Insurance Journal

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CRIME WARP Recession Driving Vehicle Give-Ups

HIGH-PERFORMING AGENCIES Don’t Cheap Out on Training

TIMING EARTHQUAKE COVERAGE Don’t Wait For the Big One

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Inside This Issue April 20, 2009 • Vol. 87, No. 8 • West Region

N30 | International Report Somali Pirates Step up Attacks; Exemption Renewal for Europe’s Insurers

WEST COVERAGE 8

N18 Young Agents Survey/ Big “I” Issue The Freedom to Grow Exclusive Survey: What Young Agents Value About Being Independent

NATIONAL COVERAGE

| Nevada Court Addresses Medical Malpractice Backlog State Has 400 Medical Malpractice Cases Pending

8

| Colorado Defeats Unfair Claims Settlement Practices Bill Industry Applauds Bill’s Defeat, Says It Would Have Increased Costs

9

| Arizona Wildfire Season Poses Risks for Homeowners More Than 4,000 Structures Threatened in Past Three Years

10 | Colorado Senate Panel Looks at Workers’ Comp to Fund Higher Ed Pinnacol Assurance Working to Find Alternate Investment Vehicle

N16 | Spotlight: Inland Marine/ Transportation/Cargo Special Delivery: Added Value with Cargo Insurance

16 | California 2008 Workers’ Comp Premiums Written Decrease 20% Summary Includes Cost Estimates of En Banc Decisions

N18 | SPECIAL REPORT: Young Agents Survey/ Big “I” Issue The Freedom to Grow Exclusive Survey: What Young Agents Value About Being Independent

16 | California Reconsiders En Banc Decisions Governor Applauds Board’s Reconsideration

N24 | Spotlight: Inland Marine/ Transportation/Cargo Marine Cargo for Small- to Mid-Size Businesses Doesn’t Have to Sink the Ship N25 | Closer Look: Medical Professional Liability Frequency Down but Severity Still a Problem for Med-Mal Insurers N27 | P/C Insurers Profitable in 2008 But Take Big Hits From Catastrophes, Financial Crisis N28 | Rates Rising on U.S. Property Catastrophe Reinsurance National Programs Rose Between 10% to 14% N28 | Recession Affecting Insurance Coverage Supply and Demand Advisen Says Past Recessions Have Not Influenced ‘So Profoundly’ 4 | INSURANCE JOURNAL-WEST REGION April 20, 2009

18 | Crime Warp: Recession Driving Rise in Vehicle Give-Ups Trend Shows How Easily Many People Will Bilk Their Insurers

IDEA EXCHANGE 32 | Examinations Under Oath: The Basics Understanding the Right and Obligations Imposed on the Insured N1 | Growing Your Property Casualty Agency 8 Ways to Improve Your Sales Timing and Your Income N2 | Minding Your Business Renewal Strategies in Challenging Times N4 | International Insider On the Road to Latin American Opportunity N8 | Emerging Errors & Omissions Risks Excess and Surplus Lines Market Can Help Find Solutions N12 | Make the iConnection: Engage Your Future Leaders Talent Strategies for Understanding Generation Y N14 | Get in Touch with Gen Y Why the Modern Workplace Is Important for Young Professionals N32 | Closing Quote: Too Big to Fail How the Feds Can Address Systemic Risk

6 12 14 N10

| | | |

DEPARTMENTS

Opening Note People Business Moves MyNewMarkets

20 | Medical Liability Policies Are Typically Claims-Made Retroactive Period Serves to Limit Liability Period 22 | Don’t Cheap Out on the Training And Other Lessons From High-Performing Agencies 26 | Timing Earthquake Coverage Timing An Earthquake Coverage Purchase is Like Trying to Time the Stock Market 30 | Inspiring People to Commit to Something Bigger Than Themselves Sometimes a Little Adversity Goes a Long Way, Thomco CEO Says

10

22

Colorado Senate Panel

Don’t Cheap Out on the Training

Pinnacol Assurance Working to Find Alternate Investment Vehicle

And Other Lessons From High-Performing Agencies

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Idea Exchange Opening Note

Blowing Smoke

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rsonists’ handiwork has dominated headlines in the past several months. Earlier this year, in southeast Pennsylvania, an alleged group of firebugs torched dozens of buildings in one community before being caught. In rural New Hampshire, a man was charged with nine counts of arson and until he was jailed, there was scant evidence the alleged arsonist would cease burning things down. And in California and Nevada, an increasing number of vehicles have been burned as part of owner give-up plans to dispose of their cars and cash in on the insurance, according to the National Insurance Crime Bureau.

Insurance agents and their carriers need to be vigilant about insurance claims being made as a result of property being destroyed by smoke and fire. Recent NICB reports and the findings of an ISO-commissioned survey released earlier this year are proving alarming.

NICB Special Agent Mike McKee noted that in California, agents should be suspicious of consumers who report thousands of dollars in alleged smoke and ash cleanup costs following wildfires — especially when the bills come in six months after the fires occur. He also cautioned that with more consumers in economic straits, some owners are reporting their car stolen, but they actually take it out to the desert and set it on fire, then try to make a profit on it.

“As the vehicle fraud trend gains steam, it reveals much about people’s desperation to escape the economic vise as Agents can their finances crumble. This crime trend also show how easily many people will bilk their insurers whenever financial help to catch pressure reaches critical mass,” agreed James Quiggle of the and prevent Coalition Against Insurance Fraud.

Because they are on the front lines interacting with confraudsters. sumers, agents can help to catch and prevent fraudsters from taking advantage of the insurance industry, the costs of which are passed onto all consumers, McKee and Quiggle said. Meanwhile, agents and brokers can help consumers to protect their assets from legitimate fires, by providing them with valuable information.

The ISO survey, which relied on the input of 500 fire chiefs from communities of all sizes, found that the lack of infrastructure for delivering water can lead to critical delays in firefighting. Nearly one in six departments said it has no water service for firefighting or must rely on sources other than hydrants. The survey also pointed out that more than half of the fire chiefs surveyed “always or almost always” call on neighboring departments to respond to an initial alarm for a structure fire. One of the main reasons that fire departments are always calling on their neighbors is that they lack the number of firefighters, in many cases, to respond properly.

With firefighting resources taxed to their limits, property owners should take preventive measures to prevent fires from occurring in the first place. Many insurance companies provide free evaluations to homeowners in wildfire-prone areas to reduce their fire risks. Agents would be wise to advise customers to take advantage of such services.

After all, according ISO’s Mike Waters, “it’s not enough to know there’s a fire station nearby. You also have to know if the station will respond to a possible fire and if there will be Patricia-Anne Tom enough trained personnel, adequate equipWest Editor ptom@insurancejournal.com ment and sufficient water for firefighting.”

Publisher Mark Wells Chief Executive Officer Mitch Dunford

EDITORIAL Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal V.P. Content/ and Interim Midwest/Southeast Editor Andrew Simpson | asimpson@insurancejournal.com East Editor Kenneth J. St. Onge | kstonge@insurancejournal.com South Central Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Patricia-Anne Tom | ptom@insurancejournal.com MyNewMarkets Associate Editor Chris Boggs | cboggs@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Columnists Kathleen Ellis, Susan Henry, Catherine Oak, Bill Schoeffler, Alan Shulman, Henry Zangwill Contributing Writers Scott Cornell, Nancy Cerino, Robert DiMuccio, Edward Gray, James Quiggle, Robert Redfearn Jr., Joe Tracy, Reid Wilson

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

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

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

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

A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Admin./ Marketing Asst.

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

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

6 | INSURANCE JOURNAL-WEST REGION April 20, 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

Nevada Court Addresses Medical Malpractice Backlog

Washington Implements Flood Insurance Coverage Law

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W

he Nevada Supreme Court is taking steps to resolve a backlog of medical malpractice lawsuits through a “settlement marathon” in May. Court spokesman Bill Gang said teams of two senior judges will be assigned to conduct settlement conferences on malpractice cases currently pending in Clark County District Court.

Plans call for 18 or more conferences each week.

Chief Justice James Hardesty told state legislators in March that the state has more than

400 medical malpractice cases pending.

Gang said that doesn’t count about 430 cases relating to a hepatitis C outbreak at endoscopy clinics in Las Vegas.

Justice Michael Cherry said the senior judges will focus on the 216 oldest cases. He said more than half were filed more than two years ago. IJ Copyright 2009 Associated Press.

All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

ashington Gov. Chris Gregoire has signed Senate Bill 5417, an act relating to flood insurance coverage.

According to the law, “every insurer issuing a homeowner, condominium unit owner, residential tenant and residential fire insurance policy that does not cover damage caused by flood must notify the policyholder that the policy does not cover damage caused by flood. The notice must also inform the policyholder how to contact the National Flood Insurance

Program, or one of NFIP’s agents.

The notice must be provided at the time the policy is issued and renewed.

The specific language to be used in the customer notification can be viewed at http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/ Bills/Senate%20Passed%20 Legislature/5417-S.PL.pdf. IJ

Colorado Defeats Unfair Claims Settlement Practices Bill

C

olorado lawmakers voted down SB 103, the Unfair Claims Practices Act. The legislation was killed in the House Health and Human Services Committee in a 6-5 vote.

The bill would have “defined as an unfair claim settlement practice and a deceptive act or practice in the business of insurance the practice of providing any pay, salary, reward, bonus,

promotion or other financial incentive to any person involved in the review of a claim for benefits or to persons performing utilization review, in connection, directly or indirectly, with the denial of a claim made by an insured or claimant or the cancellation of an insurance policy.”

The Property Casualty Insurers Association of America (PCI) said the bill would have prohibited

insurance companies from giving bonuses and incentives to adjusters and other employees for denying claims.

“SB 103 was just an unnecessary bill conceived to advance trial bar interests,” said Kelly Campbell, PCI regional manager, who noted it would have increased litigation and driven up insurance costs .

“Insurance carriers do not financially reward their employees for

denying claims. Rather, it’s in insurers’ best interests to deliver good customer service and settle claims fairly.”

Campbell also noted that passage of the legislation would have given attorneys more incentive to pursue frivolous litigation and investigate insurance employee records while making it more difficult for insurance companies to investigate fraudulent claims. IJ

It Figures 12 Number of tropical storms Colorado State’s hurricane team estimates will occur in 2009. The research team said of those 12 storms, six could become hurricanes including two “major” hurricanes of Category 3 or higher on the fivestep SaffirSimpson 8 | INSURANCE JOURNAL-WEST REGION April 20, 2009

intensity scale. Hurricanes of that magnitude have sustained winds of more than 110 mph.

4.3 The magnitude of an earthquake that struck Santa Clara Valley, Calif., revealing a fault scientists did not know existed, according to the U.S. Geological Survey in Menlo Park, Calif. The quake occurred on a northsouth oriented fault about 3 km to the east of the of the Calaveras fault as defined by the past 40 years of earthquake epicenters. “The fault has no name and is not mapped at the surface of the earth,” USGS said.

$2.4 billion The amount property/casualty insurers earned in net income after taxes in 2008, according to ISO and the Property Casualty Insurers Association of America. Despite those results, the groups said profits and profitability both tumbled as catastrophe losses, the recession, and the crisis in the financial system took a toll on underwriting and investment results. And reflecting the decline in net income, the insurance industry’s overall rate of return on average policyholders’ surplus dropped to 0.5 percent in 2008 from 12.4 percent in 2007. IJ www.insurancejournal.com

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Arizona’s Wildfire Season Poses Risks for Homeowners

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s the drought in the Southwest worsens, the wildfire season in Arizona grows longer, burning more acreage and threatening private property in forested areas.

“The Arizona State Forestry Division estimates more than 4,000 homes, businesses, and other structures were threatened by wildland fires in the past three years,” said Ron Williams, executive director for Arizona Insurance Council (AIC). “Including autos, boats and other personal property, the economic losses in 2009 could be in the millions of dollars.”

Arizona Firewise, a cooperative effort of state and federal forest, wildfire and wildlife organizations, has published a booklet, “Living With Wildfire: Homeowner’s Firewise Guide for Arizona.”

It is a comprehensive review of wildfire behavior, survivable space and Firewise techniques, checklists for various landscaping and housing materials, and emergency guidelines, AIC said.

In addition, the property and casualty insurers of Arizona, represented by AIC, suggest homeowners review their policies. An annual insurance policy check-up is an essential factor in protecting a home and belongings any time of year, AIC said. Home and business owners should contact their agent or insurance company to make certain they have the proper level of coverage.

Key points agents and insurance companies should go over include: • Does the policy cover the current costs of rebuilding the house? The increases in cost for lumber, steel, concrete and copper have significantly outpaced other products. Those price increases affect what insurers pay to repair and rebuild homes and the costs of satisfying those claims is shared by all homeowner insurance consumers.

• Does the policy provide coverage for additional living expenses, such as hotel bills and restaurant meals for the time the owner is evacuated from the home and/or while the home is being rebuilt?

• Is the insurance company or agent aware of any improvements the consumer has made on the home or business? Updating a kitchen, new carpeting or installing a swimming pool adds to the value of a home. The same applies to business improvements.

• Has the homeowner upgraded the home electrical system or plumbing system, or installed anti-theft alarms or fire sprinklers?

These improvements could help reduce the insurance premium, depending on the insurance company’s business practices.

Agents can refer Arizona property owners to access wildfire safety and property saving tips online at the AIC Web site at www. azinsurance.org/WFLinks.html. IJ

www.insurancejournal.com

Declarations Chinese Drywall Concerns “I believe you’re going to see this is widespread. Anytime you have mounting evidence of potentially toxic goods you have an obligation to act quickly to protect consumers.”

— U.S. Sen. Bill Nelson, D-Fla., a member of the Senate Commerce Committee that oversees the Consumer Product Safety Commission.

Nelson and Sen. Mary Landrieu, D.-La., have filed legislation for a recall and immediate ban on tainted building products from China, as more and more people around the country are reporting problems in their homes built with imported drywall. Several lawsuits are pending.

Workers’ Comp Pressures “During a recession, headcount is going down while the average weekly wage in all past recessions has continued to grow but at a much slower pace.”

— Harry Shuford, chief economist for the National Council on Compensation Insurance (NCCI), predicting that the economic and financial downturn will have a mixed impact on the workers’ compensation insurance market. He said recessions tend to place downward pressure on workers’ compensation exposure, which is primarily due to declines in employment and slower growth or declines in wage rates.

National Consumer Protection Needed “The meltdown of insurance giant AIG and the broad crisis in the nation’s financial system serve as proof of the vital need for regulatory reform of the insurance sector. Numerous bipartisan reports on the nation’s capital markets have noted that insurance remains the only major segment of the capital markets not subject to federal regulation and reform is needed.”

— The statement by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, RCalif., who introduced their bipartisan insurance regulation reform legislation called The National Insurance Consumer Protection Act (NICPA).

The Act would create a robust federal regulator for insurance to act as an alternative to the antiquated, non-uniform system of state insurance regulators currently in operation, the legislators said in a statement. The legislation would create a federal regulator for insurance as an alternative to the state-based regulatory structure currently in place.

State-Based System Works “State-based insurance regulation relies on high level principles-based and rules-based requirements and boots on the ground. We have supervisors, examiners, investigators, all close to the consumer and the industry, looking at activities from multiple angles to see any red flags as signs of trouble. A good example is American Insurance Group (AIG), where all the insurance subsidiaries remain strong, while the financial services companies have encountered extensive problems.”

— Hawaii Insurance Commissioner J.P. Schmidt purporting the need for state-based insurance regulation. Schmidt said the insurance regulatory regime presents a balanced model for reform in financial services. His speech at the 16th Annual Global Financial Conference focused on the current financial crisis and how it relates to the insurance industry. IJ April 20, 2009 INSURANCE JOURNAL-WEST REGION | 9

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West Coverage News & Markets

Colorado Senate Panel Looks at Workers’ Comp to Fund Higher Ed

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olorado lawmakers are looking at a plan to take $500 million from the state-created workers’ compensation insurance company to reverse deep cuts in higher education.

The Senate Appropriations Committee reviewed the plan as one of nearly two dozen proposals to cut funding and transfer dollars recommended by the Joint Budget Committee to balance next year’s budget. The new fiscal year starts July 1.

Pinnacol Assurance, the workers1 compensation insurance company, largely operates independent of the government. It has a surplus of $698 million, about six times the minimum required by the state.

The company says it needs that amount to ensure it can pay claims and because it can’t rely on the state or a parent company for backup. However, it is exploring ways it could use its $2 billion in assets to voluntarily help the state balance its budget.

Pinnacol CEO Ken Ross said there might be some “investment vehicle” the company uses that

could help the state. He declined to elaborate, but said the company hopes to let lawmakers know of any possible alternatives the week of April 13 — their deadline for passing a budget for the next fiscal year.

Pinnacol is a hybrid public-private entity that has its roots in a state agency created in 1915 to provide workers’ compensation insurance. The Legislature set it up as a separate company in 2002, and the company is defined in law as a political subdivision of the state. However, the company, not the state, currently has ownership of its funds. Pinnacol doesn’t pay state or federal taxes, and its board is appointed by the governor. As the insurer of last resort, it must provide workers’ compensation to any company that needs it.

