efforts and restore investor confidence to our markets,” SEC Commissioner Elisse B. Walter told the House Committee on Financial Services in early March. Insurers see it coming. “I believe there

will be significant changes in the way government will be involved in business,” said Fred Cooper, executive vice president, AXIS Financial Insurance Solutions in Berkeley Heights, N.J. Cooper and others are concerned that this enhanced public oversight will mean “significantly” higher costs for D&O insurers. continued on page N22

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Special Report Directors & Officers Awakened Washington, continued from page N21

D&O Market, continued from page N20

The cost concern could explain why Amantea thinks that could be the case, Bailey said he already sees a significant too. “There can be millions in attorney fees increase in primary carriers negotiating setpile up long before there is even a trigger tlements or “cutting deals early� in the of coverage,� she said. game to cut costs. “I would expect this to According to Bodner, SEC defense costs continue,� Bailey said. can be “onerous� and it is difficult for insurers to push back against the governCorrupt Foreign Practices ment to control them the way they might One particular area of increased SEC be able to do in other cases. activity could come under An issue worth watchthe Foreign Corrupt Practices ing will be whether regu‘In the short Act (FCPA), a 1977 law that latory penalties, payments prohibits bribes to foreign and fines will be an offset term, we expect officials to obtain business. for insurance payments, to see D&O The SEC has brought 38 according to Dan A. FCPA cases since January Bailey, an insurance attorpricing for the compared to just one a ney with Bailey Cavalieri financial sector 2006 year in the late 1990s. LLC in Columbus, Ohio. What concerns Cooper continue to rise.’ A few recent cases have been high profile. In is whether carriers have December, the SEC reached a landmark accounted for these higher costs. “Carriers $350 million settlement with Siemens AG, are generally willing to offer the coverage which it charged with a scheme involving but I don’t think they are pricing for it in excess coverage,� he said. continued on page N24

tended that prices stabilized for most D&O buyers outside the financial sector toward the end of 2008 but then competition on some accounts picked up as the carriers themselves began to face financial distress. “We do not, however, expect this to continue for long. The question for the D&O market in 2009 is a matter of when and not if competition will cease to be a stabilizing factor. We are in a period where the best advice may be to expect the unexpected,� Longmore wrote. There could be some unexpected developments in cases involving suits against firms that accept bailout monies, according to John Coffey, partner, New York law firm Bernstein Litowitz Berger & Grossmann LLP. He cautions that “the government won’t be happy to see bailout funds� going to shareholders or lawyers in settlements. Even the best insurance professionals can’t avoid every D&O problem or Madofflike scandal but it helps to be able to say no, according to Mike Smith, president of AIG Executive Liability. “[I]t’s like baseball. If you get a hit three out of 10 times, that’s a pretty good average. I’m not suggesting that’s a good average here. But you build your underwriting model, you use your judgment. Part of that judgment is when you’ve been in an underwriting meeting and you come away with a feeling that you’re not getting the full story. You have to pay attention to that feeling. So you want to have your process, be comfortable with your process, and also have the ability to say no,� Smith says. Longmore, in her report, ventures that today’s D&O turmoil could even alter D&O client relationships. “One change may well be that directors and officers themselves will want to be part of the D&O insurance decision-making process, rather than leave this in the hands of their inhouse insurance professionals, as is usually the case now. After all, many directors view D&O insurance as a kind of personal coverage. Transparency, the mantra in the field of corporate governance, may therefore come to the D&O insurance purchasing decision. This can be seen as good news for professional risk managers who continually strive to improve decision-making processes and procedures.� IJ

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Focusing on Solutions

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Special Report Directors & Officers

Awakened Washington, continued from page N22

Rising Risk of Bankruptcies

A

enforcement action has resulted in bribes to government officials in Asia, increased sensitivity to FCPA concerns in Africa, Europe, the Middle East and the M&A transactions, as well as in common Americas, in violation of the FCPA. An commercial transactions and business relaFCPA deal involving Halliburton/KBR tionships,” says the report. made headlines in February. The SEC Bailey doesn’t think insurers have yet charged that a KBR subsidiary bribed Nigerian government officials over a 10-year been badly burned by FCPA cases in part because those caught bribing tend not to period in order to obtain construction conbe directors or officers. However, he does tracts. KBR and Halliburton agreed to pay worry about this exposure for any entity $177 million in disgorgement to settle the doing business internationally. SEC’s charges and $402 million to settle The Hartford’s parallel criminal Price suggested that charges brought by ‘We haven’t begun to see FCPA-related activithe U.S. Department ties could be anothof Justice. The sancthe bankruptcies yet.’ er catalyst for additions represented the tional class action suits. largest combined settlement ever paid by Amantea thinks the FCPA exposure U.S. companies since the FCPA’s inception. shouldn’t be ignored. She recommends that “They [SEC] are on a tear,” believes brokers obtain explicit D&O endorsements Amantea, referring to a “flurry of activity” that exempt FCPA activities from any proon FCPA cases over the past five years. hibition against SEC fines and penalties. “This could be a big exposure, and the FBI Interest exposure that worries me is not so much A new report by the law firm of the employees who are doing the bribing, Shearman & Sterling LLP (FCPA Digest of but the exposure to directors and officers, Cases and Review Releases Relating to who are not necessarily putting this as an Bribes to Foreign Officials Under the issue on their radar screen and supervising Foreign Corrupt Practices Act of 1977) it,” said Amantea. reports that the interest in FCPA cases “I would, if I were the broker, absolutely extends to the FBI and to non-U.S. enforcevet the policies to make sure there is that ment agencies as well. explicit coverage,” Amantea added. IJ “The increased risk of investigation or N24 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

total of 210 federal securities class actions were filed in 2008, a 19 percent increase over 2007, according to a report by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research. This trend has been particularly vexing for directors and officers of financial firms. The study shows that nearly a third of all large financial firms were named as a defendant in a securities class action in 2008. The concern in D&O circles is not just that securities litigation is rising and could continue to rise over the next few years. (Plaintiffs with stock drop charges can wait two years to file so some of these cases dating back to 2007 could still be brought.) But the added worry is that class actions are bound to spread beyond the financial sector. A main driver will be the coming flood of corporate bankruptcies. In 2008, bankruptcy filings by businesses were up 50 percent and, in February, they were up 47 percent compared to a year ago, according to Automated Access to Court Electronic Records in Oklahoma City. In September, Lehman Brothers became the largest Chapter 11 filing of all-time. That was followed by Washington Mutual, the biggest bank failure in U.S. history. But bankruptcies have not been confined to financial firms. Other well-known filings have included Circuit City, Linens-n-Things, Frontier Airlines and Mrs. Fields Cookies. “We haven’t begun to see the bankruptcies yet,” Randall Bodner, partner, Ropes & Gray in Boston, told an audience at the recent Professional Liability Underwriting Society (PLUS) D&O Symposium in New York. In March, Moody’s released a list called The Bottom Rung, which identified more than 280 companies it believes are at risk of corporate bankruptcy. The companies include Krispy Kreme, Blockbuster, Dole Food, Eddie Bauer and Rite Aid. “As bankruptcies increase, class actions will rise,” Samuel H. Rudman, a law partner with New York’s Coughlin Stoia Rudman Robbins, told the same PLUS crowd listening to the “So, What’s Next ? Emerging D&O Liability Trends” panel. Rudman could be right, too. According to Advisen, more than three-quarters of large pubwww.insurancejournal.com


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lic companies that filed for bankruptcies were cited in class actions. “You’re certainly going to see bankruptcies because there are many troubled industries out there. The forefront would be the automotive industry, and the suppliers to it,” said Mike Smith, president of AIG Executive Liability. “But you’re going to see that there’s going to be a trickle down effect, and while it’s not nearly as difficult in those [D&O] markets as it is in financial institutions, it’s certainly difficult.” Fortunately for directors and officers, most companies today carry Side A D&O coverage which indemnifies them if the company can’t do it because it is bankrupt. But the worry over bankruptcies for directors and officers doesn’t necessarily end there. Denise Amantea, a partner with the San Francisco insurance agency, Woodruff Sawyer Insurance, points out that the trustee of a company in bankruptcy could refuse to pay for renewal of the Side A coverage. “So what do these directors and officers do? … Do they have to pay out of their own pocket? That’s going to be a big deal.” Amantea recommends that directors and officers seek legal counsel about how to protect themselves from the situation in which the bankruptcy trustee will not allow the purchase of their renewal. Amantea also advises individual board members to have their own counsel draw up a personalized indemnity agreement. It is not safe to rely on bylaws because the board can change those after a board member retires, she advises. “But if you have a written indemnity agreement, signed by the company, they can’t revoke that contract, and there are lots of bells and whistles that you can put into that indemnity agreement that makes it very favorable for the individual director or officer,” Amantea tells her clients. While bankruptcy typically is covered, brokers might want to make absolutely certain that the D&O policy under review clearly covers this risk. “Now is the time to make sure D&O policies are stress-tested for bankruptcy,” advises attorney Bodner. The concern, according to Bodner, is that the coverage might not be available later. IJ www.insurancejournal.com

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Special Report Directors & Officers

D&O Insurance for Early-Stage Venture-Backed Firms: Carriers Scrutinizing More, But Hungry for Business Schwander

Owens

By Mike Schwander and Rachael Owens

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ven for established companies increased assets, but we are now seeing with proven track records, the rate increases in cases where the employee current directors and officers count has increased significantly or where (D&O) insurance market is chalthere have been claims against a company. lenging. For early-stage companies, present Even if firms are lucky enough to underwriting practices for D&O insurance receive a flat renewal, terms may resemble (rather like the opening line of be more restrictive. For examDickens’ “A Tale of Two Cities”) “the best ple, there may be of times and the worst of times.” bankruptcy exclusions, higher In one sense, it’s the “worst of times” for deductibles, these small venture-backed companies because underwriters are looking to reduce specific event exclusions, or their exposure to “risky” firms. Early-stage exclusions for companies often have minimal cash non-active reserves. Many are engaged in research and investors or owndevelopment that burns through cash without any hope of generating revenues in ers. But there’s the near term. also the “best of As recently as six months ago, carriers times” aspect of seemed willing to overlook these risks, the situation. and obtaining D&O insurance for entreThe good preneurial companies was as easy as subnews is that, mitting cursory information and waiting a while underfew days or hours for a quote. Not anywriters may be more. For the first time in years, earlyputting companies seeking D&O stage companies are being underwritten coverage under a microscope of with a sharper pencil. More documentascrutiny, these same carriers are probation is being sought, and the length of bly grappling with overcapacitime from submission to ty in today’s weak economy. approval can now be weeks For the first Most of them genuinely need rather than days. the business, which means Underwriters now want time in years, that D&O coverage is availto see more supporting early-stage able to even the riskiest of financial information such companies — as year-end and interim companies are entrepreneurial but only if they’re willing to financial statements, cash being undertake the time required to on hand, funding sources and submit detailed — even, in one recent case, written with a gather information to carriers. the company’s most current sharper pencil. bank statements. Scrutiny Plus Carriers’ The increased review has Overcapacity translated into some pricing impact. Given these conflicting trends — Several years ago, underwriters would not tighter scrutiny plus carrier overcapacity have been able to price for increased expo— we’re advising our clients to budget for sures, like higher employee counts and N26 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

the worst — but work for the best. Smart CEOs and risk managers are learning that investing time to educate D&O underwriters about their company, its financial position and its future prospects will help minimize exclusions and rate increases at renewal. By far the most important consideration for underwriters is a company’s cash position. One company we know had only a three- to fourmonth cash reserve, versus the 12- to 18-month reserve that underwriters like to see. Carriers know that a company with such a weak cash position can be quite vulnerable to bankruptcy. And bankruptcies always mean claims and litigation — things underwriters understandably seek to avoid. In addition to its weak cash position, the aforementioned company also didn’t allow adequate time for its application to be processed in this new world of increased scrutiny. We scrambled to compile all the basic information, and then we added explanatory paragraphs related to the company’s cash reserves, its anticipated sources of new capital and other relevant financial information. In the end, the company obtained a renewal and the rate wasn’t too bad, but the terms were more restrictive than previously. Another consideration is that earlywww.insurancejournal.com


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Schwander is executive vice president and Owens is senior vice president of Lockton Denver’s Financial Services practice. Both are national experts on D&O insurance, IPOs, bankruptcies, funding mechanisms, multiyear structures, mergers and acquisitions, and evergreen clauses. E-mail: mike.schwander@lockton.com; rachael.owens@lockton.com.

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Be Creative The current climate means that more creativity may be both in Even if firms are required, initial approachlucky enough to es to carriers and in how financial receive a flat information is renewal, terms packaged to make it easy for may be more potential underrestrictive. writers to gain a “feel” for a company. Some tips for navigating the current climate: • Don’t judge D&O insurance on price alone. Adequate and favorable coverage is the most important objective. • Begin the renewal process at least three months in advance of the renewal. This will allow time to prepare the detailed financial information that underwriters now require. • Foster a personal relationship with the underwriter. Make an effort to speak personally with underwriters to educate them about the company and its prospects. Choose the most passionate company spokespersons to participate in the call. • Take the time to prepare a professional, complete submission that answers every possible question an underwriter may have about the company. • Compare D&O insurance policies from a number of underwriters to ensure the company receives the most complete coverage. If building greater than $5 million in limits, include several carriers in the D&O insurance program. This provides flexibility and adds up to more coverage overall. How will this modern-day Tale of Two Cities end? We believe that — at least

through the end of 2009 — the abundance of carrier capacity will continue to offset the negatives that underwriters associate with D&O coverage for venture-backed companies. The process of creating, negotiating and acquiring D&O liability programs will remain time-consuming, confusing and frustrating. Teamwork between an experienced risk manager and a reputable broker

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stage companies can’t afford to be without insurance protecting their directors and officers in the event of lawsuits or other claims against the company. In the current climate, our best advice to clients is that they start this process early as well (at least 60 to 90 days in advance). Also, be prepared for the process to include some interaction between the insured parties and carriers, either in person or at least by phone.

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Welcome to Insurance Journal’s 2009 Employee Benefits Directory. We’ve assembled this directory as a resource for property/casualty independent agents who are looking for assistance in providing group benefits to their business clientele. This directory provides a listing of brokerages and/or insurance companies with benefit brokerage departments that are interested in working with P/C insurance agents to provide such products. The information published in this directory was submitted directly by the benefit providers and includes their contact information, coverages they offer, states they do business in as well as carriers they write coverage through. We hope you find IJ’s Employee Benefits Directory to be a useful tool when seeking group benefit providers. We will continue to expand this directory throughout the year and beyond. To comment on this directory, or any other IJ resource, e-mail: editorial@insurancejournal.com. ActivaRx Inc. 4040 E. Camelback Rd., Ste. 158 Phoenix, AZ 85018 Contact: Olinda Vargas Phone: 602-468-9500 E-mail: olvargas@activarx.com www.activarx.com States Available: All States Products Offered: Alternative Health Plans (chiropractic, alternative medicine, etc.) - Manage Standalone Rx Plans Affiliated Marketing Group 2925 Briarpark, Ste. 155 Houston, TX 77042 Contact: Dan Elliott; Larry Bartee Phone: 713-977-0611 E-mail: dan or larry @affiliatedmarketing.com www.affiliatedmarketing.com States Available: Texas Years Offering Products: 25 years Products Offered: National Group Health HMO or PPO; National Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: United HealthCare, PacifiCare, Blue Cross BlueShield of Texas, Reliance Standard, Delta Dental, Avesis American Brokerage Company Inc. 810 Dominican Dr. Nashville, TN 37228 Contact: Roy L. DePue Phone: 615-227-8292, ext. 302 E-mail: roy@abctn.com www.abctn.com States Available: All States including Wash. DC Years Offering Products: Many Products Offered: Group Life; Group Long Term Care Carriers: More than 24 different companies for life insurance, long term care & annuities

AmeriFlex 700 E Gate Dr., Ste. 510 Mount Laurel, NJ 08054 Contact: Scott Mardis Phone: 888-868-FLEX (3539), Ext. 110 E-mail: info@flex125.com www.flex125.com States Available: All States including Wash. DC Years Offering Products: 10 years Products Offered: Technology-based, consumer-driven benefits solutions supported by an integrated FSA/HRA/ HSA/CRA debit card platform. Arnoff and Associates Inc. 7205 Chagrin Rd., Ste. 3 Bainbridge, OH 44023 Contact: Robert Arnoff Phone: 440-247-4511 E-mail: arnoffassoc@stratos.net www.arnoffandassociates.com States Available: MI, OH Years Offering Products: Since 1981 Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: It varies per product line. Also it varies based on the clients demographics and needs Assurant Employee Benefits 2323 Grand Blvd. Kansas City, MO 64108 Contact: 35+ sales offices across the U.S. www.assurantemployeebenefits.com for more details States Available: All States including Wash. DC Products Offered: Group Dental; Group Disability; Group Life; Group Long and Short-term Disability; Term Life and AD&D; Dental Coverage on both employer-paid and employee-paid basis.