Pinnacol’s surplus has grown to almost $700 million, and some lawmakers see taking $500 million of that as a way to reverse $300 million of the proposed cuts to higher education, preventing double-digit tuition increases and the possible closure of some

10 | INSURANCE JOURNAL-WEST REGION April 20, 2009

state colleges. The other $200 and Pinnacol’s policyholders have million would go into the state’s vested rights in any surplus reserves in case more cuts are funds,” Domenico wrote. Seizing needed because of the recession. the money “would violate the Ross has met with members of Colorado Constitution.” the governor’s staff, and also met The bill to take $500 million is with Majority Leader Brandon sponsored by Republican Sen. Al Shaffer, after testifying that White, a budget committee memShaffer’s bill ber, but other would weaken Senate RepubliPinnacol is a Ross1 position cans say private compa- Pinnacol is a priand give the state control of Pinvate company ny, and taking nacol’s assets. The and taking its its money is a Senate Appromoney is a step priations Comtoward socialstep toward mittee backed ism. They socialism. that measure oppose the cuts (Senate Bill 281) to higher educaand another recommended by tion but say pitting Pinnacol the Joint Budget Committee that against higher education is would take $500 million to balwrong. ance next year’s budget (Senate Sen. Ted Harvey, R-Highlands Bill 273). Business owners lined Ranch, said the proposal is a up to testify against the measreversal of what happened with ures, fearing they could drive up bailed-out insurance giant AIG their insurance premiums. because in Colorado, the state is Evan Dreyer, a spokesman for trying to get Pinnacol to bail it Gov. Bill Ritter, confirmed the out of a budget hole. governor’s staff has also been Sen. Moe Keller, D-Wheat meeting with Pinnacol. “The dis- Ridge, said the budget commitcussions are taking place on a tee ran out of options that would very tight timeline,” Dreyer said. raise enough money.

“We are hopeful we can reach The extra Pinnacol money agreement on a plan. If not, we would help state colleges and will need to make some very dif- universities for only one year, but ficult choices.”

Sen. Bob Bacon, D-Fort Collins, Lawmakers have incentive to said it’s worth the effort because talk, because Pinnacol has threat- the damage of closing or scaling ened to take the state to court if back schools even for one year lawmakers take its money. That would take years to undo. could tie up the money needed “People do not understand the for next year’s budget year — seriousness of the situation, that which starts July 1 — for months we are ready to defund higher if not years. education in this state,” Bacon The Colorado solicitor general said. “It’s tragic, absolutely tragsays tapping a state-created ic.” IJ workers’ compensation insurance company for money to balance Copyright 2009 Associated Press. the state budget would be All rights reserved. This material unconstitutional. “Pinnacol’s may not be published, broadcast, funds are not assets of the state rewritten or redistributed. 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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West Coverage People Thoits Insurance of San Jose, Calif., promoted Paul Saich to CEO. Saich replaces Don Way, who had been with Thoits for 44 years, and will remain as chairman of the board. Saich joined Thoits Insurance in 1996 and most recently served as executive vice president of sales. He has more than 17 years of experience.

Paul Saich

Paul Furlong

Laurel Chamberlin

Rene Swan

Insurance Brokers and Agents of the West (IBA West) announced that Paul K. Furlong joined the association staff as president of the IBA West Service Corp.

He will be responsible for the management of the association’s for-profit activities, including research, development, and management of Service Corp. insurance and business programs, and oversight management of Insurance Skills Center.

Furlong began his insurance career in London in 1972.

He studied and attained the designation of associate of the Chartered Institute of Insurance and later obtained the designation of Fellowship of the Chartered Institute of Insurance, FCII. He worked for a major British insurance company in various sales and management roles, before becoming an insurance broker in 1979. In 1982, he came to the United States and joined the John W. Knight Insurance Agency in Glendale, Calif., as a producer and was promoted to president in January 1996. In 2003, Knight Insurance merged with Armstrong/Robitaille and Furlong subsequently became president and CEO in August 2005. That organization is now part of BB&T. He has served on numerous insurance company President Councils including Fireman’s Fund, Hartford, Safeco and Golden Eagle.

Phoenix-based Sterling Grant & Associates added Laurel Chamberlin as a producer. She will focus primarily on marketing insurance to the multi-family property industry, as well as retail, commercial, and office building management companies.

Chamberlin has more 25 years of experience in multifamily property management. Previous positions have included onsite manager, district manager of several apartment communities and HOAs, director of client services for a small real estate law firm, and business development officer for a bank focused on property management banking.

Evon Rios

Russ Ulrich

MetLife Auto & Home appointed Madera, Calif., resident Rene Swan to the position of regional sales manager, overseeing the company’s growth plans in California’s Central Valley territory.

Prior to joining MetLife Auto & Home, Swan worked for Safeco Insurance Co. as a sales professional for the Central California region. She also held positions at Arthur J. Gallagher and Barlocker Insurance Service, Allstate Insurance, UBS/PaineWebber, Talbot of California, and was president of Hemet Escrow Co. She has more than 18 years experience in insurance and financial services.

12 | INSURANCE JOURNAL-WEST REGION April 20, 2009

Tustin, Calif.-based Yates & Associates Insurance Services Inc. added Evon Rios to lead the professional liability underwriting team.

Rios began her insurance career more than 20 years ago as a clerk working at a large wholesale operation in Los Angeles. Most recently, she was at Partners Specialty Group, and prior to that she was with Burns & Wilcox.

Rios is an active member of the Professional Liability Underwriting Society and is completing the requirements to earn her RPLU designation.

Denver-based IMA of Colorado Inc. promoted Russ Ulrich to account executive in claim services.

Ulrich, who holds an ARM (associate in risk management) designation, has been with IMA since 2001 and has more than 10 years experience in the insurance field.

Quirk & Co., an insurance wholesaler headquartered in San Antonio, Texas, with branch offices in Austin, Dallas and Atlanta, recently named Merry Palmer manager of the Pacific Northwest Lines Team and Cheri Bahmanyar underwriter for the Oregon office.

Palmer’s focus will be on sales and marketing of Quirk & Co., looking for expansion opportunities in Washington and Oregon. She has more than 25 years of experience, having held titles such as senior underwriter, assistant vice president and vice president. She is currently the chair on the Pacific Northwest Chapter of the Professional Liability Underwriting Society.

Joining Palmer on the Pacific Northwest Team is Bahmanyar, who will underwrite risks in Washington and Oregon. She has more than 25 years of insurance experience, having held positions with carriers, retail agents and general agencies. She has held underwriting, marketing, and branch management titles.

Saylor & Hill Co., a Barney & Barney company, added Shauna Thomas-Gilbert to the Employee Benefits Division. Formerly a vice president with Heffernan Insurance, Thomas-Gilbert brings nearly 20 years of industry experience specializing in insurance solutions for a range of mid- to large-size clients in technology, nonprofit, wineries and manufacturing, to name a few. She specializes in providing innovative insurance solutions to help organizations comply with San Francisco HealthCare Ordinance requirements. Thomas-Gilbert began her insurance career with Mercer in 1990. Prior to Heffernan, she spent several years working in account management and sales for national carriers Anthem Blue Cross and Cigna.

QualCorp Inc. promoted Susan Bobbins to assistant vice president. Bobbins began as assistant to the CEO and was promoted to senior project manager in 2004. She has more than 15 years of experience with major insurance companies. IJ www.insurancejournal.com

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West Coverage Business Moves Nationwide Mutual Insurance

By Matt Reed Columbus, Ohio-based Nationwide Mutual Insurance Co. on April 3 laid off 480 employees and contractors across the country, a spokesman said.

Nationwide has eliminated about 3,000 jobs nationally in the past two years. The company lost $342 million last year as the industry dealt

with claims from an unusually high number of hurricanes and a drop in investment returns.

“We haven’t made it a secret that we’ve been looking at targeted work force changes to make us more efficient,” Nationwide spokesman Eric Hardgrove said.

The cuts were in the Nationwide’s information technology group and included 230 employees, with about 150 of those in central

Your Rx for Medical/Health Accounts If you have clients in the expanding healthcare industry, R.E. Chaix can help. As Professional Liability specialists, we know the “A” rated markets and can place your small, medium and large medical/healthcare related risks.

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Ohio. About 250 of the 480 people laid off were third-party contractors, Hardgrove said.

Those affected received an additional 60 days of pay in their severance packages, as well as assistance in finding a new job, Hardgrove said. They’ll also be eligible for some of the positions open in some of the insurance and financial services company’s other businesses, he said.

When Jerry Jurgensen stepped down as CEO in February, he said he believed Nationwide had “avoided the worst of the problems that have bedeviled the financial sector.”

The moves were made as Labor Department data showed the nation’s unemployment rate jumped to 8.5 percent in March, the highest since late 1983. The news also came several days after Dublin-based Cardinal Health Inc. — one of central Ohio’s other major employers — said it would eliminate 1,300 jobs from its clinical and medical products unit.

Jurgensen had served as Nationwide’s CEO since 2000. He was replaced by President and Chief Operating Officer Steve Rasmussen, who warned in February that additional job reductions were possible.

Hardgrove wouldn’t say whether more layoffs would come from the company’s ongoing cost-cutting initiative. “If other plans arise, we would communicate that to our associates first,” he said.

The company has about 35,000 employees, including about 11,000 in central Ohio.

Copyright 2009 Associated Press. All rights reserved.

This material may not be published, broadcast, rewritten or redistributed.

DBH Resources, Wrapid Specialty Inc. Los Angeles-based DBH Resources has evolved into Wrapid, a company that provides wrap-ups to the construction industry.

Construction wrap-up expert Andrew Canning is chief operating officer of the rebranded firm. Wrapid’s mission is to protect projects and the people who work on them.

President and CEO George Dale and Senior Vice President Heidi Butzine will continue the legacy of support provided by the firm and welcome the launch of Wrapid. IJ www.insurancejournal.com

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West Coverage News & Markets

California 2008 Workers’ Comp Premiums Written Decrease 20%

California Reconsiders En Banc Decisions

T

By Patricia-Anne Tom

he Workers’ Compensation Insurance Rating Bureau of California has published its summary of insurer experience reported up to Dec. 31, 2008.

California written premium for 2008 is estimated at approximately $10.4 billion, about 20 percent below the written premium reported for 2007, and 56 percent below 2004 figures.

The average statewide insurer rate per $100 of payroll for policies written in 2008 is $2.25, or 9 percent below the average rate charged in the second six months of 2007. The calendar period loss ratio reported for 2008 is 59 percent.

This ratio is 6 percentage points above the calendar year 2007 ratio, and 14 percentage points above the 2006, the report stated.

According to WCIRB, the Workers’ Compensation Appeals Board recently “issued two en banc decisions that have the potential to significantly increase costs — including those on existing claims. The WCIRB has reflected the

estimated cost impact of these decisions on existing claims and incorporated those estimates in the projected ultimate cost amounts reported … the estimated cost impact of these decisions was tempered by assuming a 25 percent increase instead of a 100 percent increase in the average permanent disability rating of affected permanent disability claims; a 25 percent increase instead of a 100 percent increase in the average frictional costs on PD claims affected by the WCAB decisions; and a 6.25 percent increase instead of a 25 percent increase in the proportion of lost-time claims involving PD.” After reflecting the estimated impact of those decisions, WCIRB projects the total ultimate accident year losses for 2008 will be $7.7 billion, 20 percent above the 2005 level.

To view the report, visit https:// wcirbonline.org/wcirb/resources/data_reports/ pdf/123108_insurer_exp_report.pdf. IJ

16 | INSURANCE JOURNAL-WEST REGION April 20, 2009

T

he California Workers’ Compensation Appeals Board has decided to reconsider its earlier en banc decisions in Ogilvie v. City and County of San Francisco, Almaraz v.

Environmental Recovery Services and Guzman v.

Milpitas Unified School District, which industry experts say would increase workers’ compensation rates.

The decisions essentially set precedent in ruling that in permanent disability (PD) workers’ compensation insurance cases, physicians are not necessarily bound by the American Medical Association’s “Guides to the Evaluation of Permanent Impairment” portion of the 2005 Schedule for Rating Permanent Disabilities.

Gov. Arnold Schwarzenegger commented on the board’s reconsideration, issuing the statement, “It’s absolutely right for the Workers’ Compensation Appeals Board to reconsider its earlier decision, and its decision to do so shows that board members recognize the importance of this issue. It is important that we assist California workers injured on the job, and it is also important that we protect businesses to be sure they can weather the current economy and create jobs.”

In its most recent rate filing, the Workers’ Compensation Insurance Rating Bureau of California recommended a 24.4 percent increase in pure premium rates that would be effective July 1, 2009, for new and renewal policies, of which 5.8 percent was attributed to the en banc decisions.

Insurance Commissioner Steve Poizner had criticized the recommended rate increase, saying. “California’s unemployment rate is skyrocketing and more than 1 in 10 are jobless. In January alone, nearly 80,000 jobs in the state were lost. 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.”

In late March, John C. Duncan, administrator of the Uninsured Employers Benefits Trust Fund and the Subsequent Injuries Benefits Trust Fund, requested Chairman Miller and the Commissioners to vacate their decisions in recent en banc decisions. IJ www.insurancejournal.com

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West Coverage News & Markets

Crime Warp: Recession Driving a Rise in Vehicle Give-Ups

By James Quiggle

A

s America’s economy slogs through this once-in-a-generation recession, stressed-out consumers are literally being driven to desperation.

Growing numbers of drivers around the U.S.

are illegally dumping their vehicles for insurance money. Blackened hulks are turning up in remote deserts outside of Las Vegas, for instance.

People’s motives for so-called vehicle give-

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ups are diverse. Pure greed often plays a leading role. Many drivers also can’t afford their vehicles, especially drivers who bought pricey vehicles on easy credit, beyond their financial means. Other consumers are grasping for insurance cash as their overall financial misery increases, the Coalition Against Insurance Fraud said.

Most of these drivers aren’t hardened criminals. They’re average, normally honest people pushed off a financial and moral cliff. They’re looking for any lifeline they can find.

As the vehicle-fraud trend gains steam, it reveals much about people’s desperation to escape the economic vise as their finances crumble. This crime trend also shows how easily many people will bilk their insurers whenever financial pressure reaches critical mass. The trend appears to be surging around the United States, often in locales where layoffs, foreclosures and other metrics of misery have invaded.

The Coalition investigated locales around the United States early last fall. Warning signs were spreading. Investigators are clamping down on cons, often with aggressive auto fraud task forces that were in place well before the recession increased their caseload.

Some fraud indicators: No damage to the ignition or steering lock; leased vehicle has exceeded its allotted mileage; vehicle was recovered before the time the insured reported it stolen; the vehicle is too expensive for the suspect’s income; and the suspect is behind on lease or loan payments.

With America’s moral compass wobbling, fraud fighters must change the lenient consumer attitudes that make insurance schemes so widespread. It’s impossible to simply arrest this crime out of existence. In fact, sentences for vehicle give-ups often are light, CAIF said.

A spike in public-outreach efforts thus must accompany this spike in auto insurance crimes. Get-tough deterrent messages make people think twice about committing what many consumers think is a harmless prank against insurer. IJ Quiggle is director of communications for the Coalition Against Insurance Fraud. Quiggle’s Crime Warp column is featured on ClaimsJournal.com. www.InsuranceFraud.org. www.insurancejournal.com

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Idea Exchange Medical Liability Policies

Medical Liability Policies Are Typically Claims-Made Retroactive Period Serves to Limit Liability Period

By Robert Redfearn Jr.

M

e e

edical malpractice liability insurance policies, like most professional liability policies, are typically “claims-made” policies.

Claims-made policies generally provide coverage only for those claims that are made during the policy period notwithstanding when the claim arose, provided the claim also meets all other coverage requirements.

Most policies covering liability outside of professional liability are “occurrence” policies and provide coverage for an “occurrence” during the policy period, irrespective of whether the claim arising out of the occurrence is made during or after the policy period.

In short, the difference between the two policies is that for an occurrence type policy, the occurrence triggers coverage, whereas in a claims-made policy, the notice or making of the claim is the event triggering coverage.

Claims-made policies were created primarily because the discovery of professional negligence and/or the realization of damages resulting from professional negligence typically occur a substantial time after the act of negligence itself. This creates the possibility of claims arising long after the policy period has expired, increasing the difficulty in evaluating the risks of a loss. Courts and insurers also found it problematic to decide whether the date of the alleged negligence, date of discovery of the alleged negligence or date of the injury caused by the alleged negligence was operative to determine insurance coverage.

[See Kroll, The Professional Liability Policy: “Claims-Made,” 13 Forum 842, 843 (1978).]

The Determinant Factor Claims-made policies resolved those difficulties by rendering the date when the claim is made the determinant coverage factor.

When an insurer first issues a claims-made policy to a new insured, the policy usually contains a “retroactive period” that, in effect, provides that the policy will not cover a claim although made during the policy period if the

20 | INSURANCE JOURNAL-WEST REGION April 20, 2009

Redfearn Jr.

underlying act of negligence occurred prior to the retroactive date set forth in the policy.