N28 | INSURANCE JOURNAL-NATIONAL REGION April 6, 2009

BenCom 1175 Vickery Ln. Cordova, TN 38016 Contact: Sales Department Phone: 888-763-1285 E-mail: info@bencom.com www.bencomonline.com Years Offering Products: In business since 1998 Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Any. Benefit Solutions 3353 Barrow Hill Trail Tallahassee, FL 31312 Contact: Jody Hill Phone: 850-907-0044 E-mail: benefitsolutions@comcast.net States Available: AL, CA, FL, GA, TX Years Offering Products: 20 Years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Group Dental; Group Disability; Group Life; Group Vision Carriers: Colonial, Blue Cross Blue Shield, Unum, Assurant, Principal, Ameritas, CHP, United HealthCare, Vista Health Plan, Met Life, Ge Financial

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2009 Employee Benefits Directory Benefit Strategies Inc. 921 E 86th St., Ste. 100 Indianapolis, IN 46240 Contact: Joseph E. Guzman, Jr. Phone: 317-466-1336 or 888-588-1336 E-mail: jguzman@bsi-indiana.com www.bsi-indiana.com States Available: IL, IN, MI, MO, OH, PA Years Offering Products: 20 Years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Multiple and varying depending upon employer size, needs, demographics, etc. BenefitStrategies LLC 2776 Ridge Valley Rd., NW, Bldg 100, Ste. 150 Atlanta, GA 30327-1850 Contact: Carl C. Schuessler, Jr., DHP, DIA, GBDS Phone: 404-277-7852 E-mail: carl@benefitstrategiesllc.com States Available: AL, AR, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, KY, MA, MD, MI, MN, MO, MS, MT, NC, NM, NY, OH, OR, PA, RI, SC, TN, TX, UT, VA, WI, WV Years Offering Products: 18 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Many BenefitsWorkshop P. O. Box 56828 Jacksonville, FL 32241 Contact: Larry Garrett Phone: 904-631-2629 E-mail: Larry.Garrett@BenefitsWorkshop.com www.benefitsworkshop.com States Available: All States Years Offering Products: 21 years Products Offered: Section 125 Plans, FSAs, HRAs, Cafeteria Plan, Commuter Benefits, COBRA administration and consulting BenefitVision Inc. 4522 RFD Long Grove, IL 60047 Contact: Virginia Eanes, VP - Marketing Phone: 800-810-2200 Ext. 1115 E-mail: veanes@benefitvision.com www.benefitvision.com Years Offering Products: 16 years Products Offered: Communication and enrollment for core benefits and manages data for large organizations with employees scattered coast to coast all year round. Tele-enrollment methodology gives full service, not self service, to every employee, without work disruption and regardless of location. Big Benefits Inc. 2063 N Main Centerville, UT 84014 Contact: Pete Peterson Phone: 801-292-0841 E-mail: pete@big-benefits.com www.big-benefits.com States Available: AZ, CO, ID, UT Years Offering Products: 20 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Group Dental; Group Disability; Group Life; Group Vision Carriers: Specialize in self-funded plans but write for all major carriers.

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Century Benefits Consulting Inc. 1592 Union St., Ste. 344 San Francisco, CA 94123 Contact: Michele Jones Phone: 415-647-8144 E-mail: mjones@benefits-shmenefits.com www.benefits-shmenefits.com States Available: California Years Offering Products: 7 years Products Offered: Regional Group Health HMO or PPO; Regional Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine,etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Kaiser Permanente, Health Net, Blue Cross, Blue Shield, California Choice, KP Choice Solution, Aetna, PacifiCare, Genworth, Allianz Century Benefits Group Inc. 100 White Spruce Blvd., Ste. U304 Rochester, NY 14623 Contact: Michael King, CRSP Phone: 585-224-8138 E-mail: century100@frontiernet.net www.aboutcentury.com States Available: NJ, NY Years Offering Products: 20 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Aetna, Blue Cross, GHI, United Health Care Preferred Care, MVP, CDCHP, Oxford, CIGNA Chappelle Consulting and BenefitElect of Alabama 1747 Reese St., Ste. 215 Birmingham, AL 35209 Contact: Allan Chappelle Phone: 205-871-5900 E-mail: achappelle@chappellebenefits.com www.chappellebenefits.com States Available: AL, CA, FL, GA, IA, IL, IN, KS, LA, MA, MS, NC, OH, OK, SC, TN, TX, VA, WI Years Offering Products: 21 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: MetLife, United Healthcare, BlueCross BlueShield of Alabama, AFLAC, AllState, Humana, etc. Child & Elder Care Insights Inc. 18500 Lake Rd., Ste. 200 Cleveland, Ohio 44116 Contact: Elisabeth A. Bryenton Phone: 440-356-2900 E-mail: InfoHQ@CareReports.com www.carereports.com States Available: All States Years Offering Products: Since 1986 Products Offered: National work / life benefits to large and small companies. The latter includes employee info assistance with child care, elder care, legal and financial services. Cleveland Financial Group 28601 Chagrin Blvd., Ste. 300 Cleveland, Ohio 44122 Phone: 216-765-7418 E-mail: tfarro@LNC.com States Available: Ohio Years Offering Products: 30 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: All major & regional insurance carriers & TPAs.

CobraHelp 1620 High St. Denver, CO 80218 Phone: 800-398-2946 E-mail: marketing@mycobrahelp.com www.mycobrahelp.com States Available: All States Years Offering Products: 20+ years Carriers: National COBRA Administrators since 1986 Colonial Supplemental Insurance 26 Gretchen Ln. Sopchoppy, FL 32358 Contact: Ernie Vance Phone: 850-962-2600 E-mail: ernie.vance@coloniallife.com www.coloniallife.com/supplemental/default.asp States Available: AL, FL, GA Years Offering Products: 30 years Products Offered: Group Disability; Group Life Carriers: 1. State of Florida employees (State agencies) 2. Leon County Board of County Commissioners 3. Memorial Hospital and Manor (GA) 4. Coffee Health Group (Hospital in AL) CONCERN: EAP 1503 Grant Rd., Ste. 120 Mountain View, CA 94040 Contact: Paulette Hannah Phone: 888-533-6015 E-mail: info@concern-eap.com www.concern-eap.com States Available: All States Years Offering Products: 28 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; Alternative Health Plans (chiropractic, alternative medicine, etc.) Carriers: CONCERN Employee Assistance Program Coordinated Benefits Company 923 N Plum Grove Rd., Ste. C Schaumburg, IL 60173 Contact: Jim Patrician Phone: 847-605-8560 E-mail: jpatrician@cbcco.com www.cbcco.com States Available: CO, IA, IL, IN, MI, MO, WI Years Offering Products: 25 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Blue Cross/Blue Sheild, Aetna, UHC, Humana, UniCare, Standard, Ameritas, Guardian, Delta Dental, MetLife, Reliance Standard, Lincoln National, Hartford, Unum, Mutual of Omaha Cornerstone Insurance & Financial Services Inc. P.O. Box 381625 Birmingham, AL 35238 Contact: Rick Radford Phone: 205-980-7411 www.cornerstoneins.com States Available: AL, AR, AZ, CA, CO, CT, DE, FL, GA, IL, IN, KS, KY, LA, MD, MI, MN, MS, NE, NJ, NM, NY, PA, TN, TX, VA, VT Years Offering Products: Many years Products Offered: Group Disability; Group Life; Group Long Term Care Carriers: More than 25 different companies for life insurance, long term care and annuities.

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2009 Employee Benefits Directory Cornerstone Preferred Resources P.O. Box 680185 Houston, TX 77268-0185 Contact: Kathy Sturm Chomout Phone: 281-580-6865 E-mail: kathy@cprtpa.com www.cprtpa.com States Available: LA, OK, TX Years Offering Products: 15 years Products Offered: National Group Health HMO or PPO; National Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine,etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision

GE Consumer Finance/Benefit Solutions 200 N Martingale Rd. Schaumburg, IL 60173 Phone: 888-788-9089 E-mail: Benefit.Solutions@GE.com www.benefitsolutionsbyge.com States Available: AK, AR, AZ, CA, CO, CT, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY Years Offering Products: 28 years Products Offered: Group Dental; Group Vision Carriers: Health Discount Solutions by GE Legal Solutions by GE Heritage Casualty Insurance Company

CorpCare Associates Inc. 7000 Peachtree Dunwoody Rd., Bldg 4, Ste. 300 Atlanta, GA 30328 Contact: George Martin Phone: 877-843-6036 E-mail: george@corpcareeap.com www.corpcareeap.com States Available: All States Years Offering Products: 18 years Products Offered: Employee Assistance Programs

Group Benefit Consultants Inc. 33 SE 7 St., Ste. A Boca Raton, FL 33432 Contact: Gary R Chapman Phone: 561-338-5936 E-mail: gbenefit@bellsouth.net www.groupbenefitconsultants.com States Available: Florida Years Offering Products: 18 Years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Medical-Blue Cross, United, Humana, Aetna, Vista, Neighborhood Health, Avalon Healthcare Life, Disability and Dental- Aetna, Blue Cross, Assurant, Genworth, Guardian, Hartford, Jefferson Pilot, Met, Principal, Reliance, UNUM

CPS - Reliable Financial Group 9116 E Sprague, Ste. B202 Spokane, WA 99206 Contact: Frank Skaw Phone: 800-364-3110 E-mail: frank@relfingrp.com www.relfingrp.com States Available: AZ, CA, CO, HI, ID, KS, MT, ND, NM, NV, OK, OR, SD, TX, UT, WA, WY Years Offering Products: 20 years Products Offered: Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision DR Administrative Services Inc. 88 Sunnyside Blvd., Ste. 203 Plainview, NY 11803 Contact: Robert Rosen Phone: 888-791-3737 E-mail: robr@dradmin.com www.drdpny.com Years Offering Products: 12 Years Products Offered: Group Dental; Group Vision - Plan is self-funded Direct Reimbursement Dental Plans Employee Benefit Specialists Inc. 5934 Gibraltar Dr., Ste. 206 Pleasanton, CA 94588 Contact: Larry Rhodes Phone: 925-469-5232 E-mail: Larry.Rhodes@ebsbenefits.com www.ebsbenefits.com States Available: AK, AL, AZ, CA, CT, FL, GA, IN, MN, NC, NJ, NV, NY, OK, SC, TN, TX, WA Years Offering Products: 22 years Products Offered: Voluntary Products Carriers: Allstate Workplace Division and ING Evolutions Healthcare Systems Inc. 7916 Evolutions Way New Port Richey, FL 34655 Contact: Sales Department Phone: 800-881-4474, Ext 2300 E-mail: sales@ehsppo.com www.ehsppo.com States Available: AL, CA, FL, GA, IN, KS, KY, LA, MO, NC, OH, SC, TN, TX Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO Carriers: Carrier Class Network in Florida, over 400,000 providers nationally.

Health Benefit Solutions LLC 43 Church Ave. Cookeville, TN 38501 Contact: Jon A. Johnson Phone: 931-528-7232 E-mail: jonhbs@charter.net www.healthbenefitsolutions.com States Available: KY, TN Years Offering Products: Since 1973 Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Aetna, Assurant, Blue Cross Blue Shield of Tennessee, Bluegrass Family Health, Humana, Principal, United Health Care, Guardian, Prudential, Met Life, and several third-party administrators. HSM Inc. 7805 Hudson Rd., Ste. 190 St. Paul, MN 55125 Contact: Jim Wieland Phone: 651-287-4732 E-mail: jwieland@hsminc.com www.hsminc.com States Available: All States including Wash. DC Years Offering Products: 20 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical Carriers: Several thousand contracted providers throughout the country

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Insurance Administrator of America Inc. The IAA Building, 1934 Olney Ave. Cherry Hill, NJ 08003 Contact: Paul Kelly Phone: 856-470-1200 Ext. 223 E-mail: paul@iaatpa.com www.iaatpa.com States Available: CA, DE, FL, IL, IN, KY, MA, MD, ME, MI, NJ, NY, OH, PA, RI, TX, VA, WA, WI, WV Years Offering Products: Since 1985 Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Vision; HRA; FSA; HSA (All with Debit Card options) Carriers: All the nationals and many regional Insurance Analysis & Planning P.O. Box 530795 Birmingham, AL 35253-0795 Contact: Henry W. Strong, CLU, RHU Phone: 205-879-0809 E-mail: insurance@bellsouth.net www.strongfinancialadvisors.com States Available: AL, GA, MS, OH, OR, TN, TX Years Offering Products: 30+ years Products Offered: National Group Health HMO or PPO; National Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Ameritas Life, Genworth Life Ins. Co., Guardian Insurance & Annuity, Hartford Life & Accident Ins. Co., Life Insurance Co. of The Southwest, Lincoln National Life Ins. Co., Metropolitan Life, National Life Ins. Co., National Union Fire Ins. Co. of Pittsburgh, Nationwide Life Ins. Co. of America, Principal Life Ins. Co., Protective Life Ins. Co., Provident Life & Accident, Prudential Ins. Co. of America, Reliance Standard Life Ins. Co., Reliastar Life, Standard Ins. Co., Sun Life & Health Ins. Co., Symetra Life Ins. Co., Unum Life Ins. Co. of America Jordan Benefit Services 4204 Gardendale, Ste. 100 San Antonio, TX 78229 Contact: Sara Jordan Phone: 210-421-8361 E-mail: sarajordan@peoplepc.com www.jordanbenefits.com States Available: Texas Years Offering Products: 23 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; Regional Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Vision Carriers: Aetna, Blue Cross, Humana, Pacificare, Principal Financial, United Healthcare, American National, Colonial, John Alden/Fortis, Pacific Life, Delta Dental, Dental Select, Reliance Standard, Humana Dental, United Healthcare, First Penn Life, Celtic, Fort Knowles Financial Advisors 3017 Ninth Ave. S Great Falls, MT 59405-3421 Contact: Randall Knowles, SPHR, CFP, ChFC Phone: 406-452-7250 E-mail: knowlesmt@bigfoot.com States Available: MT, ND, SD, WY Years Offering Products: 30 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Most

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2009 Employee Benefits Directory L.M.S. Associates P.O. Box 948094 Maitland, FL 32794-8094 Contact: Steven L. Beumer, RHU, REBC Phone: 407-629-4108 E-mail: LMSAssoc@aol.com States Available: AL, AR, CA, FL, GA, IL, IN, KY, LA, MA, MI, NH, NJ, NM, NY, NC, PA, SC, TN, TX, VA Years Offering Products: 25 + years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: AETNA, CIGNA, United HealthCare, Hartford, Sun Life, UniCare, EyeMed, AVESIS, American Spec. Health, Ameritas, Kaiser, among others. Louis Rich 1240 Keats St. Manhattan Beach, CA 90266 Contact: Louis Rich Phone: 310-318-1362 E-mail: Louis.Rich@gte.net www.louisrichinsurance.com States Available: California Years Offering Products: 18 years Products Offered: Regional Group Health HMO or PPO; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: All worksite carriers MAVUM Consulting 7160 Graham Rd. Indianapolis, IN 46250 Contact: Rod Reasen Phone: 317-913-3370 E-mail: rreasen@mavum.com www.mavum.com States Available: CO, FL, GA, IA, IL, IN, KY, MI, NC, NV, OH, SC, TX Years Offering Products: 15 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Anthem, Aetna, AIG, Central Reserve Life, MetLife, Principal, Companion, Guardian, United HealthCare, Humana, Cigna, Great West, Jefferson Pilot, Advantage Health, M-Plan, Medical Mutual, Star HRG, Aflac, Colonial, Blue Cross Blue Shield, Many Others Medical Link 301 Madison Ave. New York, NY 10017 Contact: Mickey Lyons Phone: 212-490-8777, Ext. 104 E-mail: mlyons@medicallink.com www.medicallink.com States Available: CA, CT, FL, NJ, NY, PA Years Offering Products: 18 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Aetna, United, Horizon, Empire, Oxford, Humana, American Medical, HIP, GHI, Guardian, Healthnet, AFLAC, Colonial, Met, Genworth, Hartford, First Reliance, and many more.

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Meritain Health 300 Corporate Parkway Buffalo, NY 14226 Phone: 800-242-6226 E-mail: sales@meritain.com www.meritain.com States Available: All States Years Offering Products: 30+ years Products Offered: Provider of services to self-funded health plans andconsumer-driven health plans. National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Midwest Business Group on Health 35 E Wacker Dr., Ste. 1500 Chicago, IL 60601 Contact: Larry Boress Phone: 312-372-9090, Ext. 101 E-mail: lboress@mbgh.org www.mbgh.org States Available: Illinois Years Offering Products: Since 1998 Products Offered: Chicago HMOs, PBM, Incentive Program, Diabetes/Cardio Value-based Health Mgmt Program, Wellness/Health Mgmt Suite of Services Carriers: Disease Mgmt Svcs: Health Dialog, LifeMasters, Matria/CorSolutions *Pharmacy Services: Walgreens Health Inititatives (WHI) *Health Promotion Services: HPN Worldwide. *Chicago HMOs: HMO Illinois, Blue Advantage, Humana, UniCare, AUDIT Midwest Insurance Brokerage Service 54 W Seegers Rd. Arlington Heights, IL 60005 Contact: Tony Camodeca Phone: 847-631-6661 E-mail: tony@midwestga.com www.mibsusa.com States Available: AL, AZ, CA, CO, FL, GA, IL, IN, KS, KY, LA, MI, MO, NC, NV, OH, OK, SC, TN, TX, UT, VA, WI, WV Years Offering Products: 20 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Group Dental; Group Disability; Group Life Carriers: Blue Cross Blue Shield of Illinois, AFLAC, Assurant, Ft. Dearborn Life, G.E. Financial Millennium Administrators Inc. 900 Ashbourne Way, Ste. B Schwenksville, PA 19473 Contact: Sara B. Picard Phone: 610-222-9400 E-mail: spicard@millennium-tpa.com www.millennium-tpa.com States Available: All States including Wash. DC Years Offering Products: 10 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Stand alone RX plan option from several different PBM’s. Carriers: Express Scripts, Health Trans, IPS, Benescripts, Wallgreens. myBenefitStatements 432 E Pearl St. Miamisburg, OH 45342 Contact: Larry Bissett Phone: 800-865-4485 E-mail: LarryB@myBenefitStatements.com www.mybenefitstatements.com States Available: All States Years Offering Products: 20 years Products Offered: Alternative Health Plans (chiropractic, alternative medicine, etc.) - Customized employee benefit statement services.