This places some limit on the potential claims that might be covered.

There are other variations on the notice requirement of claims-made policies. Some policies require the claim be made and reported to the insurer during the policy period.

Claims-made policies may also contain “savings” clauses that typically provide that claims made during a certain period after expiration of the policy period will be deemed to have been made during the policy period if the insured gives timely notice of the circumstances underlying the claim.

Courts have noted that claims-made policies “work perfectly,” so long as an insured who is covered under a retroactive date clause in his initial policy continues to purchase successive policies from the same insurer. Problems can arise when the insured changes insurers or does not renew the policy. That can lead to a claim for which there is no coverage.

When these circumstances arise and coverage is denied, the insured searches for reasons to invalidate the notice requirement of the claims-made policy as the event triggering coverage. Typically, these arguments are based on the contention that claims-made insurance policies violate public policy. However, courts in most states have rejected public policy arguments against claims-made policies.

[Handbook on Insurance Coverage Disputes, §4.02(b) (Aspen Publishers, 14th Ed. 2008)] IJ Robert Redfearn Jr. (Redfearnjr@spsr-law.com) is a partner in Simon, Peragine, Smith & Redfearn, a law firm with offices in New Orleans, La., and Mississippi. www.insurancejournal.com

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West Coverage News & Markets

Don’t Cheap Out on the Training And Other Lessons from High-Performing Agencies

By Stephanie K. Jones

U

se your agency management system to the max. Measure your productivity. Communicate consistently and effectively with your staff, customers and carriers. And above all, don’t cheap out on the training.

Do those tactics sound familiar?

Hopefully they do, as they are aimed at improving an organization’s bottom line and should be included in any high-performing agency’s management “Bible,” according to a duo of consultants who work with agencies to improve operational processes and profitability.

There’s a lot of redundancy out there, said Texas-based Pat Alexander, an independent consultant who works with agencies on defining and managing their agency management systems. “I have to tell you any time I

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go through an agency, no matter at what deadlines, finger-pointing and lackadaisical level it is performing, I can find how that attitudes can all be avoided by clearly definagency is not using its system to its maxiing roles, making sure people know who is mum capabilities,” Alexander said. responsible for what and setting accountabil“Maximum operational performance leads to ity, she said. the improved bottom-line.”

It’s a big job to assess and How does an agency refine an agency’s processes, ‘Training is like achieve operational efficienAlexander said. The best way breathing, it’s cy? to achieve success, then, is by “One of the first things something you doing one thing at a time. you have to do is define the “Figure out what that one never want to roles in an agency,” thing is, get it. Then take the Alexander said. “The four next thing, get it,” she advised. stop doing.’ basic roles are production, “Enter data once and use it service, processing and as many times as possible,” financial. Some agencies also have a marketAlexander said, acknowledging that achieving department; some agencies have other ing that goal with some agency management specialty departments based on their niches. systems can be tricky. However, systems are But these are the four basic roles.” Missed continued on page 24

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West Coverage News & Markets Don’t Cheap Out, continued from page 22

improving, she said, and agencies need to assess how they can put those improvements to the best use.

“Unless you use your systems to their fullest, you have no way of measuring productivity with your staff,” Alexander said.

Because an agency can only manage what it measures, management must determine how it will measure the productivity of its agency and be “ever vigilant in assessing needs, usage and performance.”

An agency can’t successfully monitor its performance unless its staff and work processes are defined, and employees are trained. While staff may have been trained at one time on the management and operating systems, “if you define something new, they have to have new training, [and a] new understanding of your expectations,” Alexander said. “You have to implement it. You have to be very firm and say, ‘from this day forward, we are going to do this new process.’ Until [employees] hear that and they see that in writing, they’re in denial. Then you have to monitor. I’ve seen agencies go from total chaos to very well-run organizations with these processes.”

In a time when resources are low, Alexander said many agencies are reluctant to devote the time and effort to define and streamline operational procedures. However, while it’s important to sell, “you can’t support

sales unless you have the back office to do that. … I find that my most successful clients take that step when they can least afford to,” she said.

The Trinity Eric Moberg, an agency errors and omissions risk management consultant based in North Carolina, agreed that agency efficiency is extremely important at this time.

Bolstering sales is one way to work out of the soft market, he said, “but if you don’t lean your back office, you don’t lean your process and you don’t measure it very carefully, your sales results are a not necessarily going to achieve [the] bottom-line that you’re looking for.”

Moberg explained that his approach to E&O risk management uses what he calls a “trinity” of communication, documentation and consistency. “This trinity can be applied to most everything you do in your business and in every relationship that you have,” he said.

Within each part of that trinity, Moberg suggested agency owners and managers ask themselves some basic questions: • Communication. How do you communicate with your staff? How do you communicate with your brokers? How do you communicate with your carriers? Are you satisfied with the communication that you have? Are you using the best technology for that communication? If you are using imaging? Are you using it the best way it can be used? Are you storing data multiple times?

• Documentation. How do you document files? How do you document communications? Can you project yourself out three years down the road, and if you had to defend yourself in court on a case, would the documentation be adequate to do that? Does your staff understand this?

• Consistency. Does everybody do it the same way all the time? Are they prepared to be trained and take the time to make sure that they understand this?

24 | INSURANCE JOURNAL-WEST REGION April 20, 2009

This concept “of what you do day in and day out with your staff becomes extremely important,” Moberg said. The key to success in implementing consistent communication and documentation is training. “Training is like breathing, it’s something you never want to stop doing. … You have to put the investment in to train your staff on how to do this. … Training becomes a critical aspect of everything that you do in the agency,” he said.

Like Alexander, Moberg recommended agencies take time to review their workflow.

“Put teams together to look at your existing work flow. How are you doing it today? Is it the best way? Look at your procedures. Are they well-documented? Are they accurate? Or is that procedures manual you spent oodles of time working on four years ago sitting on a shelf somewhere that no one looks at? Is it relevant to what you’re doing today?”

One test of an agency’s level of communication, documentation and consistency, he said, is to determine what extent someone who sits at an agency principal’s desk or staff member’s desk is able to look at what’s there, take over and go forward with the work.

E&O Essentials While consistency and efficient use of data management systems can be used to enhance the company’s profitability, they are essential when it comes to errors and omissions claims. Courts, Moberg said, are holding admissibility of evidence in the courtroom to the highest level of technology. Therefore, it is imperative that the agency analyze its processes and how it interacts with the organization.

Finally, Moberg said, it really is about the bottom-line. The work done to streamline an agency’s processes and procedures will enhance its ability to market and sell products. “Agencies and brokers exist to distribute the product for the carriers. That’s the simplest way to [put it],” he said. “Are you doing everything to optimize that with workflow?” IJ Editor’s Note: This article was based on a presentation at the Target Markets Program Administrators Association Eighth Annual Summit in Tempe, Ariz., in October 2008. www.insurancejournal.com

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West Coverage News & Markets

Timing Earthquake Coverage Timing an Earthquake Coverage Purchase Is Like Trying to Time the Stock Market

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more difficult in today’s financial environment. If you even attempt to “beat” the market, over the long run, you will lose. The same can be said for earthquake insurance.

Most people think that earthquakes are a California problem, but earthquake activity can and has occurred in Nevada, Utah and as far east as Illinois and Georgia. With each earthquake, managing general agents see an increase in the number of retail agents requesting new earthquake coverage for their insureds. Many of these insureds may purchase earthquake insurance because they realized they need coverage Many are and will continue to trying to purchase it for the long term. Yet many are trytime the ing to time the earthearthquake quake market.

It is when earthquake market. activity occurs in their region that insureds decide it’s time to buy earthquake insurance. Once the activity subsides, they cancel or let their policies lapse.

This is a bad approach, and agents need to advise their clients accordingly.

Timing May Be Wrong If insureds think they can wait for a few tremors in their area and then have time to obtain a new earthquake policy, they could be very wrong. Quite often, there are no signs of earthquake activity prior to a moderate to major severity earthquake (categorized as a magnitude 5.0 or higher). Loss can happen without any prior activity or notice.

It May Be Too Late to Get Coverage After an earthquake or small tremor occurs, most insurers implement a moratorium on new policies in that region for a period of days, when no new policies can be written. This protects insurers against following aftershocks or decreases the chances of insuring a building that was damaged by the initial earthquake (prior to the insured continued on page 28

26 | INSURANCE JOURNAL-WEST REGION April 20, 2009

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West Coverage News & Markets Earthquake, continued from page 26

purchasing coverage). So, in many cases, agents will not be able to find coverage for their client’s home or business property.

The Coverage May Cost More The law of supply and demand often kicks in for a region that shows signs of earthquake activity. With the occurrence of an earthquake, more consumers rush to buy coverage.

As capacity is often limited, the supply stays constant but the demand goes up — driving prices up. Insureds could pay significantly more than if they had purchased an annual policy prior to any actual quake. In addition, insurers may reward long-term customers with renewal credits for staying with the same insurer for a period of years.

Important Factors for Insureds In helping clients with earthquake insurance, there are important factors that agents need to understand before placing coverage.

Location — Many services, including the Insurance Services Office (ISO), rate the

exposure of a particular geographic area by assigning it an earthquake hazard zone. It is important to understand whether a client’s location is in a high or low hazard zone. This will impact coverage availability and pricing.

Earthquake zone maps are available from ISO and other risk assessment companies.

Building Construction — Construction can impact damageability, and therefore rates, in a manner that is different than the typical fire exposure. For instance, a frame building can withstand an earthquake better than a masonry building. There also is a difference in a true masonry building versus a brick veneer building in withstanding damage from an earthquake (brick veneer buildings do not hold up as well in earthquakes).

Year Constructed — Building codes have been instituted in many areas susceptible to earthquakes. Understand what codes were in place when the building was constructed and whether any earthquake code modifications have been made to the building.

Special Deductibles — Special

deductibles often apply, usually as a percentage of the total insured values (TIV) being covered for quake. Deductibles can range between 1 percent and 10 percent of TIVs. Frequently, the amount of money spent on earthquake insurance premiums is a small percentage of a consumer’s overall insurance spend, making coverage worth the cost. Also, many consumers do not realize that earthquake is not covered in most standard commercial property and homeowners policies but must be added as a separate coverage.

If you listen to the Wall Street pundits, they often claim “buy and hold over the long term” is the best strategy for asset protection.

Such a strategy pays off for earthquake coverage as well. Agents should work with their customers to determine their coverage needs and options, and strengthen their personal or business asset protection plan. IJ Reid Wilson is a Burns & Wilcox vice president and manager of the company’s Salt Lake City, Las Vegas and Reno offices. E-mail: rowilson@burns-wilcox.com.

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West Coverage News & Markets

Inspiring People to Commit to Something Bigger Than Themselves Sometimes a Little Adversity Goes a Long Way, Thomco CEO Says

By Stephanie K. Jones

A

little more than 10 years ago, Greg Thompson, CEO of the Georgia-based insurance services firm Thomco Inc., discovered his accounting manager was stealing money from the company. One day, Thompson thought he had an excess of $300,000 in capital surplus; shortly thereafter, a financial audit revealed the company’s bottom line was actually in negative territory — to the tune of $1.8 million.

“We were essentially insolvent,” Thompson explained during a presentation at the Target Markets Program Administrators Association Eighth Annual Summit in Tempe, Ariz., in October 2008. “I had signed personal indemnities to all of our carriers, so I was personally bankrupt.

The company’s insolvent; I’m personally bankrupt. It doesn’t get a whole lot worse than that,” the CEO said.

But Thompson believes that sometimes the worst things that happen to a company

can end up being the best things, and Thompson came clean with his employees that’s what occurred at Thomco. He said about the embezzlement. “I called everythe challenge to turn the company around body into the break room,” he explained, brought his employees together in a way “and basically said, ‘I’ve screwed up. If anythat had never happened before. As a body wants to leave this company I don’t result of the embezzlement, blame them. We’ve got his employees committed to serious financial problems.

‘You have to something bigger than themI will personally write a have some selves, and that, in his opinpositive recommendation ion, is an essential ingredient letter for another job, vision of the to a company’s success. there will be no hard feelcompany other ings, but I’ve got a plan, I People perform their best when they feel they are part of think we can pull out of than making something bigger than themthis. It’s going to take a lot the owner selves, Thompson said. of hard work and we’ve “Obviously you’re trying to got to pull together.’” rich.’ make a profit, everybody “An amazing thing hapknows that. But you have to pened — nobody left. … have some vision of the company other than We started working really hard and some making the owner rich.” And it’s a leader’s good things happened. … Within one year job to create an organization that inspires we pulled ourselves out,” Thompson said. its employees to go the extra mile, he said.

In his case, on the advice of a friend, The Greatest Resource In the insurance business, people are a company’s greatest resource, Thompson said. “Unless they are committed to pushing the company forward, you are not going here are several “no-no’s,” Thompson said, that should be absolutely avoided by those to be that successful. … The bigger you get, in a position of leadership. Among them: the less it depends on the CEO and owner, and the more it depends on those folks out • Public displays of temper. there.”

• Using e-mail to discuss subject matter that is open to interpretation. E-mails can be a Thompson shared some of the strategies “very dangerous and toxic form of communication,” Thompson said. E-mails should not be that have worked for his company in terms used as a vehicle for people to attack others in the organization, or worse, for supervisors of inspiring commitment from his team. to discipline employees. It’s “very important to reduce heat-seeking e-mails,” he said.

They include leadership, setting an exam• Punishing people for honest mistakes. ple and creating a positive culture that peo• Trying to solve everybody’s problems. “When somebody comes to me with a problem it’s ple want to be a part of. very hard for me to hold myself back,” Thompson said. A better way is to start asking “People will commit when they feel recquestions and listen, he said. ognized,” Thompson said. “Recognized by • Discouraging honest feedback and expression of concern. “You really need to let people management and recognized by their superpoint out unpleasant truths, it’s important to create an atmosphere where people want to visor. … Recognition is more important talk about things,” Thompson said. than compensation. That may be hard to • Dumping, not delegating. Dumping is when you give someone a job they’re not ready for believe, but there are many examples of and don’t provide direction or leadership. That leaves employees feeling “like they’re left in people leaving very high paying jobs where the desert trying to handle something they’re not ready for,” Thompson said. they were poorly recognized to go to jobs

What Not to Do

T

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maybe not as lucrative where they did feel part of something bigger and they were recognized.”

Communication is also a key factor.

Leaders need to communicate regularly and openly with their people, Thomson said.

“This cannot be overstated. The bottom line is most people want to know where they stand.

Most people will accept constructive criticism quite openly if you’re communicating with them regularly. People know that you’re seeing them … you’re giving them feedback. Obviously they want to be recognized for the positive things as well.

But when you recognize the things they are not doing so well, when you give them a compliment, it’s taken that much more seriously.”

Compensation that is fair and adequate, as well as advancement based on performance, not office politics are essential, he added.

Leadership Sets the Tone The CEO is the chief morale officer in an organization, Thompson said. “One thing that took me a long time to understand … was how much the CEO is looked at as a barometer of the organization,” Thompson said. “If you’re looking down, if you’re looking worried, the company picks up on that.”

He said his father, an insurance company president, “used to preach to me about the difference between concern and worry.” His point was that worry is a destructive force, as in, ‘how are we going to get out of this mess?’ versus concern, which is ‘we have a problem, how are we going to address it?’

It’s not always easy, but one of the jobs of an owner or CEO of a company is to make sure that “your people feel relatively good about where they are in the company,” he said. That comes back to communication, recognition and establishing an atmosphere www.insurancejournal.com

where people feel comfortable talking openly about issues.

“Encourage constructive criticism,” Thompson said. “The companies that are the most successful are where the truth is on the table … especially in the senior management team. We even have an executive code in our senior management team about how we’re going to relate to each other.

One thing is go to the source: If you have a problem with somebody, go talk to them about it,” he said.

In addition to being the chief morale officer, the CEO also serves as the chief sales officer by having a visible presence with the

company’s customers, Thompson said.

“One thing I’ve discovered is, I’m not a particularly good sales person but I am the CEO,” Thompson said. And when the CEO takes the time to meet with customers, it delivers the message that they are important to your company.

“You need to strategically pick out your customer opportunities. … Obviously the CEO can’t be on the road all the time doing marketing, but it is important that you take advantage of your status as owner or CEO of your company,” he said.

Finally, Thompson said, a CEO must be willing to get his or her hands dirty while managing the company. If the CEO handles some of the tough jobs within the company, when he or she asks others to do the same kinds of things, those people are more likely to feel good about doing it.

Some “tough jobs don’t need to be delegated,” Thompson said. If an insurance company has to be fired, that’s the CEO’s job. Also, if someone in the organization that the CEO hired has to be let go, the CEO has to be a part of that too, Thompson said. IJ

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Idea Exchange Legal Beat

Examinations Under Oath: The Basics Understanding the Rights and Obligations Imposed on the Insured

By Henry S. Zangwill

Zangwill

O

ne of the most powerful tools available to an insurer in adjusting firstparty property claims is the right to examine the insured under oath (EUO). Thus, it is important that every broker understand what an EUO involves, as well as the rights and obligations imposed on the insured.

California Insurance Code Section 2071 requires that the right to an EUO must be included in all policies affording fire coverage, such as a homeowner’s policy. The insurer’s right to conduct an EUO also is generally contained in other first-party property policies.

The provision for an EUO provides: “The insured, as often as may reasonably be required, and subject to the provisions of

Section 2071.1, shall ‌ submit to examinatrue ages of items concealed. An EUO is also tions under oath by any person named by this used where elements of a claim are suspected company, and subscribe the same ‌� to be fraudulent. The American Insurance The purpose of an EUO is to make all mateIndustry Association has estimated that 15 rial facts and evidence available percent to 20 percent of all to an insurer to assess the scope claims are fraudulent.

An EUO is used of its obligations under the poliAn EUO is similar to a cy, and to protect against frauddeposition in a civil action: when elements ulent claims. An EUO is freA reporter is present, testiof a claim are quently used where the insurer’s mony is given under oath, investigation raises questions the insured may be represuspected to about the cause of the loss, or sented by counsel, the be fraudulent. insured may assert approprithe nature and value of the lost, stolen, damaged or destroyed ate objections to questions, property. An EUO is a valuable investigative and a written transcript is prepared. Yet tool because claims are occasionally exaggeratunlike a deposition (where state and federal ed, values inflated, quantities increased and rules limit the frequency with which one may be deposed), Section 2071 requires an insured to submit to an EUO “as often as may reasonably be required.� The right to depose an individual in a lawsuit arising from a claim is independent of the right of an insurer to conduct an EUO. An insurer may properly do both (and in effect get two bites at the apple).

Submitting to an EUO is not optional. It is a condition precedent to coverage. An insurer may rely on an insured’s refusal to submit as a basis for not paying a claim. Robinson v.

National Auto & Cas. Co. (1955) 132 Cal. App. 2d 709, 714; West v. State Farm Fire & Cas. Co. (9th Cir. 1989) 868 F.2d 348. Because submitting to an EUO is a condition to coverage, an insurer With PULIC, your physician clients don’t have to compromise coverage— is not required to show it has suffered prejudespite their hard-to-place status. Contact us, and provide your clients with dice. Brizuela v. California Ins. Co. (2004) 116 Cal. the quality coverage they need.

App. 4th 578; California Fair Plan Ass’n v. s #OMMITTED TO SERVING THE MARKET SINCE Superior Court (2004) 115 Cal. App. 4th 158. s &INANCIALLY STRONG WITH AN ! RATING BY &ITCH 2ATINGS AND AN ! RATING Likewise, false statements at an EUO justify a BY ! - "EST #OMPANY AND &ITCH 2ATINGS refusal by an insurer to pay a claim. Hickman v. s !VAILABLE FOR ALL MEDICAL SPECIALTIES IN NEARLY EVERY STATE s &LEXIBLE COVERAGE OPTIONS BROAD TO RESTRICTIVE London Assurance. Corp. (1920) 184 Cal. 524; s 2ATE INDICATION OR QUOTE FROM ANY APPLICATION Cummings v. Fire Insurance Exchange, (1988) 202 Ca. App. 3rd 1407. Section 2071 also requires the insured to “subscribe� i.e. sign the tran(800) 537-7362 script as a condition of coverage. www.pulic.com Complying with a request for an EUO is also a condition precedent to the filing of a lawsuit against the insurer relating to the

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claim. Section 2071 provides that “No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all of the requirements of this policy shall have been complied with …”

Where the insured is a corporation, its officers, employees and agents may also be questioned. Myer v. Niagara Fire Ins. Co., (W.D. La. 1962) 205 F. Supp. 108. However, the failure to produce an employee who had quit or was fired does not violate the policy condition.

One case also suggests that an insurer may also require the insured to produce its public adjuster for an EUO. Gipps Brewing Corp. v.

Central Manufacturers Mut. Ins. Co., (7th Cir. 1945) 147 F. 2d 6.

The Fifth Amendment privilege against selfincrimination was held not to be a valid basis for refusing to submit to or answer questions at an EUO. Hickman v. London Assurance. Corp.

(1920) 184 Cal. 524. Hickman involved a claim for a fire loss. The insured, during an EUO promised to answer questions posed by the insurer if it would wait until after pending criminal charges of arson were resolved because his answers at the EUO might incriminate him in the criminal action. The court rejected his claim because the constitutional immunity only applied where the compulsion was sought under some public process.

A more recent case held that an insurer’s demand for an EUO under those circumstance might provide evidence that the insurer was not acting in good faith. Gruenberg v. Aetna Life & Cas. Co., (1973) 9 Cal.3d 566. It is, questionable whether the Hickman rule still applies after the enactment of Section 2071.1, which provides that at an EUO “an insured may asset any objection that can be made in a deposition under state or federal law.”

The insurer has the right to examine the insureds separately. In State Farm Fire & Cas. Co. v. Tan (S.D. Cal. 1988) the court ruled that a husband and wife could be examined separately, outside of each other’s presence, and noted that “... separate examinations would enhance State Farm’s ability to discover the true facts and to assess the veracity of Trans’ claims.” The court observed that [t]he expedient of sequestration is (next to cross examination) one of the greatest engines that the skill of man has ever invented for the detection of liars.”

In 2001, the California Legislature enacted Section 2071.1 which is, in essence, a Bill of Rights for an insured regarding EUOs. An www.insurancejournal.com

insurer is required to provide the insured with a copy of Section 2071.1 when it notifies the insured of the EUO. Among other things, Section 2071.1 provides that (1) an insurer may only obtain evidence that is “relevant and reasonably necessary to process or investigate the claim”, (2) the EUO be conducted on reasonable notice, at a reasonably conven-

ient place, and for a reasonable length of time, (3) the insured may be represented by counsel, and (4) the insured may assert any objection that can be made at a deposition under state or federal law. IJ Zangwill is an attorney in Los Angeles specializing in insurance coverage. E-mail: HSZangwill@Verizon.net.

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Idea Exchange Growing Your Property Casualty Agency

8 Ways to Improve Your Sales Timing and Your Income Develop Good Timing for Good Times and Bad

By Alan Shulman

T

iming is everything in life and in insurance sales.

Talk to a new prospect or an existing insured on the right day when both of you are in the right mood and the odds are good that you will walk away with a check. The opposite is equally true. So is timing a matter of luck or skill? The answer is a little of both.

Here are eight random examples of how to use the calendar and the clock to your advantage.

Ask insureds to commit to renew with you when your relationship is at its best, which is usually well before the customary renewal time. This window of satisfaction seldom takes place 60 to 90 days ahead of policy expiration. Why? Because your top competitors will be hard at work trying to plant seeds of dissatisfaction [see below].

Search for a window of dissatisfaction when you are scouting for new business. Routinely probe for non-price red flags at renewal time in addition to the usual pricing vulnerabilities. Examples include a prospect’s unhappiness with the amount of a recent claim settlement, an unexpected additional premium audit, excessive loss control engineering, missing coverages, costly payment plan, etc.

Fan the dissatisfactions that you uncover into flames of discontent to weaken the prospect’s confidence in their current insurance program.

Avoid the renewal-time rush by contacting a new commercial lines prospect six months before his policies expire. This way, you can sidestep the 60 to 90 day horde that sells mainly on price. Call and ask for a 15-minute meeting. Then limit yourself to exactly that amount of time, using it to pre-qualify the lead for future contact. Old school sales trick: Put a cooking timer on your prospect’s desk at the start of the meeting. Set it for 15 minutes. Then when it goes off, thank your prospect and prepare to go. If the individual wants to talk more, pleasantly let him know when www.insurancejournal.com

Shulman

you finally leave, that he’s the one who extended the appointment, not you.

When you visit an insured at renewal time, always bring at least one new protection, premium-saving, or payment plan idea. Never go empty-handed, since this is Timing is crunch-time for you both.

Almost any fresh concept everything presented now helps to reasin life and in sure the client that you’re not taking his account for grantinsurance ed. sales.

Ask for an early renewal commitment if your main insurance contact person is about to leave a business you insure. Ask him or her to sign on for another year, before departing, when practical. Note that it will assure that your combined risk management labors won’t be instantly undone.

Be the first in the door whenever you are faced with a new insurance contact person on an existing account or a long developed prospect. If you are late, you may find yourself put on the defensive by the tag-team of a new buyer and an aggressive agent.

Ask for an off-hours appointment. If an insured or prospect is unable to meet with you during normal business hours, invite him in for an appointment at your office over the weekend or late in the evening. This odd meeting time may be just the ticket to get them on your turf. You’ll have time to talk, and he can leisurely see how and where you operate.

After you miss out on a new business sale, handwrite a thoughtful thank you note to show your appreciation for the prospect’s time and courtesy. You’ll stand out from the e-mail only crowd and from agents who call the person to soundly complain that they weren’t fairly treated.

If your note lands within a day or so of losing the sale, you’ll be in a stronger position for another shot next time around — or sooner if the person is suffering from buyer’s regret. IJ Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the Illustrative Insurance Sales Letter series and other P/C sales resources. Phone: 800-724-1435. E-mail: alan@agencyideas.com. Web site: www.agencyideas.com.

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Idea Exchange Minding Your Business

Renewal Strategies in Challenging Times

By Catherine Oak & Bill Schoeffler

I

n today’s challenging times, retaining current agency business is more important than ever. Below are a few tips to help your agency retain its renewal business.

Be Out There Early The producer needs to go see their clients at least 90 to 120 days in advance of the renewal expiration dates. If producers aren’t out there early, someone else will be.

What Should Be Discussed Producers need to be prepared to discuss in the client renewal meetings what cost cutting measures can be taken to help the clients save money. It may be that higher deductibles, risk management and loss control activities can all be considered, as well as even self insurance, as long as it is done with eyes wide open.

Some clients are very cash strapped and producers may have to tell them what are the mandatory coverages and what is less important. If coverages for exposures will be eliminated, it is important that producers have the clients sign off on which policies or endorsements they no longer have, to protect the agent’s errors and omissions exposure.

What Else to Sell?

Evaluate what other insurance policies your clients may need but do not currently have. This could include business interruption, umbrellas, employment practices liability insurance, directors and officers liability, and/or cyber liability policies. Are there other lines of coverage with cross-sell opportunities (health insurance, personal lines, life products, workers’ compensation)?

N2 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

Oak

Schoeffler

What other services can be offered to help the client for a fee (loss control to improve their workers’ compensation mod factor, HR consulting work, risk management, etc.)

Clients pay more for health insurance than all property/casualty policies combined! It is always important to ask to quote the client’s health insurance, but producers If producers should first be sure the client has some concerns about their aren’t out current program or agent. there early, It is good to know what the client is currently paying and someone else who they are insured with. The will be. producer may not be able to beat what the client currently has and it is not good for the producer to waste their time or the prospect’s time. Prospective insureds will appreciate this and may give the producer a shot the following year, if they stay friendly.

Market the Renewal to Other Carriers Producers may need to market the renewal to different carriers for various reasons. For example, if a client is insured with a carrier like AIG, the agency and client may still be concerned about their solvency, despite the government bail-outs. It has however, come to our attention with some of our clients that there may not be other carriers that can compete with AIG’s pricing for certain risks, so moving it could cost the agency the account.

Another reason to move carriers is to be sure the client saves money, which may be foremost in their minds today.

Summary These are challenging times for many of the agency’s clients, so producers need to be extra diligent in handling renewals to retain accounts.

Following the suggestions in this article should help improve retention of renewals while also showing the client the agency’s professionalism and concern for their business. IJ Schoeffler and Oak are partners at the international consulting firm Oak & Associates, providing services for mergers, acquisitions, management and financial consulting. Phone: 707-935-6565. E-mail: bill@oakandassociates.com.

Web site: www.oakandassociates.com. www.insurancejournal.com

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Idea Exchange International Insider

On the Road to Latin American Opportunity Companies Must Balance Opportunities and Risks in Growing Markets Ellis

By Kathleen Ellis

A

s a large region with solid prospects for long-term growth, Latin America continues to gain in popularity as a market for many U.S. companies.

Exporters to this region, however, can face significant challenges when it comes to getting their goods to their final destination.

Countries in Latin America often face infra-

increased dramatically. Exports to Mexico, the United States’ third largest trading partner behind Canada and China, rose 56 percent between 2003 and 2008, according to figures from the U.S. Commerce Department. Exports to Brazil, the world’s 10th largest economy, were up nearly 300 percent in that same time period.

In particular, Brazil, Latin America’s largest economy, has attracted attention in recent years as a particularly promising prospect for long-term growth and is often linked with Russia, India and China (BRIC) as one of the world’s top emerging markets.

But companies that export to the region must keep in mind the risks as well. Goods shipped Exports to Brazil, the world’s 10th largest economy, were up nearly 300 percent from 2003 to 2008. to Latin America are at risk of being lost, damaged or stolen along the way. structure issues, crime and government corHijackings are a significant and growing ruption, putting those goods at risk of physiproblem in Mexico and Brazil. In Mexico, one cal damage, theft or other loss. of the biggest markets for U.S. goods, about 40 Companies exporting to these markets percent of losses are the result of hijackings, need to carefully research the risks and and 30 percent are the result of damage from implement loss control measures to help roadway accidents. In Brazil, the loss breakreduce the potential for losses. With knowldown is similar. About 35 percent of the losses edge of the risks and of the terms of the sales are from hijackings while 30 percent are the contracts, agents and brokers also can play an result of accidents on the road. important role in helping their clients obtain In Mexico, even though the number of the appropriate insurance and control their hijackings has not increased much, the amount losses. of money lost because of them has jumped 50 percent over the last several years, according to Latin America: Balancing Opportunity the Mexican Association of Insurance and Risk Exposures Institutions (AMIS). Sixty-five percent of hijackLatin America is an increasingly important ing events take place on the roads around market for many U.S. companies. In just the Mexico City and Estado de Mexico, according last five years, exports to the region have

N4 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

to Camara Nacional del Autotransporte de Carga (CAMACAR).

In Brazil, the number of hijacking has held steady over the last few years at about 12,000 events per year, according to Agencia Nacional de Transportes Terrestres (ANTT). But it is interesting to note that 98 percent of these events happen within 150 kilometers of Sao Paulo, the nation’s capital.

Other Latin American countries, such as Chile, do not have as much trouble with hijackings due to heavy local law enforcement aimed at providing safe and secure transport corridors.

Hijackings are often committed with inside or official help. Customs officials as well as offduty or former police officers, for instance, have been prone to corruption and have been known to help criminals gain access to valuable items arriving in ports. Drivers of trucks as well as their transportation companies are also frequently implicated in hijackings.

Although hijackings are a concern, many losses are simply the result of damage that takes place during shipment. Goods are at a much higher risk of damage in Latin America because the roads are often in poor condition and can be treacherous. Aging and inadequately maintained trucks compound the problem.

That combination often leads to a high incidence of accidents in Latin American countries.

In addition to the possibility of damage in transit, there is also the risk that goods will be damaged at the ports, where they are sometimes stored improperly. One common type of loss, for instance, is water damage to electronic devices as a result of improper storage at ports or as a result of leaks in poorly maintained trucks.

The damage or theft of goods can result not only in a potentially significant monetary loss, but also in the loss of a company’s customers and market share if buyers decide to turn elsewhere for their needs. continued on page N6 www.insurancejournal.com

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Idea Exchange International Insider On the Road, continued from page N4

To reduce the risk of damage to their Controlling Risk to Capitalize on goods, exporters should: Market Opportunity • Make sure their products are well packAlthough the region has its unique risks, aged. Products may need extra protection, companies can take steps to minimize the additional cushioning and even modificapotential for a loss. tions to packaging to protect them from It is important, first of all, for exporters water damage for their journey into Latin and their agents and brokers to have a clear America. understanding of the terms of their sales • Ensure their transportation company is contract. Incoterms are standardized definitions used by the global shipping industry to following appropriate safety procedures. Be sure trucks are well mainprovide a common frametained and drivers are not work for issues such as Companies driving too many hours, control of goods and exporting to Latin which can also raise the financial responsibilities.

These terms will spell out American markets risk of an accident.

Companies can gain addiexactly who has responsineed to carefully tional, expert insight into bility for the goods and at what point that responsiresearch the risks local risks by working with local loss control experts. bility changes hands from and implement These local resources can the seller to the buyer. also provide assistance in In Latin America, the loss control monitoring loss trends to buyer often assumes measures to help gain a better understanding responsibility for the transportation of the reduce the poten- about the most common and most costly losses. goods. But in other cases, tial for losses.

Insurance is another it is the seller who is important tool to help responsible for the transcompanies manage their losses. portation of the goods.

For companies transporting goods overThe key point is for the exporter to understand the Incoterms of the agreement and to seas, ocean cargo policies are available while domestic transit policies are available for know at what point in the transaction the inland transit. These types of policies typirisk has been transferred to the buyer. cally provide “all risk” insurance and can be For exporters who have responsibility for written monoline rather than as part of a the transportation of the goods, several preventive measures can help minimize the risk package.