North Star Resouce Group 2701 University Ave. SE Minneapolis, MN 55414 Contact: Cheryl L. Marks, RHU REBC Phone: 612-617-6163 E-mail: cheryl.marks@northstarfinancial.com www.northstarfinancial.com States Available: AZ, IA, MN, ND, NM, OR, TX, WI Years Offering Products: 20 Years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Blue Cross, Medica, Humana, United HealthCare, Assurant, Guardian, Principal, Hartford, Standard, Delta Dental, UNUM, MetLife, Health Partners,Preferred One, Great West, Reliance Standard Pet Protect P.O. Box 11447 Naples, FL 34101 Contact: Rhona Sutter Phone: 239-403-4100 E-mail: petprotect@pethealthinsure.com www.pethealthinsure.com States Available: AL, AK, AZ, CA, CO, CT, DE, FL, GA, IA, ID, IL, IN, KS, KY, MA, MD, ME, MI, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, VA, VT, WI, WV, WY Years Offering Products: Since 1997 Products Offered: Pet Healthcare Ins. for Dogs & Cats Carriers: Insurance Corporation of Hannover Petersen International Underwriters 23929 Valencia Blvd., Ste. 215 Valencia, CA 91355 Contact: Mark Petersen Phone: 800-345-8816 E-mail: Mark@piu.org www.piu.org States Available: All States Years Offering Products: 30 years Products Offered: Group Disability Carriers: Lloyd’s of London PPO Dental Plus P.O. Box 953279 Lake Mary, FL 32795 Contact: Mark Gebhardt Phone: 407-324-3921 E-mail: mgebhardt@aigilis.com www.aigilis.com States Available: All States including Wash. DC Years Offering Products: 25 years Products Offered: Group Dental Carriers: Security Life and Symetra Preferred Vision Care P.O. Box 26025 Overland Park, KS 66225-6025 Contact: Evan J. Disser Phone: 913-451-1672, Ext. 404 E-mail: sales@preferredvisioncare.com www.preferredvisioncare.com States Available: All States including Wash. DC Years Offering Products: 35 Years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Vision

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2009 Employee Benefits Directory Pritchard & Jerden Inc. 3565 Piedmont Rd., Bldg 3, Ste. 700 Atlanta, GA 30305 Contact: Jodie Braner Phone: 404-949-1059 E-mail: jbraner@pritchardjerden.com www.pritchardjerden.com States Available: AL, FL, GA, KS, NC, PA, SC, TN Years Offering Products: 15 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Aetna Life Ins Co, American United Life Ins, BCBS, Coventry, United HealthCare, Banner Life, Employers Health, Eyemed, Greater GA Life, General American, Guardian, Hartford, Humana, Jefferson Pilot, Lincoln National, Met Life, EyeMed, Principal, Guardian, Reliance Standard, Standard, Genworth, Kaiser, United Concordia, Cigna, Compbenefits, Sunlife, Symetra Resource Brokerage LLC 1501 E Woodfield Rd., Ste. 110E Schaumburg, IL 60173 Contact: Jane Kopecky or Blair Farwell Phone: 800-605-7566 E-mail: info@resourcebrokerage.com www.resourcebrokerage.com States Available: IL, IN, MI, MO, WI Years Offering Products: The firm has been in group benefits for more than 27 years! Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; Group Dental; Group Disability; Group Life; Group Vision Carriers: BlueCross BlueShield of Illinois, Humana, UniCare, IAC, Starmark, Time, AIG, Fort Dearbon Life Roster Financial 1000 Voorhees Dr. Voorhees, NJ 08043 Contact: Patricia A Kilgore Phone: 800-933-6632, Ext. 1159 E-mail: patriciakilgore@rosterfinancial.com www.rosterfinancial.com States Available: All States Years Offering Products: 25 years Products Offered: Annuity; Life; Group Life; Group Long Term Care; Individual Long Term Care, Disability and Final Expense Carriers: Allianz, Allianz NY, Assurity, Mass Mutual, Met Life, John Hancock, Prudential, Penn Treaty, Med America Source One LLC 1970 Swarthmore Ave., Ste. 6 Lakewood, NJ 08701 Phone: 888-661-7297 www.abcpayroll.com States Available: New Jersey Years Offering Products: 20+ years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: Many

Superior Benefit Plans 5775 Lower York Rd., Lahaska, PA 18931 P.O. Box 599, New Hope, PA 18938 Contact: Marybeth Snyder, CEBS, CLU Phone: 610-722-9900 E-mail: msnyder@superiorbenefitplans.com States Available: DE, NJ, PA Years Offering Products: 26 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Vision; Individual Health; Voluntary Benefits Carriers: Aetna, Blue Cross/Blue Shield, 20 Regional and Ancillary Line Carriers, All Major Life and Disability Insurers, Self-funding TPAs. Supportive Solutions Inc. P.O. Box 52 Murrysville, PA 15668 Contact: Tonya Slawinksi Phone: 724-515-7354 E-mail: tonya.slawinski@supportive-solutions.com www.supportive-solutions.com States Available: All States Years Offering Products: 4 years Products Offered: Specializing in crisis management, response and consultation. Carriers: Corporate companies and TPAs The Washington Insurance Group Inc. 1101 30th St., NW Washintgon, DC 20007 Contact: Martin G Meadows Phone: 202-728-1092 E-mail: mgmeadows@washingtoninsurance.com www.washingtoninsurance.com States Available: All States including Wash. DC, Outside USA/Canada Years Offering Products: 25 + years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision Carriers: 25+ insurance & reinsurance carriers, TPAs & wholesale distributors including: Aetna, Anthem co’s, regional Blues, national Kaiser Permanente plans, Guardian Life, Prudential, Transamerica and United Healthcare co’s.

Way2SaveRX P.O. Box 953279 Lake Mary, FL 32795 Contact: Mark Gebhardt Phone: 407-324-3921 E-mail: mgebhardt@aigilis.com www.Way2SaveRX.com States Available: All States including Wash. DC Years Offering Products: 25 years Products Offered: National Prescription Drug Discount program. No cost to participants. For affinity & corporate groups, Associations and individuals enroll online. Westland Financial Services Inc 1717 Kettner Blvd., Ste. 200 San Diego, CA 92101 Contact: Gene A. Pastula, CFP Phone: 800-238-8144 E-mail: genep@westlandinc.com www.westlandinc.com States Available: All States including Wash. DC Years Offering Products: 20+ years Products Offered: Group Long Term Care Carriers: Prudential Life, Metropolitan Life, John Hancock Life, Genworth Life, Allianz Woodruff - Sawyer & Co. 220 Bush St., 7th Fl San Francisco, CA 94104 Contact: Jennifer Walsh Phone: 415-399-6444 E-mail: jwalsh@wsandco.com www.wsandco.com States Available: All States Years Offering Products: 31 years Products Offered: National Group Health HMO or PPO; Regional Group Health HMO or PPO; National Group Indemnity/Major Medical; Regional Group Indemnity/ Major Medical; Alternative Health Plans (chiropractic, alternative medicine, etc.); Group Dental; Group Disability; Group Life; Group Long Term Care; Group Vision

Transamerica Worksite Marketing 1400 Centerview Dr. Little Rock, AR 72211 Contact: Chuck McArthur Phone: 501-227-1260 www.transamericaworksite.com States Available: All States Years Offering Products: 40 years Products Offered: Group Dental; Group Disability; Group Life; Group Vision Carriers: Transamerica Worksite Marketing (administrative office), Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Occidental Life Insurance Company, Vision:Spectera, Inc. (administrative office), United HealthCare

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West Coverage News & Markets

Liaisons Highlight Consumer Insurance Concerns Consumer Advocates Focus on How Insurers Treat Insureds in Difficult Economic, Credit Climate By Patricia-Anne Tom

I

nsurance agents, brokers and regulators should be aware that when it comes to insurance, consumers are concerned with such issues as the use of credit scores in determining rates; purchasing policies over the Internet; compensation and disclosure; claims handling and fraud; among others, according to the 2009 consumer liaison representatives to the National Association of Insurance Commissioners (NAIC). As the liaisons should know: they represent the interests of insurance consumers. NAIC’s consumer liaison representatives “embody a diverse range of experience and expertise with insurance-related matters,” said NAIC President and New Hampshire Insurance Commissioner Roger Sevigny. “Their unique insights will help shape regulatory decisionmaking — and ensure we keep consumers’ concerns at the forefront of our discussions.” Credit Scoring Concerns A key topic the representatives hope to discuss with the NAIC and see Congressional action on is the use of credit scores. “We have already seen credit scores having an impact on interest rates charged to consumers on their credit cards and loans. If insurers continue to use credit scores in determining risk levels, premiums will increase and consumers may be forced to reduce the insurance carried to protect their financial assets,” the University of Texas’ Karrol Kitt said. “The use of credit scores in determining premiums needs to be fully vetted as to its true effectiveness in risk analysis.” The University of Minnesota’s Daniel Schwarcz, University of Georgia’s Brenda J. Cude and Texas Watch’s Pamela J. Bolton, also expressed concern about the use of credit scores for underwriting, especially given the current economy when many consumers’ credit scores are going down. “The credit crisis has already lowered the credit scores of thousands. As lenders lower credit limits and increase rates, consumers are seeing their credit scores suffer through no fault of their own,” Bolton said. She noted the 50 | INSURANCE JOURNAL-WEST REGION April 6, 2009