Agents and brokers also need to know of a loss. whether the country of destination requires Close attention to security measures can locally admitted insurance. If so, insurance help reduce the risk of hijackings. For must be purchased through an insurer that instance, companies should: • Carefully screen transportation companies is admitted in the local market. If not, the insured may be unable to settle its claim. and the drivers they hire. Particularly critiAlthough goods shipped to Latin cal are background checks on the drivers, American markets are at risk of being who sometimes have criminal backgrounds. hijacked or damaged while in transit, the In Mexico, for instance, 80 percent of hijackopportunities are nevertheless compelling. ing incidents are inside jobs pulled off with By working with an insurer that knows the the help of the transportation company or Latin American markets and by taking steps the trucker transporting the goods.

• Meet with local security providers to get a to tighten security and safety protocols, companies can reduce the potential for a loss better understanding of the products and and take advantage of this growing market. IJ services available to protect shipments. New technology such as satellite security services and GPS can be effective tools in reducing Ellis is a senior vice president of Chubb & Son and managthe risk of a hijacking. er of Multinational Risk Group - Global Accounts.

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Idea Exchange Excess and Surplus Lines

Finding Solutions for Emerging E&O Risks Excess and Surplus Lines Market Offers a Place For Challenging Risks

By Nancy Cerino

S

ince all service providers face the tunate truth is that when times are tough, potential of law suits related to real or companies are more apt to be sued for a real perceived “errors and omissions,” E&O or perceived error or omission. coverage has become a necessity for Companies in many industries recognize nearly every service profession — from estabthis potential liability and as a result require lished architects, lawyers and computer contheir service providers to carry E&O coverage sultants to emerging professions that present before awarding them a contract. Simply put, a new and unique set of E&O risks. The chalthey want their risk to be transferred to the lenge in E&O can be getting your arms consultants who are providing them with around an emerging or unfamiliar risk, or fillexpert opinions and materials. ing a unique gap in coverage.

Large pharmaceutical companies, for example, are believers in requiring consulting and Green contractors are a good example. This research firms, medical/pharmaceutical writnew breed of engineers and consultants proers, marketing firms and others to have E&O vide services such as testing the energy efficoverage. The reason is simple. These firms ciency of a building and outlining what steps are providing the pharmaceutical firm with can be taken to “green” the building environmaterials that are used in presentations to ment. For such a new line of business, there’s doctors and hospitals, and mistakes can be no one size fits all form for their exposures. In very costly. In fact, we just worked with a fact, there is no track record for green contracWeb site provider that was required by a phartor claims and little if any statistical data on maceutical company to have a $5 million E&O what type of claims would emerge. policy.

Most standard lines markets would not Some of these service providers decide to touch this business — it’s simply too unprebuy the minimum E&O required dictable. A wholesale broto secure a contract and then ker who specializes in Wholesale drop the coverage as soon as the E&O, on the other hand, is contract is up. This strategy may equipped to handle this brokers write save them a little in the short type of account and find a about one in term, but it could hurt them in market with any number the long run. Remember, E&O of leading excess and surevery 10 E&O claims are usually completely plus (E&S) lines carriers. policies. unexpected. The service Because of the sheer numproviders should really be asking, ber of accounts that cross “Do I have the time and the money to defend our desks, we have the tools and experience to myself if I were to get sued?” ask the right questions and find the right carriers. In fact, wholesale brokers write about Placing Unpredictable Risks one in every 10 E&O policies.

Even though there are relatively few E&O claims compared with other lines, it’s tough E&O in a Difficult Economy to predict which types of new businesses will In today’s economy, most companies are or will not have any type of claim frequency. tightening their budget and among the areas Standard lines will write E&O in certain they often try to cut is their E&O coverage. cases, such as coverage for travel agents, But they should be aware that in an economic because it’s a more predictable class of busidownturn also comes an increase in E&O ness. Generally, standard carriers want to see claims for most service providers. The unforN8 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

an established track record in a specific industry before moving forward, and then may try to lock up an association relationship and establish a name in that niche.

Wholesale brokers who specialize in E&O, on the other hand, write coverage across many different industries. To help us do that, I spend as much time talking to our E&S carriers as I spend with our retail agents.

These carriers, many of which work exclusively through wholesalers, broaden our perspective.

They, too, see a broad spectrum of new accounts and also serve as problem solvers.

Together we see the big picture and innovate when it comes to new businesses.

In addition, wholesalers can often identify coverage gaps and provide the complex mix of coverages that are required. For example, some high technology firms may think their general liability insurance will protect them from lawsuits alleging failure of a product to perform or losses to intangible property. But GL does not cover such emerging vulnerabilities and losses, so E&O should be an integral part of a high tech company’s coverage.

Since many agents don’t see a lot of accounts that need E&O coverage, they often are not comfortable placing it. But that should not deter them from a potentially lucrative account in a new or unfamiliar industry. IJ Cerino is vice president of Partners Specialty Group LLC, a national independent wholesale broker in Norristown, Pa. She has specialized in E&O coverage for 20 years. www.insurancejournal.com

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Steve Ewing Ewing-Leavitt Insurance Agency Loveland, Colorado 970.679.7333 steve-ewing@leavitt.com

Ask me

why my agency affiliated with the Leavitt Group.

The Leavitt Group is an organization of affiliated independent insurance agencies. Each Leavitt Group agency is a separate entity, typically owned by its on-site manager and by Leavitt Group Enterprises. The Leavitt Group has over 115 locations and consolidated revenues of $199M on approximately $1.5B of annualized premiums. The Leavitt Group’s business is to create, build, and perpetuate independent agencies in concert with co-owners; enhance affiliated agency strength through collective endeavors; and provide key services to affiliated agencies.

Leavitt Group Enterprises | P.O. Box 130 | Cedar City, Utah 84720 | 435.586.6553 | 888.LEAVITT

www.leavitt.com

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

Technology Errors & Omissions Market Detail: Chamber Insurance Agency Services (www.chamberagent.com) gives agents access to an errors and omissions liability insurance market targeted to technology companies to protect them against third party professional liability losses. Features of the program include: coverage is available on a mono-line or package basis; the availability of first and third party date protection; and business income. The appetite is broad and minimum premiums begin at $1,000.

Deductibles begin at $2,500.

Available Limits: $1 million to $20 million.

Carriers: Various. Rating not provided.

Admitted.

States: All. Contact: Mark L. Favata at 973-669-2309 or e-mail mlfavata@chamberagent.com.

Insuring Sleep Market Detail: Cailor Fleming Insurance (www.cailorfleming.com) provides access to a true package policy for the sleep industry. The program includes coverage for property, general and professional liability, sexual abuse, inland marine and umbrella all under one package. Coverage is available for sleep centers, sleep scoring labs with a new option for the individual PST techs to purchase coverage. Premiums begin at $1,500.

Available Limits: Starting at $1 million.

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

States: All except Alaska and Hawaii.

Contact: William McMahon at 330-782-8068 or e-mail wmcmahon@ cailorfleming.com.

Ultimate Inland Marine Facility Market Detail: Allied Insurance Brokers Inc. (www.alliedforbrokers.com) gives agents access to inland marine coverage for any risk. Examples of eligible classes include: any equipment-driven risk;

builders and general contractors; machine shops, well drilling and servicing; broadcasting property and equipment; electronic equipment; railroad rolling stock; warehouseman’s legal liability; scientific equipment; oil and gas equipment; surface mining; warehouses; builder’s risk; and wind coverage available in southeast United States. Minimum premiums begin as low as $2,000.

Available Limits: As needed.

Carriers: Firemans Fund, Max Specialty, Navigators and others. “A” rated by A.M.

Bringing Market Seekers and Market Providers Together • Find markets in our database • Promote your markets on our site • Join our community forums • Membership is free!

Best. Admitted.

States: All. Contact: Chuck Weisenborn at 800-5699427 or e-mail cweisenborn@allied insbrokers.com

Senior Housing Market Detail: NSM Insurance Group (www.nsminc.com) offers agents access to its “Independent Senior Housing Insurance Program.” The program is designed for stand-alone independent senior living housing including: 1) Non-profit HUD and state financed apartment buildings; 2) Forprofit apartment management companies, condos and co-ops for more affluent seniors; and 3) For-profit and non-profit buildings with more than 50 percent sen-

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ior occupancy for both affordable and upscale housing. Nursing homes and assisted living facilities are excluded from this program. Minimum premiums begin at $5,000.

Available Limits: As needed.

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

States: All. Contact: Bill Hurlman at 877-520-2552 or e-mail WHurlman@nsminc.com.

Hotel/Motel Program Market Detail: Gridiron Insurance Underwriters Inc. (www.gridironins.com) brings agents a market for hotels and motels that includes all the coverages unique to the industry. Automatic coverage extensions include: money and securities, employee dishonesty, guest property, guest relocation, guest evacuation expense, reprogramming of key system, spoilage, outdoor signs plus 20 other unique extensions. Equipment breakdown is included on every risk. Optional coverages include wake-up call liability, employee benefits, hired and non-owned auto and business income on an actual loss sustained basis. Target risks are independent properties up to $5 million TIV and franchised risks up to $2 million TIV per location. Minimum premiums begin as low as $1,500 and deductibles start at $1,000.

Available Limits: Up to $5 million.

Carriers: Unable to disclose. “A+” rated

by A.M. Best. Non-admitted.

States: Ala., Calif., Colo., Fla., Ga., Ill., La., Mich., Minn., Miss., Mo., N.Y., N.C., Pa., S.C., Tenn., Texas and Va. Contact: Jim Reller at 888-365-7701 ext.

203 or e-mail Jreller@gridironins.com.

Portable Sanitation Program Market Detail: Tangram Insurance Services (www.tangramins.com) allows agent access to its exclusive Port-O-Gard Program, a comprehensive package of covwww.insurancejournal.com

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erages specifically designed for the portable sanitation industry. The program targets firms involved in the rental and cleaning of portable sanitation units: including showers, luxury units and baby care. A full complement of coverages is available including: package protection, auto, umbrella and workers’ compensation.

Available Limits: As needed.

Carriers: One Beacon. “A” rated by A.M. Best. Admitted.

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

TeleRadiology Professional Liability Market Detail: Founders Professional LLC (www.founderspro.com) offers medical malpractice liability and professional liability protection to TeleRadiology practices serving hospitals, imaging centers, ASCs and physician groups. Coverage is provided on a claims-made basis with available prior acts protection. Minimum premiums begin at $25,000 and deductibles begin at $5,000.

Available Limits: $1 million to $10 million.

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

States: All. Contact: Robert C. Hall at 813-769-1290 or e-mail robert@founderspro.com.

Vacant Property Market Detail: American Management

Corporation (www.amcinsurance.com) offers property protection to owners of residential and commercial vacant property in 45 states and the District of Columbia. Minimum premiums begin at $750.

Available Limits: Up to $2 million.

Carriers: Various carriers. “A” rated by A.M. Best. Non-admitted.

States: Ala., Ariz., Ark., Calif., Colo., Conn., Del., D.C., Ga., Idaho, Ill., Ind., Iowa, Kan., Ky., La., Maine, Md., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.C., N.D., Ohio, Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Texas, Utah, Vt., Va., Wash., W. Va., Wis. and Wyo. Contact: Stephen Strange Jr. at 800-2332398 or e-mail stevejr@amcins.com. IJ Submit your company’s property/casualty markets to the industry’s leading searchable database at www.mynewmarkets.com.

There’s a better way to find Markets.

Searching for a Particular Market? Find it here.

From Dude Ranches to Pizza Delivery, we have markets covered. Stop Searching and Start Finding. Our database of over 25,000 markets makes it quick and easy to find that obscure market you are searching for. Best of all the service is FREE! So sign up today!

www.insurancejournal.com

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Idea Exchange Agency Management

Make the iConnection: Engage Your Future Leaders Talent Strategies for Understanding Generation Y Employees Henry

By Susan Henry “They all received trophies just for showing up.

They are unable to accept failure.”

“If they don’t like the way the game is being played, they will take their ball and go home.”

“The first time they hear they are not perfect will be in their first performance appraisal or when they get fired.”

“They don’t want to pay their dues for the big title or big paycheck … they expect it.”

T

hey — members of Generation Y, also known as the millennials — are simply misunderstood, just like the boomers and GenXers before them.

This new and passionate group is entering the workforce in droves; and when fully-integrated, they will be the largest generation the U.S.

labor market has ever seen. It is time to understand them and to learn how the industry and your company can engage these future leaders.

Millennials are not the lazy, self-centered attention-seekers that the media makes them out to be. In fact, they are collaborative, goaloriented and energetic — all excellent characteristics to have in any employee; however, the

following traits are sometimes distorted.

Millennials are impact-driven. It is not so much that they don’t want to pay their dues; they simply want to see how their work and their job responsibilities are impacting the success of not only their department and their branch, but the entire organization.

Millennials view work as an expression of themselves. They don’t separate professional from personal. They are not workaholics, like their baby boomer counterparts; rather they have a blurred line between work and play.

Millennials have high expectations not only of themselves and what they can achieve, but also of their employers and managers. If they are making an impact on the company, they expect the company to make strides to impact their wellbeing too; i.e., make the company a nicer place to work, support the community.

Millennials are optimistic. They believe the world can be a better place and are willing to do their part to make it that way — even at work. In fact, about half of new graduates feel the job outlook is still positive.

Once you have a better idea of the value that this generation can add to your employee dynamic, you must recognize that the tactics that worked for baby boomers and GenXers may not appeal to this future talent pool. It is time to adapt your talent strategies for the next generation.

Recruiting Millennials The insurance industry offers tremendous career opportunities but is often overlooked

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by millennials in favor of other industries like banking, health care and technology. Industry leaders must work together through various associations, societies, universities and other grass roots efforts to solve the long-term challenge of branding insurance as an industry of choice.

Meanwhile, you must actively recruit this generation. Your company’s brand image needs to speak to this up-and-coming generation. It must extend beyond customers to your employees and the community. Make a career in insurance, specifically at your company, appeal to millennials. Break the stereotype that insurance is boring. Consider participating in on-campus recruiting, internship and scholarship programs. Actively participate in campus activities, sending your star new graduate employees to be your spokespeople and to start a buzz that a career in your organization is special.

Post jobs where millennials will see them.

They are more likely to look on the Internet for jobs than their older counterparts. Utilize general, industry-specific and university job boards, linking everything back to your Web site.

Make the most of these postings by standing out from other ads! Utilize short and tothe-point copy that speaks to them and their perceptions of the ideal employer, i.e., a fastpaced environment with the ability to be challenged and to grow. Utilizing action verbs, describe how the role impacts the division or company’s overall success.

Communicate that your organization is a fun place to work.

Close the deal by discussing incentives that actually matter to them, not face time and the three-piece suit. Money matters to this generation, but so does a defined career path, training, flexibility in hours, work process and dress code. Additionally, they want to be part of an environment that values team work and community service. www.insurancejournal.com

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able to effectively work with one another to Developing Millennials reach the greatest level of efficiency.

Though millennials may think they are Provide millennials with rules and solid ready for anything, they still need training. leadership, but also offer them the support Development opportunities often play an and autonomy they need for success. Give important role in retention. Millennials desire them multiple projects that utilize their variall-encompassing training. They want to feel ous talents and provide constant feedback on they are advancing and developing new skills. what worked well. When they could have perThink beyond your company’s traditional formed better, consider altering your commutraining programs. For example, consider a nication style to reflect their own. Ask them cross-training program that rotates staff how they might do it better. between departments. It will give new professionals a Millennials view Retaining Millennials taste of other functional This generation has one of areas and the perspective work as an the lowest job satisfaction necessary to contribute more expression of rates in the workforce. They to strategy down the road. much more likely to Do not utilize a one-sizethemselves. They are leave their jobs after a year fits-all approach to developdon’t separate or two than their older ment. Step up training for counterparts. This is partly your top performers. Give professional due to where they are in life; them special projects that from personal. with no family nor mortallow them to stretch their gage, they are more mobile. abilities and responsibilities Promote job satisfaction by entrusting them beyond their normal work roles. Even though with new projects and career development your company has traditional career paths, don’t be afraid to create new and exciting indi- opportunities. Provide them with cutting edge technology to accomplish their work. Reward vidualized career plans for your A-level permillennials with flexible work hours and dress formers. codes and paid time off (PTO). Communicate Harness the power of mentorships. the hidden paycheck with younger employees, Connecting millennials with leaders who are reminding them of benefits such as medical not their managers allows them to gain additional company perspective and further insight and dental insurance, PTO, retirement savings, etc. on what it takes to be a leader or thrive in the Promote company satisfaction through iniindustry or position. It also gives them someone they can confide in without the fear of ret- tiatives that speak to their view that work is an extension of them. Create a green team to ribution during performance appraisals, etc. focus on how your organization can be more The mentor should be someone who can proenvironmentally-friendly. Support community vide direct and honest feedback. and volunteer opportunities either monetarily or by giving employees time-off to participate Managing Millennials As you know, millennials often expect more in such events. Host employee recognition lunches, intramurals or other events that of their employers than their predecessors. encourage social interaction and communicaCreate a collaborative environment that capition between employees. talizes on and values what each employee can At the end of the day, remember that prooffer. This starts with your executive team and ductivity and accuracy are the gauges of sucmanagers, who can set an example by treating cess, and stereotypes have no place in the employees of all ages and levels with fairness workforce. Updating your talent strategies as and respect. Encourage new ideas and soluthe newest generation enters the workforce tions, and don’t shoot them down just because will give your organization the tools necessary they are outside the norm. to engage its future leaders. IJ Millennials thrive on mutual respect.