“grave” situation has been documented by mainstream media outlets such as the Wall Street Journal, Fox News, Bloomberg, and others. Bolton expressed doubt but hopes that the insurance industry will take into account differences between changes in credit scores because of the consumer’s own actions versus economic conditions or changes by lenders. If insurers don’t take into account differences between changes in credit scores due to the consumer’s actions versus general economic conditions, consumers and insurers “will be worse off,” Cude warned. “It is already very difficult to explain to consumers how their credit score could be related to

their access to insurance and the price they pay. It will be even more difficult to explain that when the drop in the credit score is due to, for example, their credit card company lowering their credit limit when the consumer’s behavior hasn’t changed in any way.” Insurers that don’t pay attention or try to take advantage of the economic situation could pay a price. “One outcome will likely be a continued erosion of consumers’ faith in financial institutions,” Cude explained. “This crisis presents the industry with a very important choice: Will it choose to act in the best interests of its customers, rather than continued on page 52

‘A Diverse Range of Experience and Expertise’

T

he NAIC consumer liaison representative program was established in 1992 to promote interaction with the NAIC’s members, the insurance industry and interested parties through the individuals’ dedication and commitment to serving the public interest. Thirteen of the representatives participated in the program in 2008, and three are new to the program in 2009. Goldblatt is an unfunded representative. The 17 recently appointed consumer liaison representatives to the NAIC for 2009 are: • Betty Ahrens, executive director for the Iowa Citizen Action Network; • Amy Bach, executive director for United Policyholders; • Birny Birnbaum, executive director for the Center for Economic Justice; • Pamela J. Bolton, director of policy and research for Texas Watch; • Brendan M. Bridgeland, director for the Center for Insurance Research; • Brenda J. Cude, professor at the University of Georgia; • Evelyn Dacalos Gay (Langga), project director for the Elder Rights Project, Georgia Legal Services; • Bonita A. Kallestad, attorney at law for Mid-Minnesota Legal Assistance, Western Minnesota Legal Services; • Karrol Kitt, associate professor at the University of Texas at Austin; • Sonja L. Larkin-Thorne of Avon, Conn.; • Kevin P. Lembo, state healthcare advocate for the State of Connecticut, Office of the Healthcare Advocate; • Kevin Lucia, assistant research professor at Georgetown University; • Sally Baker McCarty, insurance and advocacy consultant with the National Hemophilia Foundation, Hemophilia of Indiana; • S. Colleen Repetto of Fair Insurance Rates in Monroe; • Daniel Schwarcz, associate professor of law at the University of Minnesota Law School; • Gregory D. Squires, professor of sociology and public policy and public administration at George Washington University; and • Howard Goldblatt, director of government affairs for the Coalition Against Insurance Fraud. www.insurancejournal.com


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West Coverage News & Markets Liaisons, continued from page 50

its bottom lines, by embracing fair practices that don’t unfairly penalize policyholders, or will it be business as usual?” Bolton asked. “Only time will tell.” Keeping the Faith If consumers lose faith in their insurance providers, that will no doubt affect sales, espe-

cially Internet transactions. Many consumers prefer to purchase insurance coverage over the Internet. Web insurance purchases can be easy, as long as the Web site is consumer-friendly, providing policies that are understood, Kitt said. The process could increase the transparency of the insurance marketplace. Yet when Web sites are used primarily as

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lead generators consumers aren’t being served, the representatives said. And if sites don’t offer services consumers expect from their experience with other online transactions, such as being able to check payments made, file claims, or make changes in their policy online, they could be discouraged, Cude said. Furthermore, the recession could cause consumers to drop coverages. “Consumers already don’t understand what they’re buying when they buy insurance and how rates are set. If that’s true, they don’t know what they’re giving up when they drop their insurance coverage. … Unfortunately, many con‘Regulators don’t sumers probably use [the Web] sim- seem to have a ply to find the good idea about lowest price — what role they which does not always mean they want the market have found the to play and what best insurance product to meet role regulation their needs,” Cude should play.’ added. “The question is how many consumers and which ones will drop insurance coverage and which coverage? And if consumers have lost confidence in financial institutions, the impact will be greater.”

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Independent Agent Value That’s why an independent insurance agent can play an important role in consumer transactions, the representatives said. Because independent agents sell products representing multiple insurers, “consumers can benefit from having more choice in their insurance protection, that is several policies to review for their insurance needs,” Kitt said. “A trustworthy, ethical and truly independent agent who offers unbiased advice and guidance is an invaluable tool for consumers in our increasingly complex insurance marketplace,” Bolton said. University of Minnesota’s Schwarcz cautioned against the independent agency system when contingent commissions are involved. “When it comes to contingent commissions and any sort of differential compensation paid to an agent I think is independent, I think continued on page 54

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West Coverage News & Markets

Liaisons, continued from page 52

there needs to be closer regulatory scrutiny to that,” he said. He noted that in his research, he’s found that a “lot of problems on the regulatory side, whether there’s less robust competition in insurance markets or claims handling, contingent commissions are at the root of a lot of problems. And I think it’s a joke to think that disclosure solves that, because even if you have effective disclosure, the underlying discontinuity in information from person to person when using an intermediary or independent intermediary is not a good solution.” Schwarcz said he will encourage the NAIC to examine commissions and disclosure. “The assumption in the regulatory scheme, if there is a problem, is that all we need is disclosure. Disclosure works great for some things, but it’s not great for all things. It’s incumbent on regulators to think more carefully about when disclosure makes sense and when it does not.” Ensuring Insurance Works Schwarcz suggested the structure of state regulation was good but could be improved,

and United Policyholders’ Amy Bach agreed. Her organization objects to an optional federal charter because insurance best meets consumers’ needs when it’s regulated at a level close to where transactions occur, she said. “We’ll lend our support to commissioners that want to preserve the state regulations system,” she said. The Center for Economic Justice’s Birny Birnbaum said his group is interested in the debate over state versus federal regulation “and looking to see where consumers can get the best regulatory treatment. … Right now, the federal proposals are very anti-consumer.” Birnbaum said while state-based regulation has its problems, “consumers still have better protection [with state-based regulation] than with any hypothetical federal approach ...

Having said that, we could certainly design a federal regulatory or national regulatory scheme that was better than what consumers get now with the state-based treatment. But that doesn’t seem to be on the table just yet.” Part of the problem, Birnbaum said, is that the states and the industry don’t seem to know what they want. “On the one hand, the states say we don’t want the feds to regulate insurance and yet there’s a flood insurance program,

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there’s a terror insurance program, they want a natural catastrophe insurance program, there’s a crop insurance program.” The industry doesn’t want the government to control its business, but it wants the government to step in on risks the private market has no interest in, such as flood insurance. “Insurance companies want a handout whenever they can get it. But regulators don’t seem to have a good idea about what role they want the market to play and what role regulation should play,” Birnbaum said. “There’s no reason for private market not to be offering flood insurance or terror insurance or catastrophe insurance” he continued. “It’s done in other countries, and the governments in those other countries provide a backup in the event of a mega catastrophe.” Bach mentioned disaster programs as an example of where a regional perspective has advantages over a national perspective. Her organization works with the California Earthquake Authority to improve its products and strengthen operations. “From a consumer advocacy perspective, when government insurance programs take on the role as insurers, we want them to be run well and meet consumers’ reasonable expectations of coverage,” she said. Bach believes her ‘A trustworthy, organization has ethical and truly helped the CEA with that process independent and has helped agent who offers the California Department of unbiased advice Insurance, and and guidance is hopes to share an invaluable tool best practices with the NAIC to for consumers.’ assist with other states’ disaster programs. “We want to help export our success to other states as best we can, and brainstorm how to resolve failures,” Bach added, noting insurance is truly tested when a claim is made. “Our expertise focuses on what happens when a homeowner’s policy or business owners’ policy gets road-tested with a large loss. We hope to share with NAIC what sort of claims issues people are dealing with, what obstacles they’re dealing with, and what property insurance www.insurancejournal.com

products are working as they are supposed to.” The Coalition Against Insurance Fraud’s Howard Goldblatt hopes to improve anti-fraud efforts. He noted all consumers share in insurance fraud costs, so he hoped to share with NAIC what happens when someone tries to take advantage of the insurance industry.

“Having someone on the liaison committee with a background that understands insurance fraud issues and how it impacts consumers is a benefit when [the NAIC] discusses issues.” IJ Insurance Journal editors Stephanie Jones, Andrew Simpson and Ken St. Onge contributed to this story.

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Idea Exchange Agency Management

Minimizing Recruitment Risks Avoiding Costly — And Unnecessary — Hiring Mistakes in a Down Economy

By David A. Torres

Torres

W

ith layoffs, downsizing and stressed-out employees, it is more important than ever for employers to fully grasp the legal aspects of hiring, managing and terminating workers. Hiring new employees is an important step for any company, but the work does not stop there. Employers need to consider the importance of hiring practices, tracking employee performance, the use of an employee handbook and areas of litigation, among other issues. In 1966, singer-songwriter Stephen Stills wrote, “Paranoia strikes deep. Into your life it will creep.” Now, more than 40 years later, nowhere has paranoia crept deeper

than in the hiring habits of today’s the right employees. And after that, it’s employers, who so live in fear that they often too late to prevent problems. may not be in compliance and become tarThere are several reasons why this hapgets for litigation that they pens. First, is the high litigaforget it’s their business. potential that exists in Business own- tion That should be the No. 1 today’s culture — everyone ers often relin- is looking to sue someone. priority. This happens all the Second, the government quish control time. Instead of developing wants to tell business ownby focusing a process and a system to ers how to run their busisafeguard their company ness, or at least that’s how it on potential from lawsuits, business seems. On the surface, the pitfalls. owners often end up relingovernment tells owners, quishing control of their “this is how it’s going to be.” company by focusing more on potential But the government never really tells ownpitfalls than making sure they have hired ers how to do it. That’s something business owners control. At some point, owners have to say to themselves, “It’s my business, and I am in the best position to know what’s best for it.” That control, particularly when hiring new workers, is all about communication. Communication is what creates a healthy and safe working environment, while at the same time decreases both the need for termination and filing workers’ compensa• Architects & Engineers tion claims. • Communications Liability For instance, an employer can make its • Consultants first mistake when it hires a forklift driver • Directors & Officers We’ve collared the admitted and and automatically assumes because it says • Employment Practices Liability non-admitted markets for on his résumé he drives a forklift that he • Environmental Consultants Professional Liability coverages. knows everything about the job he is going Our knowledgeable, professional • Errors & Omissions to do. What he doesn’t know is the compaorganization will point you in the • Fiduciary Liability ny, because the hiring manager never took right direction to a portfolio with all • For Profit or Non-Profit the time to explain it. He doesn’t know the coverages you need. No bones • Insurance Agents & Brokers the product, he doesn’t know the facility, about it, we’re the ones to call! • Lawyers Professional Liability he doesn’t know who are the company’s • Management Liability best clients, and he doesn’t really know • Medical Malpractice Professionals what is expected of him. • Medical Professions That’s not all. The forklift driver doesn’t • Mergers & Acquisitions know (and the employer may not know, • Tenant Discrimination Liability either) that he has been set up to fail because of a lack of communication. And 7442 North Figueroa Street, Los Angeles, CA 90041 • 323.258.2600 • Fax: 323.258.2676 with 80 percent to 90 percent of workwww.neitclem.com • California License #0E24609 place injuries occurring within three

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months on a new job, the company has laid some pretty dangerous groundwork for workers’ compensation claims. As another example, consider a company with more than 400 employees. The owner of the company made it a point to spend 30 minutes on the floor with each new employee to make certain he or she understood everything about their new job, and what was expected. As a result, there was a drop-off in terminations and job-related injuries. Communication is also a key element when evaluating an employee’s performance. Unfortunately, for many employers this procedure takes on a bureaucratic quality in which evaluations are rigidly structured as formal reviews once a year or once every two years. Evaluations actually should be conducted as often as possible. The manager should take the initiative to sit with an employee whenever possible to say, “This is how you do the job correctly.” It should be constructive criticism, and it should be verbal, not just written. Time after time, however, the manager lacks the resolve to confront employees about their performance, to let them know if they are doing a good job or need to show improvement in certain areas. Then, a year later, the unsuspecting employees are handed a negative review that they never see coming, and they are out the door. Suddenly, the company is missing a worker and is faced with having to start training a new employee all over again. Then, in the back of the owner’s mind is the lurking fear that the suddenly terminated and unhappy worker may be seeking legal options — all of which could have been avoided through proper communication. www.insurancejournal.com

Proper communication does not exist solely in an employee handbook. An employee handbook is not as important as many companies think it is; at best, it is overrated. Good management is all about open communication, not pages in a book that will probably sit in a drawer. In fact, very often it is the employee handbook that gets the employer in trouble. For instance, California is an employment-at-will state, which means an employer can walk into an office tomorrow and fire any employee and never have to give a reason why. Yet, companies will put things like the following in a handbook: “If you’re late one day you get a verbal warning, two days a written warning, and three days a termination notice.” By putting such criteria in a handbook, the employer has taken the “employmentat-will” out of the mix. Such written terminology becomes “reasons” for termination. The employee now thinks there has to be a reason to be terminated, because it is all outlined in the employee handbook. This is dangerous water to be treading in because a handbook sets expectations that are not really necessary. What is necessary when looking to avoid costly employment mistakes in a down economy, where workforces are getting leaner and every worker becomes increasingly valuable, is very simple — just good communication. IJ Torres is a senior partner with the Advocacy Division of Employer Support Services Group Inc. based in Rancho Cucamonga, Calif. E-mail: davidt@employersupportgroup. com. This article is based on a recent seminar sponsored by Invensure Insurance Group of Irvine, Calif., for HR managers, business owners and others responsible for hiring and monitoring new employees.

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Idea Exchange D&O

Corporate Defaults, Bankruptcies and D&O Claims By Kevin LaCroix

LaCroix

D

eteriorating economic conditions threaten a massive wave of corporate defaults. Corporate borrowers’ inability to fulfill debt obligations could prompt a bankruptcy filing surge and lead to lawsuits as creditors and shareholders seek to recoup their losses. These claims could present a host of challenging directors and officers insurance coverage issues. According to a recent Wall Street Journal article, the United States is about to experience “the most corporate-debt defaults, by dollar amount, in history.” The article estimates that “U.S. companies are poised to default on $450 billion to $500 billion in corporate bonds and bank loans over the next two years.” The growing wave of souring debt has already resulted in rising numbers of bankruptcies. At the same time, many companies have found in the course of their year-end audits that their auditors question whether the companies can continue as “going concerns.” A recent CFO.com article quoted the CEO of

Among other things, the question whether a one of the Big Four accounting firms as saying company can continue as a going concern that in the months ahead, “we’ll see an alone can become an allegation in a shareholdunprecedented number of going-concern footers’ class action complaint. Claims may arise note disclosures and clarifications from the even when companies attempt a work out to auditors.” try to avoid bankruptcy. These The problem with going claims can come from shareconcern opinions is that ‘It will no longer holders, who may be content they can become self-fulfillthat the workout resulted in a ing prophecies. As the be sufficient for dilution of their interests, or it CFO.com article notes, “the underwriters can even come from other revised status can further bondholders, who may claim hinder a company on the to presume that that their interests have been brink of filing Chapter 11 risk is limited harmed or improperly suborfrom avoiding bankruptcy dinated. court,” because the qualifito the financial A bankruptcy filing is cation can spook “investors, sector.’ particularly likely to be follenders and suppliers.” lowed by claims against the The prospect of surging bankrupt company’s directors and officers. In corporate defaults and the rising numbers of its recent report analyzing the 2008 securities companies with going concern audit opinions lawsuits, the information database firm also raise the possibility of an increase in Advisen noted that the rising number of bankclaims against the directors and officers of the ruptcies “almost certainly will be accompanied struggling or bankrupt companies. by an increase in securities lawsuits.” The Advisen Report notes that since 1995, roughly 35 percent of large public companies (defined as having more than $250 million in Speaker: S peaker: Jason Jason A Austell, ustell, N NBC BC 7 7/39 /39 News News A Anchor nchor assets, measured in 2008 dollars) that filed for Date: Tuesday Tuesday, May 12, 12 2009 bankruptcy were also named in securities Location: Town and Country Resort and Convention Center 500 Hotel Circle North, San Diego, CA 92108 class action lawsuits. During 2007 and 2008, SCHEDULE OF EVENTS that percentage increased to 77 percent. 8:40-9:00am: Continued Education Registration These claims can come in the form of securi9:00-11:00am: 2 CE Credits* - "Understandin Internet Exposure." ties lawsuits brought against the individuals by Instruction by Kirk Denebeim with Socius Insurance Services. This class the bankrupt company’s shareholders. In addisurveys the basic third party liability and first party risks created by tion, the trustee in bankruptcy may also assert the internet and media technology, all within the framework of an claims against the company’s directors and offievolving legal environment which is causing a rapid expansion of cers for breach of fiduciary duty or other these exposures into virtually every business – not just technology businesses. * Bring your license number to class to complete alleged breach. registration requirements. *Course # 95520 The advent of claims following bankruptcy 10:00 - 12:30pm: EXHIBITS OPEN I-Day Grand Sponsor presents a number of insurance-related chal12:30-2:30pm: Luncheon & Industry Awards lenges. One critical issue is the amount of (Note: Exhibit hall is closed during luncheon) insurance available. The prospect for multiple 2:30 - 4:30pm: EXHIBITS OPEN simultaneous claims increases when a compa( Cocktail Hour/Exhibitor Drawings/Raffle) ny files for bankruptcy. The involvement of multiple claims presents the possibility that Call or Click: 619-749-5168 or www.ibasandiego.com to register the insurance could be entirely exhausted.