Educate all employees on working with members of other generations to help break down Henry is senior vice president of Jacobson Solutions, the temother generations’ stereotypes of millennials. porary staffing division of The Jacobson Group. Phone: 800Your cross-generational employees must be 466-1578. E-mail: shenry@jacobsononline.com. www.insurancejournal.com

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Idea Exchange Agency Technology

Get in Touch with Gen Y Why the Modern Workplace Is Important for the Next Generation of Professionals

By Edward Gray

T

oday’s senior ranks of insurance professionals are retiring at the pace of approximately one every 10 minutes, taking a wealth of experience and knowledge out of the profession at a startling pace. Agencies and insurance carriers alike now face a major challenge to attract, hire, train and retain Generation Y replacements, all while continuing to service an increasingly complex and pressured marketplace.

Gen Y is clearly the most tech-savvy generation to enter the workforce to date. Their lives have revolved around technology from the beginning with LeapFrogs, Nintendos and Gameboys. During the last decade, classrooms have filled with computers, and the social

Gray

lives of Gen Y revolve around texting, Facebook, MySpace, YouTube, instant messaging and iPhones. It’s a real-time, multi-media, digital world. Technology is an integral part of how this generation learns, works, plays, interacts and sees the world.

So naturally, Gen Y workers have a somewhat evolved view of business and what they expect in a work environment. They gravitate to companies doing business with technology, faster, smarter and easier. The paper-bound processes, green-screen systems, cabinets full of policy files, in-baskets and the assemblyline of manual processes present in many agency environments are not going to win their interest or loyalty. That means in order

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NAS’ Healthcare facility offers a wide selection of specialized products fully equipped to meet these challenges and provide comprehensive protection from the numerous risks inherent with unpredictable times.

For over thirty years, NAS Insurance Services has remained a productoriented company, ever on the leading edge of innovation with a constant commitment to the development of specialty products. NAS is an independent underwriting manager with full binding authority to underwrite on behalf of highly-rated carriers.

to attract talented, in-demand Gen Y workers, the processes and archaic systems of the past must be left behind and the insurance industry must get with “the new century.”

So, what kind of technology is going to attract Gen Y to your company? Agencies utilizing a Web 2.0 system that offers tools that enable true collaboration between agents and insurance company underwriters are most likely to get a second look.

Imagine a real-time environment with a shared platform between agents and insurance company underwriters, a technology that makes it much easier for agents to do business with carriers, and one that reduces turnaround times to help agents be signifi-

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Personal Umbrella cantly more productive and engaged with the carrier. But remember, both parties need to be onboard in order for true collaboration to be achieved, so partnering with the right carrier who is already in tune with today’s technologies can be an important first step.

Real-Time So, what’s a real-time environment anyway, and why will Gen Y like it? It’s where data can be recorded once and then sent wherever it needs to go real-time, minimizing touch-points for agents and underwriters using the system.

It’s where outputs are user-friendly PDFs that can be distributed, forwarded, and viewed as needed.

This environment is truly multi-media — documents, spreadsheets, pictures, videos, and even voice files can be added to your accounts so everything about the account is available online, and in real-time.

The new world is networked, with realtime Internet access from anywhere. So, communication will be ubiquitous. Anyone can communicate with anyone they want to reach, online and in real-time.

Once you have ubiquitous communication, you can use “push” technologies to leverage chatting, instant alerts, e-mail notifications, the digital yellow-sticky notes, and even shared screens with shared updating to streamline collaboration and minimize the frustrations of hours or days of back-and-forth delays.

In addition to a real-time environment and true collaboration tools, what other features should such a system have in order to be complete and to help you compete?

Agency upload and download should be provided by leveraging ACORD XML standards to push and pull data from the agent’s desktop into the carrier’s underwriting system and back, eliminating re-keying.

Knock-out and risk appetite rules, supplemental data, and completeness edits should be available right on the agent’s desktop to eliminate wasted time and unwanted or incomplete submissions. www.insurancejournal.com

Agent access to applications, proposals, shared notes, and attachments as allowed by role is also important.

The ability to leverage collective intelligence can help agents share information with insurance company underwriters using context-sensitive, wiki-like repositories.

The new world enabled by technology is equipped for multi-tasking. It’s user-driven and intuitive. Gen Y doesn’t expect a system to just do one thing for just one account through a tightly-scripted screen flow. They expect to use insurance systems the way they use technology in their everyday lives. Using Web 2.0 rich Internet technologies, it is possible to have multiple sessions open and to have the ability to jump to the most immediate task or message. And, an intuitive nature is important for new technologies.

Gen Y workers won’t sit down and read a user manual for hours to figure out how to use a system, they will just start clicking.

Technology offers great opportunities for both agents and carriers to have more productive, higher quality, and more intuitive workflows and systems. It’s not going to be your father’s insurance process, or even yours. It will be the new generaTechnology is tion’s process.

And it will an integral part be a change of how this for the better.

Can you generation adapt and learns, works, leverage the new techplays, interacts nologies to and sees the create the modern world. workplace?

Or will you hang on to the traditional process and watch the next generation pass you by? IJ Gray is the director of customer solutions for FirstBest Systems in Bedford, Mass. E-mail: egray@firstbest.com.

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Spotlight Inland Marine/Transportation/Cargo

Special Delivery: Added Value with Cargo Insurance As Cargo Theft Rises, Carriers’ Special Investigative Units Offer Relief

By Joe Tracy and Scott Cornell

A

driver pulls into a truck stop, heads inside to shower and eat — and then discovers his fully loaded trailer gone when he

returns.

A truck disappears from a storage lot and is found a week later, cargo gone and vehicle parts stripped.

Electronic merchandise is delivered to a warehouse and consolidated with other loads. Upon the truckload’s arrival at its final destination, the shipment is discovered to be short thousands of dollars worth of product.

These scenarios, unfortunately, are examples of an all-too-common dilemma faced by those who have goods to move and those who are in the business of the delivery of goods.

Agents and brokers know they need to recommend insurance that will best protect both groups from the financial repercussions of cargo theft. Understanding the resources that insurers are actually able to provide, versus what they market as capabilities, will strongly enable agents and brokers to deliver solutions that go beyond writing a check to cover losses.

pears). Increasingly, cargo theft also is the work of sophisticated gangs who repeat their tactics once they are successful.

Law enforcement agencies are the first line of response when cargo has been stolen. They not only carry out local invesSpecialty Investigation Services tigations, they use interagency databases to Cargo theft is big business for criminals. be aware of regional activity and repeat The National Cargo methods used by criminals.

Security Council estimates Because of increasing budget Businesses that businesses lose $25 bilpressures, few law enforcelion a year to cargo theft. lose $25 billion ment organizations have all FreightWatch International the resources necessary to a year to cargo manage the many different reports that the theft of full truckloads of goods types of crime that come theft. rose 13 percent in 2008. their way and cargo theft Sometimes the theft of often becomes a lower prioricargo is a singular event, made easier by ty. opportunity (keys left in the truck cab, for Insurers who offer specialty investigation instance) or collusion (a truck driver or a units can bring depth and expertise to a warehouse worker has some involvement in case. These special investigators can use an “inside job” and a pallet of goods disaptheir knowledge to tie together crime scene N16 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

details, which can help law enforcement solve the case.

While many insurers may advertise such assistance, some provide more effective help than others. Insurers who have their own in-house investigative team, as opposed to contracted services, can dedicate a unit to a specific type of crime, such as cargo theft. This distinction is of importance to those who use cargo and transportation insurance products. These investigative specialists are constantly updating their knowledge and skills specific to cargo through industry involvement. They develop strong relationships with law enforcement officials, which can sometimes help in moving an investigation along expeditiously. Recovery rates are much higher if the investigation begins within 72 hours of the reported theft.

Additionally, the investigative specialists’ familiarity with emerging patterns of cargo www.insurancejournal.com

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theft from claims filed across the United States offers them insight that they can share with customers and utilize to plan against similar thefts. Look for an insurer who can provide regular releases on local, regional and national crime conditions, such as recent thefts, gang activity and fraudulent schemes. This service can help shippers and carriers take more effective preventive action.

Having an understanding of the industry challenges faced by their customers can advance the capabilities of agents and brokers and help them to meet those needs.

Find out which insurers talk a good game and look for those that truly offer insurance solutions. Focus on those who know the logistics industry, emphasize reducing cargo theft and can continue to deliver services

over time as your customer’s operations change. Over the long haul, this extra value can deepen your relationship with your existing customers and bring new business your way. IJ Tracy is the chief underwriting officer for Travelers Inland. Cornell is the national program manager for Travelers Specialty Investigations Group.

The Total Network From underwriting expertise, to risk control services and claims handling specialization, an insurer has the opportunity to demonstrate to customers that their special needs are a key focus.

It begins with underwriting, where experts in cargo insurance underTheft of full writing and covtruckloads of erages know how to avoid coverage goods rose 13 gaps that can percent in leave customers exposed to loss2008. es. They understand the types of contractual liability agreements that are part of the daily life of shippers and carriers.

Underwriters work with agents and brokers to plan out services specific to their customer’s needs. This may include reviews with risk control consultants who have specific experience in cargo loss prevention.

These specialists visit sites and prepare recommendations that bolster anti-theft protection and management procedures. Their input on these items can bring value to a customer.

Finally, an insurer’s claims handling professionals can make a significant difference that goes beyond investigative services.

Insurers that have claims staff who are experts in the complex liability exposures and contract provisions that shippers and carriers face are in a better position to make sure claims are handled correctly and in a timely manner. Agents want to make sure their customers are paid quickly, so that they can keep business operations going. A quick claim payment also averts a potential loss of customer that results from slow payments. www.insurancejournal.com

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The Freedom What Young Agents Value About Being Independent

By Andrea Ortega-Wells ood things come to those who wait and work hard. Even in today’s challenging economic climate, young independent insurance agents remain hopeful and happy to be in a profession that allows them to work independently, be their own boss and reap the success of their efforts.

A career as an independent insurance agent is among the best kept secrets in business, according to Joey O’Connor, vice president of Daniel & Eustis LLC, based in Metairie, La., just outside of New Orleans.

“I think young people coming out of college would be floored at just how successful you can be as an independent insurance agent,” says O’Connor, who serves as the chairman of the Independent Insurance Agents & Brokers of America’s Young Agents Committee. “You really have the best of all worlds.”

He notes that agents are in a sales environ-

G

What Young Agents Earn 11%

Under $30,000 – 11%

20%

$31,000 to $50,000 – 29% 29%

14%

$51,000 to $75,000 – 26% $76,000 to $100,000 – 14%

26%

More than $100,000 – 20%

Young Agents’ Outlook on Their Career 2% 13%

Very Optimistic – 52% Optimistic – 33%

52%

Cautious - 13%

33%

Not Optimistic – 2%

Outlook on the Future of the Independent Agency System 3% 15%

Very Optimistic – 40% 40%

42%

Optimistic – 42% Cautious - 15% Not Optimistic – 3%

according to the Louisianan. “Young agents ment where they are directly paid for their just have to realize that there’s a little bit of a success and in many instances, they work as their own boss, giving them the freedom and curve there that they are going to have to be willing to fight through; but once they do I independence entrepreneurs seek. think they will find it’s well worth it.”

O’Connor is not alone in valuing the indeThe first five to 10 years as an independent pendence that comes with his job. What agent will not be a “cakewalk,” says 30-yearmany young independent agents — those 40 old Joel Geddes III, at years old or younger the Modesto, Calif.— like the most about based Capax their jobs is the freeInsurance. Geddes, dom it gives them to who has been an agent control their own desOlder Side of Young for five years, is a tiny, according to 62% are 31 to 40 years old; third generation insurInsurance Journal’s 2009 38% are 30 and under. ance professional, folYoung Agents Survey.

Career Choice lowing his grandfaFor many of the 692 84% consider insurance to be a permanent ther and his father, young independent career choice; 14% are unsure.

Joel Geddes Jr., who is agents surveyed, freeEducation dom is what they enjoy 56% have a college degree; 60% have completed CEO of Capax today..

Despite growing up most about the indusor are working on an insurance designation. in insurance, Geddes try. (See What Agents Experience Like Most, page N21) 25% have less than three years in insurance; never thought he’d One survey respon29% have six to 10 years; 21% have three to five enter the profession.

“It’s one of those dent wrote, “Freedom years; 25% have 11 or more years. things that you see is the best thing about Family Affairs your parents doing being an independent 56% work in family-owned agencies. and it didn’t look agent.”

Ownership Dreams And another simply 73% do not presently own an agency; of these, appealing,” he said. As Geddes explored said he enjoys the 57% would like to own someday. other business career “freedom in every way.”

Working Class 52% work between 41 and 50 hours a week. fields, he soon found that insurance offered Patience to Succeed Gender ID impressive opportuniWhile young agents Male 66%; Female 34% ties for a high salary may enjoy the autonoRecruitment Target my on the job, being a 52% have been offered a job by another agency. and advancement potential. young independent Geddes has accepted the reality that it agent is not a get rich quick career, says will take time to build a good career. “But Meghan McGarry, a 30-year-old commercial once you do, it can be very good to you,” he account representative for Marshall & said. “You are going to put in a lot of time Sterling Inc. in Leeds, N.Y., an Insurance and a lot of extra effort up front, but after Journal Top 100 Agency. you get past that point it will be worth it.”

O’Connor adds that patience is important Steve Parkhurst, 32, has only been in the to being a successful agent. “The toughest insurance industry for a year. Previously, thing about being a young agent is remaining patient enough to let the course of time work Parkhurst had a successful six-year career in the mortgage industry but “got out at the in your favor,” he says.

“There’s really no shortcut,” to success, continued on page N20

N18 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

Profile of Young Agents

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to Grow

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SPECIAL REPORT Young Agents Survey/Big “I” Issue Young Agents, continued from page N18

right time,” he said. After that, he landed a position selling small commercial accounts at Walnut Creek, Calif.-based Heffernan Insurance Brokers, also an Insurance Journal Top 100 Agency.

As a new insurance agent, Parkhurst admits there’s a lot to learn and young agents have to be dedicated if they want to succeed.

“You have to put in extra hours,” Parkhurst says. “You can’t just stick to the 9 to 5,” he added.

Helpers at Heart Parkhurst most enjoys helping his clients, making sure they have the coverage they need. In that sentiment he is typical of today’s young agents, who identify helping others solve challenges as among the major reasons they like being an independent agent.

“I love helping people and this is a great way to help people,” says Marshall & Sterling’s McGarry. “On a personal level you

are helping them protect their homes, their vehicles, their family. On a business level, you are helping them protect their livelihood.”

For Brewa M. Kennedy, owner of Today’s Insurance Solutions in Orlando, Fla., working as an independent insurance agent has allowed him to focus on great customer service. Even though owning his own business comes with its challenges, Kennedy says he has found it to be “much more freeing” than working for someone else. “I can approach business the way I want to,” he said.

Insurance was not his first career.

Kennedy, 33, became an independent agent only after years of service in the airline industry and then a brief stint as a captive agent with Allstate. After just six months as an Allstate agent, Kennedy decided “very quickly that in the Florida market it was not in the best interest for the agent or the insured” to write only Allstate policies, so he termi-

Independence Through Teamwork

W

hile the tendency is for independent agents to stress their independence and go solo, a team approach can be very valuable to producers who are new to the industry.

“When producers first come in, instead of handing them the Yellow Pages and saying, ‘You are on your own, go hit the streets,’” more agencies are pairing a younger producer with a more seasoned producer, maintains Joey O’Connor, vice president of Daniel & Eustis LLC, based in Metairie, La., and chairman of the Big “I” Young Agents Committee. “I think that alleviates a lot of frustration and the inclination to say, ‘This isn’t going to work for me, I’m going to quit.’”

Joel Geddes III, a 30-year-old agent at the Modesto, Calif.-based Capax Insurance, says being part of a selling team has helped him generate new business, although his partner is not an older veteran but rather a fellow young agent.

Geddes, who has been an agent for five years, says about a year ago he and his partner decided to team up to get new business. “Being a young agent is all about building your book and if you are not out there proactively marketing, cold calling, building relationships, then you are not going to get any new business, especially in today’s market,” Geddes said. So the two producers decided they would be able to encourage each other’s marketing efforts better as a team. “The encouragement has been really good,” he said.

“We go out and do team selling especially with the larger accounts. Team selling seems to do very well with the larger customers,” Geddes explained.

Geddes says the team splits everything.

Another benefit, “We are able to be very frank with each other. … The ability to be candid is a very valuable asset.”

Gaining credibility in the eyes of clients who may be 10, 20 or even 30 years older is a challenge for any young salesperson.

In addition to teammates, there are many resources to help younger producers succeed more quickly, notes O’Connor. The Big “I’s” Virtual University is one example. There are also many national education and training programs for new producers. IJ

N20 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

nated his contract with the national insurer.

Then he opened up his own independent insurance agency.

Kennedy admits, “it’s been hard” but he has learned a few lessons along the way. “It’s my first time owning a small business and my first time working in the insurance industry,” he said. To top it off, it’s his first time managing people.

Challenges abound, especially in the Florida insurance market, Kennedy says he sees opportunities where most would not.

“It is a little bit scary (right now), I won’t lie,” he admits, “but at the same time millionaires are made in times like these.” Kennedy sees opportunity in the Florida property market where he’s ready and able to take market share from fleeing national carriers.

Eye on the Future Despite the economic recession, most young agents continue to be optimistic about their future. According to the IJ survey, 85 percent feel very optimistic or optimistic about their own career as an agent.

Young agents also have high hopes for the future of the independent agent system — some 82 percent are very optimistic or optimistic.

Young agents are also confident in their ability to grow market share — 73 percent reported being very optimistic or optimistic.

McGarry believes that now is the perfect time to help existing clients and gain new ones.

“I think people are looking to us more than ever to help educate them about what they need and what they don’t need,” she advised. Since many people are looking to cut back on extra coverages now, it’s more important than ever for agents to make themselves available, she says.

Capax’s Geddes agrees, adding that constant communication with his customers is a must. “I think one of the best things a young producer can do is to just stay in contact with your customers and let them know what’s going on in the market.”

When the economy improves and people begin to start up new businesses, young agents need to be ready, advises McGarry. “Young agents need to position themselves accordingly and be ready because opportunities will start presenting themselves and you want to be prepared to meet the challenge.” IJ www.insurancejournal.com

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101 Things Young Agents Like MOST The exclusive 2009 Insurance Journal Young Agents Survey asked independent agents under 40 years old: What do you like most about being an independent agent? Here’s what some of the 692 agents who took the survey had to say: 1. Working with clients and helping them to secure their insurance needs. Providing training and development of people. Friendships developed over the years.

2. My relations with clients and collegues. The security of the industry (people need insurance).

3. It is not the same thing every day. I enjoy a challenge. I am also very honored to be able to work in the field of agriculture.

4. I love interacting with my clients and being there for them when times are tough.

5. Getting to help the people.

6. More to see than at the company level. Working one-on-one with the clients to help them. Form many positive business relationships with clients.

7. The freedom it provides and ability to work hard to determine your own income.

8. The amount of time I have with my family and the flexibility of the business.

9. Diversity of the field and constant change.

10. Taking care of the people.

11. I can make really good money and I control my schedule for the most part.

12. I like the fact that I am always networking and meeting new people as well as learning about all types of business.

13. Ability to make your own income. Helping others protect their business assets. Like working with business owners and independent agents. Like the real world application of the products we provide.

14. The freedom to work my own hours and the fact that income ceiling is only controlled by how much effort I put.

15. Control your destiny.

16. The flexibility to work with many different carriers.

17. The social aspect. I enjoy talking to people and helping them get things done.

18. Different challange everyday!

19. Relationships, freedom.

20. Opportunity for increased income.

21. Freedom to use a variety of companies.

22. I enjoy writing an account where there is a mutal feeling of respect and willingness of the client to provide information.

23. Flexible schedule and unlimited income potential.

24. Flexible work schedule and the ability to help people understand a piece of their life that is so important.

25. Freedom. Meeting local businessowners and developing relationships with businessowners/leaders in the community.

26. The ability to write any risk on the planet and not having www.insurancejournal.com

a home office dictate my life and income level.

27. Own hours, unlimited income potential, exposure to all different types of industries.

28. The pay, the excitement of learning everyday and the outstanding benefit of getting to meet and interact with my various clients around the country.

29. The freedom to try new things.

30. The one-on-one customer relations. I love being able to interact with people.

31. Freedom of choice.

32. Freedom to work when and how you would like to.

33. I enjoy having the ability to direct my own work-flow while helping people protect themselves.

34. Building relationships and educating clients.

35. Networking. Challenges of each account.

36. The clients.

37. Helping companies lower premiums and broaden coverages.

50. The steady industry and working for a great firm.

51. The freedom to control my future while helping others in the process.

52. Enjoy being of service to my clients and making quality products available to them.

53. Putting people back on the map after large losses, claims service is what we are all here for.

38. The relationships that are developed with my clients.

54. Control own destiny.

39. The challenges I face everyday. With insurance no two policies are alike, the job is never monotonous. I enjoy taking on the difficult risks that no one else wants to bother with.

40. Flexibility.

41. The ability to be able to help clients and others truly understand what they have, or are buying. The industry is caught up in pricing, rather than needs assessment.

42. I like the variety - every day there is something different and it doesn’t ever seem to get boring. I deal with a variety of people, coverages and issues everyday and it keeps me on my toes.

43. I have learned that knowledge is my absolute best-selling feature and do everything I can to learn insurance coverages and be able and willing to give many, many examples. I like being an expert and a teacher.

44. The industry is constantly changing. I can come to work every day and learn something new. There is always a new claim or coverage question that I may have to research which only helps me in learning more.

55. The flexibility of hours and the challenge of selling a very expensive and intangible product.

56. I like being able to look at a lot of options for a customer and help find the right policy for them.

57. I like the fact our industry constantly changes. I never really considered a career in insurance prior to my father’s stroke simply because I saw it as ‘same old, same old.’ Once I got into it and saw it wasn’t, I was hooked.

58. The freedom the career offers. I have the ability to meet great people, earn a nice living, help peoples’ businesses, and be in control of my own destiny to a certain extent.

59. Your compensation is based upon your own work, not someone else’s.

60. The ability to talk to people at their best. The ability to talk to and help people through their worst. You have the chance to do both on any given day no matter where you work in our industry.

61. The ability and freedom to think outside the box and not be tied down by corporate rules and regulations.

45. The freedom to write business with various companies that fit my clients needs.

62. Commission on the business that I write is nice. Applying the coverages and explaining how they work to the insureds is a challenge but keeps me on my toes.

46. Income and scheduling freedom.

63. Independence.

64. Feels like it has more freedom than other jobs.

47. The hunt and the people you meet along the way.

48. I like being independent from captive agencies, and having the ability to shop for the customer. I like that I can realize my own dreams, and the self-direction that I can take.

49. Flexibility of job and hours.

65. Still figuring that out ...

66. Client relationships and freedom associated with the position.

continued on page N22 April 20, 2009 INSURANCE JOURNAL-NATIONAL REGION | N21

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SPECIAL REPORT Young Agents Survey/Big “I” Issue 101 Things, continued from page N21 67. Ability to be as succesful as you want to be based on how hard you want to work.

68. I own my agency so the success is on me.

69. Flexibility of career and family.

70. Autonomy, freedom to build a book of business.

71. I enjoy the flexibility of the companies that I write for. I probably enjoy my relationships with each carriers’ representatives more than anything else.

72. The ability to be agile in the market and not bound by company restraints.

78. Working for myself.

79. I like the involvement with the community our particular agency has. It has nothing to do with being an independent agent.

80. Uncapped earnings, freedom, flexibility: as years go by and friends climb the corporate ladder and make more money, typically they must put in significant amount of hours per week. In the insurance industry that is not typically true, good field underwriting, writing the policy correctly, and having well trained support staff can bring just the opposite in an agency after years of hard work.

fields all within one career, from financial, to legal, to business and risk management areas.

87. The vast knowledge accumulated in many areas of industry and insurance and law.

88. Getting to know different types of business and their story of how they came about. Love the flexibility of job and the ability to have uncapped earnings while at the same time the opportunity to become an owner in the agency.

73. Freedom.

81. I like the flexibility in hours, as I have small children.

Additionally, the compensation is good.

74. The freedom to go to different markets.

82. Independence.

75. My favorite part of being an independent agent is the opportunity to educate people on risk management so that they can properly protect their homes and businesses.

83. Freedom in every way.

90. Freedom and open markets. Finding what is best for the client.

84. Meeting new and interesting people.

91. I enjoy the freedom of setting my own schedule.

85. Learning different industries.

92. Freedom and the earning potential. Plus I like running a small business and challenges it presents.

86. I love the fact that the industry shifts and changes every day, I enjoy the challenge of touching so many different

93. Claims are the only interesting thing about insurance,

76. Owning the books.

77. Selling. Fixing problems, being creative and inventive.

89. I can control my own accounts.

50 Things Independent Agents Like LEAST The exclusive 2009 Insurance Journal Young Agents Survey asked independent agents under 40 years old what they like least about being an independent agent. Here’s what some of the 692 agents who took the survey had to say: 1. Lack of growth opportunities within a company. Being told there are and coming to the reality there isn’t. Not being able to achieve compensation goals due to lack of support.

2. My current income, the regulation, the redundancy of products and explaining it.

3. PAPER WORK and requoting. The redundancy in the quoting to completion on the agency management system is very frustrating to me.

4. I want to be able to earn a decent compensation for the work that I do. I hate the companies and their overall attitude toward agents.

5. The many changes of coverages. So much knowledge is required.

6. Industry cycles make it hard to explain the pricing of our product ... certainly isn’t based on loss ratios and fundamentals right now! (or when it becomes ridiculously hard either!)

7. If we had stable pricing, we might get a little credibility with the business community over the long stretch!

8. Public perception - while we’re actually one of the last lines of defense for individuals’ and companies’ abilty to continue operating, we’re too often perceived as being one half step above used car salesmen.

book of business to be portable if you change agencies down the road thus locking you into your current office or start over.

12. CE credits? I mean, seriously, with all the search functions, not one of us is actually learning the material. We all know that day-to-day sales and service is the best learning tool.

13. The public opinion of insurance in general. Most see it as a necessary evil, and even agents appear they do not like to provide a service or sell. The dumbing down of rates and chasing premium dollars that many carriers and agents participate in, which only hurts our industry and devalues the sevices of an agent. Also produces inadequate premium dollars and inconsistency in rates from year-to-year (or broker to broker), which adds to the public’s conception (or misconception) of the insurance industry and coverage.

14. The perception.

tom dollar premium due to the agent/market’s misclassification of the risk.

24. Working on commission only basis (Makes it very difficult to start out!)

25. It is so competitive and very difficult to attract the new customer. It seems there is an insurance agent or two on every corner.

26. The perception the general public has of insurance and insurance agents.

27. The lack of radio/television marketing by the so-called independent agency carriers (Hartford, Safeco, etc.).

Mercury does a great job and is truly an independent agency carrier. The rest sell out and frankly I can’t blame them ... Travelers has some ads on TV once in a while.

15. Margins are to small.

28. Telling people I sell insurance for a living.

16. Cold calling and trying to get in the door of a prospect. I enjoy the quoting and proposing, just not the cold calling.

29. Lack of public knowledge of companies.

17. There are many ups and downs. I tend to have really great days or really bad days. Few normal days!

30. No huge name brands, especially in the Florida property market.

18. Different challange everyday!

31. I’m not a young agent at 39 years old but I am highly energetic and find the largest problem in our industry to be the good old boy mentality of dominance, power and control.

19. Large national agencies.

20. The hours.

32. The unethical treatment towards a client that portrays a negative image on the profession.

9. Hearing the same complaints day in and day out about an insured’s policy.

21. Fierce competition and underhanded competitors. Agents with low ethical standards give the good guys and gals a bad name.

10. Cold calls and the negative connotation associated with the job.

22. Having online companies trash us.

34. Not having my own agency.

23. I hate that over half the accounts that I try to quote are misclassified and written in a market where I could not place a similiar risk. The prospect is still looking to save money even considering that they are already paying bot-

35. Quality of training.

11. What I like the least is that the industry has very little avenues to become an owner. It seems that you have to bring a book of business with you in order to become an owner. Most of the contracts I’ve seen don’t allow for your

N22 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

33. Keeping up to date with changing codes and regulations.

36. Satisfying production goals in a soft market.

37. The uncertainty of our industry’s future. www.insurancejournal.com

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money is decent, insurance is not a luxury so I’m sure employment will always be there in this industry!

94. The challenge of fully evaluating risk and finding solutions.

95. It is a steady year-round job and people will always need insurance.

96. I love that no matter how much expierence you have, you never stop learning because it’s changing everyday.

97. You determine how much you make and how much you work.

98. Being my own boss and being able to place insurance through a number of different insurance companies.

99. The fact that insurance is ever changing and never boring.

100. The intellectual challenge. Interviewing a client, finding out what they need and matching that to what I have avalible. Also setting my own hours and to some extent getting to choose the clients I can work with. The chance for growth is exciting.

101. The freedom is the best thing about being an independent agent.

U N S H A K A B L E

Through markets hard and soft, Markel Insurance Company remains your unshakable source for specialty insurance. We write property & casualty and accident & health coverage for: • Amateur/youth sports

• Gymnastics and cheerleading schools

• B&Bs, inns • Boys & Girls Clubs, Scouts

• Hunting and fishing lodges

• Child care centers, preschools

39. Not every company is as technologically advanced as they probably should be. Still too many companies dealing with paper files and antiquated filing systems.

40. The paperwork.

• Health/swim/racquet clubs • Horse and farm programs

• Camps

38. Volatility and competition, as well as always having to sell more and more and more. Never seems to be enough for management.

SM

• Museums and nature centers

• Child welfare programs

• Outdoor sporting programs

• Dance and martial arts schools

• Schools – private K-12, trade, specialty

• Garage/auto repair

• Social Services/nonprofits

• Groups and clubs

and many more…

41. The politics involved and BIG agencies that bully the little ones around.

42. The thing I like the least is feeling like we do work for our clients or work for the companies and then that goes unrecognized. For instance, you think a company is working with you as a partner and then you see something about them now selling direct. This makes me question the stability of the agency model and the future as an independent agent - are we the next travel agents?

43. I least like the lower commissions from major carriers while their upper corporate board members willingly appear to be over paid. This gives the general public the impression that the agent on the street is as over paid.

44. Collecting premium in the unusual event that someone is slow to pay.

45. Stress and lack of agressive IT investments by some carriers.

46. Carrier underwriting.

MARKEL IS: Admitted Rated “A Excellent” by A.M. Best

www.markelinsurance.com 800-496-1184

47. The hours of hard work, late nights and early starts.

48. People’s initial reaction when I say I am an insurance agent.

®

49. The technology could be much improved ... especially in today’s economy, we could be doing things more efficiently.

50. Being compared to a car salesman. www.insurancejournal.com

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Spotlight Inland Marine/Transportation/Cargo

Marine Cargo Insurance for Small to Mid-Size Businesses Doesn’t Have to Sink the Ship

By Michael Nukk and Alex Berisha

I

mporters and exporters that ship only a modest volume of goods do not have to settle for the often pricey or inadequate marine cargo insurance that is available from freight forwarders — the usual source of this kind of coverage for small and midsized businesses.

Just like the world’s largest businesses that trade internationally, small and midsized businesses that import and/or export as little as

$500,000 to $50 million of merchandise annually can also procure comprehensive and affordable marine cargo insurance that includes the benefit of services from a specialist marine insurer.

It is generally less expensive — typically as much as one-third to one-half the cost — to purchase marine cargo through a broker or agent versus through a freight forwarder.

Unfortunately, many smaller importers and exporters are unaware that this type of cargo insurance and service is available to them.

They often rely on insurance from freight forwarders and/or overseas suppliers. Some even take the risk of leaving their critical shipments uninsured.

One reason is that most brokers who specialize in marine insurance typically represent the larger businesses that meet high minimum premium requirements. These brokers or agents don’t market themselves to smaller accounts because placing this size coverage can be a time-consuming and cumbersome

process that often makes handling this business cost-prohibitive.

Another reason is that many insurance brokers and agents who place property and casualty business insurance for small to midsized businesses may be unfamiliar with marine cargo coverage and the exposures involved.

Finally, many businesses may not think they need to secure their own insurance because they assume that their foreign suppliers or freight forwarders are providing adequate shipment coverage. But while the coverage available through freight forwarders may not impose a deductible, it will typically limit recoveries to a fractional amount of the total value of the damaged or lost goods, whether on a “per pound” or a “per package” basis. This is insufficient recovery for most merchandise and an especially paltry sum for high-value products such as electronics, pharmaceuticals or machinery.

Advantages for Small Businesses The breadth of coverage provided by marine cargo insurance may provide smaller business owners a way to recoup the full value of their goods for partial and/or catastrophic losses, usually with a nominal deductible.

Even when they are entitled to marine cargo insurance at no cost under the terms of their purchase and sales contracts with foreign suppliers, this coverage is no gift. In fact, the foreign supplier may pass their own insurance expense to the buyer through their sales contract, which may be profit-laden.