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Indeed, as actually happened in connection with the claims surrounding the recent Collins & Aikman bankruptcy, defense costs alone could deplete the available limits. The interplay between the provisions of the Bankruptcy Code and the terms and conditions of the D&O policy may also present certain specific challenges. One recurring issue since so-called “entity coverage” has become a standard part of the D&O policy has been whether or not the D&O policy proceeds are property of the bankrupt estate and subject to the automatic stay in bankruptcy. Another frequently recurring D&O insurance coverage issue arising in the bankruptcy context is whether claims asserted by the trustee or other receivers or liquidators against the company’s directors or officers runs afoul of the policy’s exclusion for claims brought by one insured against another insured. The “insured vs. insured” question arises because of the concern that the trustee or other claimant is “standing in the shoes” of a policy insured, the company itself. A number of policy solutions to these recurring bankruptcy issues have arisen in recent years. For example, a coverage carve-back to the insured vs. insured exclusion, now standard in most policies, has developed to address concerns about coverage for claims brought by trustees and others. In addition, many policies now contain “priority of payments” provisions to address questions surrounding the availability of the D&O policy’s proceeds for the payment of individuals’ defense expense or the resolution of claims notwithstanding the bankruptcy stay. More importantly, the D&O industry has developed solutions to ensure that a fund of money will remain available for specified individuals so they can defend and resolve claims against them. These structures might take a number of forms, including a so-called side A/difference in conditions (DIC) policy, or even an individual director liability (IDL) policy. The complexity of these issues underscores the need to involve a skilled insurance professional in the D&O insurance acquisition process. Financially troubled companies in particular need an informed advocate. The details of a company’s insurance program could determine whether coverage is available for individual directors and officers in the event of bankruptcy and related claims. Finally, the economic conditions also present www.insurancejournal.com

serious concerns for D&O underwriters. Up to this point, D&O underwriters have been able to segment risk arising from the credit crisis according to whether or not companies were financially related. However, with the growing threat of corporate defaults, risk segmentation will be more challenging. At a minimum, it will no longer be sufficient for underwriters to presume that risk is limited to the financial

sector. These factors suggest that turbulent times could be ahead for both buyers and sellers in the D&O marketplace. IJ LaCroix is an attorney and partner in OakBridge Insurance Services’ Beachwood, Ohio, office. An earlier version of this article appeared on LaCroix’s Internet Web blog, the D&O Diary: www.dandodiary.com. E-mail: klacroix@ oakbridgeins.com.

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Think Big!

Idea Exchange Tips From a Part-Time CFO

Five Tips for Agents From a Part-Time CFO By Edward F. Burke

T

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Revenue Commissions represent the revenue earned based on the premium paid by the customer to the insurer on new policies/renewals. Records need to be kept on policies sold to be sure that they are included in the commission remittance from the insurer. This is a good way to keep aware of cancellations by the insured that reduce payments. Payments from the insured are made to the insurer and based on those payments. Commissions are paid in most cases monthly to the agent. While most small agencies use the cash basis for tax purposes, they should maintain their books on an accrual basis. That means revenue is recognized in the period in which it is earned, while insurer payments will likely be received in the following period. Where commissions are paid in a lump sum, the amount received must be charged to a deferred revenue account, (a liability account) and a portion of it recognized in each period as it is earned. Both accounting methods will provide a more accurate picture of how the company is doing financially. Cash Working capital is the lifeblood of every economic entity. For agencies, the revenue

60 | INSURANCE JOURNAL-WEST REGION March 23, 2009

Burke

stream or cash receipts is almost guaranteed. Without proper cash management, including a cash flow forecast, a company can run out of cash. Maintain enough working capital to cover two months of operating expenditures. A cash flow forecast begins with the cash balance, plus all expected receipts from operations, less costs of operations. It is important to recognize the difference between operating expenditures and non-operating expenditures. A non operating expenditure may be the acquisition of an asset such as a building or a piece of equipment. Financing Small agencies should stay away from bank lines of credit unless there is a compelling reason to obtain one. Lines of credit make it easy to spend cash that is not earned in the normal course of business. However, if the purchase of a fixed asset is required, then a term loan secured by the asset would make sense. Expenses The single largest expense for an agency is the total cost of employee. Owners often look at the wage of an employee and don’t consider payroll taxes, benefits (such as paid time off) and group insurance. Perks such as auto, gas or entertainment may also be included. Analysis must be done on those expenses to ensure they are in line with other companies of similar size in the industry. The analysis is done by creating benchmarks (available from industry associations) that determine such statistics as revenue per employee, per square foot, clients per sales employee, etc. It’s important to recognize that owners are employees too, and have a responsibility to the company. Care should be taken to avoid excessive perks, such as excessive salaries, expensive cars and including non-performing family members on the payroll. IJ Burke is a partner with B2B CFO Partners. E-mail: eburke@b2bcfo.com. www.insurancejournal.com


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Idea Exchange Closing Quote

6 Steps to Take Before the Soft Market Hardens By Scott Chang

Chang

M

ost insurance professionals detest a soft market because of the increase in competition, unreasonably low pricing and increased market vulnerability. Some, however, may appreciate a softening precisely because of the change in underwriting and pricing philosophies. No soft market lasts forever. The hard market will arrive. Like the “real estate bubble,” carriers cannot sustain underwriting and investment losses. What does this mean to retail agents and brokers? Agencies with a majority of their book placed with preferred carriers may spend additional, unanticipated time trying to re-market those accounts because of the crises faced by those carriers. Carriers know that if they entertain risks as they have during the soft market, it could lead to insolvency. When the market does turn, the burden once again will be on agents to adapt to the new market condition — to which some may not be accustomed or even ever experienced. Underwriting complacency and pricing latitude will disappear in the next hard market, as in all hard markets. Clients accustomed to the current market conditions are going to complain, asking why their renewal offers are so much higher, or why the incumbent carrier is not renewing the policy despite a clean claims history. Being able to satisfactorily answer these questions and successfully retain clients will soon be the goal of every agent. Avoid Being Left Behind How does an agent avoid being left behind when the shift happens? Be prepared for the reality of the coming marketplace. 1. Just as a grocery store operator regularly checks, agents should do the same to ensure the current markets are not significantly changing guidelines or increasing rates. If they are, that could mean they are planning to cut a few agencies as soon as they feel their executives can no longer spend $1.2 million to renovate their offices. If the agent has other preferred carriers, approach them before the market changes. Don’t wait until the last minute. 62 | INSURANCE JOURNAL-WEST REGION April 6, 2009

2. Gather individual loss runs and agency loss data quickly. This is important because if/when markets become insolvent, it is very difficult, if not impossible, to obtain loss runs or analytical reports. Don’t assume that insurance departments, guarantee associations or other governmental agencies can or will assist in securing the data. Because the agent is not the “consumer,” these entities will most likely disregard such requests. Remember, the governmental agencies work for consumers, not industry-related entities. 3. Renew and/or rebuild relationships with excess and surplus lines markets. The key role of surplus lines brokers, wholesalers or managing general agents is to make markets available to retail agents who lack the necessary “preferred” markets or need a market to entertain risks that are normally declined by preferred carriers. 4. Don’t be afraid to ask questions or reach out to past or current contacts. Many insurance practitioners rely on knowledge gained from on-the-job experience, selfClients are going education or acquaintances, to ask why their rather than company training programs. Unlike stanrenewal offers dard carrier underwriters, many E&S underwriters are so much have knowledge and direct higher. experience at both the carrier and retail levels. Not only can MGA underwriters advise on current market conditions, they can also help agents by obtaining rates and coverages not normally available (subject to state law). 5. Automate the agency. Recent statistics indicate that more people buy insurance via the Internet or other means of electronic communication. While having paper files may be practical, agencies needs to be able to communicate with customers more efficiently through technology. 6. Participate and invest in industry gatherings such as seminars and conventions. Agents who are wellinformed understand the deeper aspects of the industry and the market. Remember that the industry will be facing greater challenges in the near future. Preparation is your best option. IJ Chang is an underwriter with RIC Insurance General Agency Inc, a managing general agent in California. Web site: www.ric-ins.com/. www.insurancejournal.com


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TOP CONSUMER CONCERNS Eye on Credit Scores, Disclosure CORPORATE DEFAULTS AND D&O Turbulent Times Could Be Ahead

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