Another important advantage for small business owners is the more responsive claims-handling service that a specialist marine insurance company can deliver.

Routine claims are typically resolved in two weeks to a month, while complex claims could take a couple more weeks to wrap-up.

N24 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

In contrast, companies with coverage through a freight forwarder and/or foreign supplier may experience significant delays on claim settlements — sometimes taking more than a year to finalize and often with less than satisfactory results.

This difference in service occurs because the freight forwarders may not have the necessary claims-handling infrastructure to efficiently handle these claims. Most specialist marine insurers have dedicated claims personnel who are experienced in the marine field, understand the client’s business, and can service a large volume of a claims through specialized systems.

There are a growing number of insurance companies that facilitate insurance placements for small to midsized businesses with a Web-based underwriting system. These systems are very efficient, making it worthwhile for any broker or agent to place this size and type of coverage.

With a Web-based underwriting system, the traditional time-consuming interaction between the broker or agent and the underwriter can be significantly reduced, which allows for a cost-efficient way to service smaller marine cargo businesses.

For exporters, certificates of insurance can also be issued online and delivered electronically — further reducing administrative hassles for all parties involved in marine cargo insurance placement. Small to midsized businesses should request that their agent or broker seek marine cargo coverage through a specialist marine insurer that has the systems and personnel to effectively and efficiently insure their shipments at a reasonable cost, which is especially important during the current economic climate.

Even if the economy weren’t so challenging, inadequately insuring marine cargo shipments wouldn’t be wise. In today’s economy, it could be financially devastating. IJ Nukk is underwriting manager of marine cargo, and Berisha is senior underwriter of marine cargo, for Liberty International Underwriters. www.insurancejournal.com

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Closer Look Medical Professional Liability

Frequency Down but Severity Still a Problem for Medical Liability Insurers

By Stephanie K. Jones

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ike just about any company anywhere on earth, medical liability insurers lost money on their equity investments in 2008 due to the meltdown in the U.S. and worldwide economies in the latter half of the year.

However, for the first time in the experience of one long time insurance professional in the field, underwriting profits in 2008 “carried the day for overall profitability” for medical liability insurance companies.

“Typically these companies underwrite to an underwriting loss and make profit through their investment gain,” said Ray Pate, executive vice president with reinsurance intermediary BMS. Pate, who has worked in the medical liability insurance industry since 1985, specializes in the company’s North American marketplace.

Pate explained that after the extremely hard market years of 2001 – 2003, the “character of losses within the market changed dramatically around 2004, 2005. It changed depending on where you were in the country, but nationwide for whatever reason, the number, or as we refer to it the frequency of claims, reported to companies stabilized and subsequently reduced dramatically.”

The market has more or less remained stable, Pate said, so insurers have had the opportunity to build up their balance sheets and strengthen their reserves. As a result, premium costs have trended down nationally over the past few years. www.insurancejournal.com

The decline in claims frequency in recent years has been attributed at least in part to tort reform efforts in many states that capped the so-called “pain and suffering” component of monetary awards in medical malpractice lawsuits. Many believe the caps have led to a more selective approach by plaintiffs’ attorneys when considering taking on cases. Indeed, a study released last fall by reinsurance intermediary John B. Collins Associates Inc., which was acquired in April 2009 by global risk and reinsurance specialist Guy Carpenter & Company LLC, showed that around 57 percent of medical liability insurance executives responding to Collins’ survey believed increased selectivity by the plaintiffs bar and tort reform were the main reasons for “the overall decline among the frequency of medical liability claims in recent years.”

No Decline in Severity Although the medical liability insurance sector has enjoyed a decrease in claims frequency, the severity of high dollar claims, those that make “the front page headlines,” according to Pate, has not diminished. “The frequency of those very large claims continues, and the overall value of those big claims is very high,” Pate said. Companies cede the large loss claims “to the reinsurance market through reinsurance. That has been an effective strategy for the companies.”

If premium costs begin to go up, and they

will eventually, Pate said, it likely will be because reinsurers also have lost money on investments and will be looking to stabilize their balance sheets after paying out to insurance companies for the high dollar claims.

The “losses these companies cede to their reinsurers are still there and the value of the severe losses are high,” he said. “Those losses have to be paid for so prices have to reflect losses that are being ceded to the reinsurance program. Prices for reinsurance are not going down. They are not cheaper this year than they were last year. They had seen some decrease but I think at best we’d see it going sideways in the short term and an uptick long term.”

Still, Pate said, reinsurance is available.

“It’s very available for med mal companies, more so than any other line of business, because of the profitability. There’s just a higher level of focus across the board in the reinsurance business in underwriting for profitability. Particularly in this investment climate, where even if you had the all fixed income investment portfolio, you’re talking about a return on investment of 2 to 4 percent. And if you expect a 15 percent return on equity you’ve got to make it up in your underwriting performance.”

Emerging Risks?

Pate said insurers are attempting to gauge continued on page N26

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Closer Look Medical Professional Liability Frequency Down , continued from page N25

to what extent the aging baby boomer population and the recent economic melee might affect the medical liability line going forward.

As the population ages, the health care system will become more heavily utilized. In addition providers have more tools at their disposal to respond to the growing needs of that aging population. Health care practitioners are “challenged to prescribe the right procedure or medicine or whatever the cure or hopeful cure would be,” Pate said. “With all of those options, when an adverse event occurs and you choose options A, B and C, but in 20/20 hindsight you should have diagnosed and gone for D, E and F, then the claim is much more difficult to litigate on behalf of the doctor.”

At the same time, government reimbursements through Medicaid and Medicare are not increasing, so the physicians may be forced to see more patients but be unable to provide the most up-to-date and extensive care available because of time and monetary limitations.

Tort Reform Debate Rolls On On the other end of that spectrum, physiRecent medical liability reform efforts in cians who are at or nearing retirement age various states have paid off, Pate said. Texas, may feel the need to keep on working due to which Pate dubbed the “poster child” for tort significant losses to their retirement portforeform, has seen the benefits of such legislalios. Pate said underwriters might ask, “Is tion passed in 2003. “If you were to look at their [the physicians’] collective skill set as the number of companies modern as modern medicine is that were writing in Texas today? Do they have to go back The severity and the rate level in Texas and relearn things they may of high dollar before tort reform versus the have chosen not to learn number writing now and the because they were on their claims, those rate level now, you see a draway out? And does that create that make ‘the matic improvement in that a higher risk profile for the underwriting companies?” front page head- marketplace,” Pate said.

As an example, one medHe emphasized there is no lines,’ has not ical professional liability data yet to back up such theoinsurer operating in Texas, ries, but they could become diminished.

Medical Protective, recently “pressure points to delivering lowered its rates for physicians for the sixth good medicine.” And because insurers are in time since 2003, and every time the company the business of second guessing what might be in order to cover themselves against possi- has announced a rate change it has cited the effect of the 2003 legislation. Medical ble future claims they’re looking for “defensiProtective, which has about 9,000 policyble medicine, medicine that can be successholders in Texas, reduced rates by a 6.2 perfully defended in the courtroom.” cent statewide average effective Jan. 1, 2009.

Overall, since 2003, the company has lowered malpractice premiums in Texas by an average of more than 37 percent.

Despite the Texas experience, however, some consumer advocates insist that even though tort reform laws may lower costs for insurance companies, those cost reductions don’t necessarily get passed on to consumers. The American Medical Association believes otherwise and is pushing Congress to enact medical liability reform on a national level that would include a $250,000 cap on non-economic damages in medical liability cases.

And with health care reform a key initiative for the Obama administration the debate over medical liability reform is likely to heat up at the national level. The plaintiff’s bar plans to lobby Congress against placing limits on medical liability lawsuits, according to Politico magazine, and the American Tort Reform Association reports that personal injury lawyers have begun targeting individual states in an effort to advance “their own legislative agenda to change tort law in their favor, and [are] doing so in an orchestrated and coordinated fashion through their national organization.” IJ

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National Coverage News & Markets P/C Insurers Profitable in 2008 Despite Big Hits From Catastrophes, Financial Crisis

P

roperty/casualty insurers year-end 2008. remained profitable in 2008 Insurers also had $555.6 billion despite taking hits from several in loss and loss adjustment catastrophes, the recession and expense reserves to cover the cost the ongoing financial crisis. P/C of settling claims that had already insurers earned $2.4 billion in net occurred and another $200.8 bilincome after lion in unearned taxes in 2008, premium reserves ‘That property/ but profits set aside, bringing casualty insurers the total funds and profitability both tumavailable to cover remained profbled as cataslosses and other itable in 2008 … contingencies to trophe losses, the recession, just over $1.2 trilis a remarkable and the crisis lion. testament to in the finanPolicyholders’ cial system surplus fell $62.3 their risk took a toll on billion, or 12 permanagement underwriting cent, from $517.9 and investand conservative billion at year-end ment results.

2007. approach.’

The P/C Insurers’ net industry’s $2.4 investment gains billion in net income after taxes — the sum of net investment last year was down $60.1 billion, income and realized capital gains or 96.2 percent, from $62.5 billion (or losses) on investments — fell in 2007. And reflecting the decline 50.9 percent to $31.4 billion in in net income, the insurance 2008 from $64 billion in 2007. industry’s overall rate of return on The figures are consolidated average policyholders’ surplus estimates for all private U.S. P/C dropped to 0.5 percent in 2008 insurers based on reports accountfrom 12.4 percent in 2007. ing for at least 96 percent of all Insurers suffered $21.2 billion in business written by such insurers. net losses on underwriting in 2008 “Insurers’ net income in 2008 — a $40.5 billion adverse swing would have been the lowest in from insurers’ $19.3 billion in net more than two decades if not for gains in 2007. The combined ratio the net loss the industry suffered — a key measure of losses and in 2001 when terrorists destroyed other underwriting expenses per the World Trade Center,” said dollar of premium — worsened to Michael R. Murray, ISO’s assistant 105.1 percent last year from 95.5 vice president for financial analypercent in 2007, reports ISO and sis. Insurers’ 0.5 percent rate of the Property Casualty Insurers return for 2008 was their secondAssociation of America (PCI). lowest full-year rate of return since the start of ISO’s annual data Well Capitalized in 1959 and 8.7 percentage points Despite the decline in profits, below insurers’ 9.2 percent average the full-year 2008 financial results rate of return during the past 50 show that private U.S. P/C insuryears, Murray added. ers remain well capitalized, post“That property/casualty insuring $455.6 billion in policyholders’ ers remained profitable in 2008 surplus (or statutory net worth) at and finished the year with more www.insurancejournal.com

than a trillion dollars available to pay claims is a remarkable testament to their risk management and conservative approach,” said David Sampson, PCI president and CEO. Underwriting Results Net written premiums dropped $6 billion, or 1.4 percent, to $434.6 billion in 2008 from $440.6 billion in 2007. Net earned premiums declined $0.8 billion, or 0.2 percent, to $438.1 billion last year from $438.9 billion in 2007.

“At negative 1.4 percent for 2008, net written premium growth was the weakest for any year since the start of ISO’s annual financial data for the property/casualty industry. The previous record low for annual premium growth was negative 0.6 percent in 2007, with premium growth ranging as high as 22.2 percent in 1985 and 1986,” said Murray.

As premiums declined, overall net loss and loss adjustment expenses (after reinsurance recoveries) jumped $42.2 billion, or 14.2 percent, to $339.2 billion in 2008 from $297 billion in 2007.

ISO estimates that the net catastrophe losses included in insurers’ financial results increased to $21.8 billion last year from $6.9 billion in 2007. Excluding estimated net catastrophe losses, loss and loss adjustment expenses increased $27.4 billion, or 9.4 percent, to $317.4 billion in 2008 from $290.1 billion a year earlier.

According to ISO’s Property

Claim Services (PCS) unit, catastrophes occurring in 2008 caused $26 billion in direct insured losses to property (before reinsurance recoveries) — nearly four times the $6.7 billion in direct insured losses to property due to the catastrophes occurring in 2007 and almost twice the $14 billion average for catastrophe losses during the past 20 years.

Other underwriting expenses dropped 1.6 percent to $118.2 billion in 2008 from $120.1 billion in 2007.

The $21.2 billion net loss on underwriting for 2008 amounts to 4.8 percent of the $438.1 billion in net premiums earned during the year, whereas the $19.3 billion net gain on underwriting for 2007 amounted to 4.4 percent of the $438.9 billion in net premiums earned during that year.

The 105.1 percent combined ratio for 2008 is the worst full-year underwriting result since the 107.3 percent combined ratio for 2002.

And the combined ratio for 2008 is one percentage point worse than the 104 percent average combined ratio since the start of ISO’s annual data in 1959.

“Underwriting results were significantly affected by catastrophe losses in 2008,” said PCI’s Sampson. Last year’s hurricane season spurred a $14.8 billion increase in net catastrophe losses to $21.8 billion. This accounts for about a third of the deterioration in underwriting results,” said Sampson. IJ

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National Coverage News & Markets

Recession Affecting Both Supply and Demand for Insurance Coverage

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ommercial insurance follows influenced insurance pricing, no a boom-and-bust pricing recession since World War II has cycle thought to be largely influenced both supply and uncorrelated with broader ecodemand so profoundly,” said David nomic cycles.

Bradford, But according Advisen’s exec‘While past to a new report utive vice recessions have released by president and Advisen Ltd., influenced insurance chief knowlthe current edge officer. pricing, no recession recession is dif“Hard market since World War II ferent. The conditions severity of the eventually has influenced both economic crisis will provide supply and demand will adversely insurers and so profoundly.’ impact both brokers some the top lines relief, but we and bottom lines of commercial see absolute top line income insurers, making for a turbulent declining through 2009.”

2009, researchers for Advisen say.

“The Impact of the Economic “While past recessions have Crisis on the P&C Insurance

Industry,” the new Advisen briefing, examines the economic factors influencing insurer profitability and the commercial insurance pricing cycle. Inevitably, capitaldraining developments like recession-driven fraud losses, in conjunction with stagnant capital markets, will lead to a “hard” market, Advisen says. However, the hard phase of this market cycle will be materially different from prior cycles.

“The economic crisis will cause exposure units to shrink, businesses to fail, and will force companies to consider budget-cutting measures such as higher retentions and lower limits. This falloff in demand will result in a top line premium decline across the

industry, substantially offsetting gains from higher rates,” Advisen stated.

“Four years of falling rates is putting stress on both insurers and brokers,” said John Molka III, Advisen’s senior industry analyst and the author of the briefing.

“Under more stable economic conditions, the market would be poised for a rebound. But economic turbulence is adding a new layer of complexity to the pricing cycle.We’ve identified the various forces at work on insurers’ top and bottom lines, and how those forces are likely to influence pricing and capacity in 2009 and 2010.”

The 15-page briefing is available for purchase through Advisen. IJ

Rates Rising on U.S. Property Catastrophe Reinsurance

A

new industry briefing shows reinsurance rates continuing to increase for the U.S. property-catastrophe reinsurance market for April 1, 2009, renewals.

According to Guy Carpenter & Co.’s “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal” briefing, national programs rose between 10 percent and 14 percent on a risk-adjusted basis, with the Northeast seeing 6 percent to 8 percent increases. Riskadjusted pricing was up 12 percent to 14 percent on average for residual markets, though results varied widely, depending on risk pool characteristics.

By comparison, reinsurance rates increased 11 percent on average at the Jan. 1, 2009, renewal.

“The rise in reinsurance rates at the April 1 renewal extends the upward trend that we saw at the beginning of the year,” said Lara Mowery, head of Guy Carpenter’s Global Property Specialty Practice.

Renewal quoting behavior varied widely among underwriters, ranging from negative 15 percent to 15 percent for certain programs.

Capacity needs, regions and specific perils were among the factors influencing the final rates that insurers were able to secure.

The briefing also said that pricing trends were substantially impacted by the availability of capacity — especially for perils in historically capacity constrained zones — as well as program-specific loss histories.

The Guy Carpeneter briefing also claims that capital is likely to continue to be constrained in 2009, with uncertainty in the financial markets likely to impair investment assets.

N28 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

“Capital has undoubtedly been constrained, and this is translating into decreasing capacity in a number of areas, which then has an impact on reinsurance pricing,” Mowery said. The ability to secure additional capital will depend on specific companies and lines of business, the briefing said.

As a result of concern about continued price increases, a number of Florida renewals are already underway. The outcome of the current Florida legislative session and the decisions by the Florida Hurricane Catastrophe Fund Trustees could have a profound impact on the market.

“Taking early action continues to be critical in helping insurers manage their cost of coverage,” Mowery added. “As we move into the Florida renewal season, the many unknowns make this strategy more difficult for these companies.”

The briefing, titled “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal,” is available for download at www.GCCapitalIdeas.com. IJ www.insurancejournal.com

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International Coverage News & Markets

Somali Pirates Step up Attacks; Exemption Renewal for Europe’s Insurers

By Charles E. Boyle

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irates have stepped up their attacks on shipping in the Gulf of Aden and the Indian Ocean. In three days (April 6-8) the marine marauders, based in Somalia, seized four cargo ships and a French yacht (See IJ Web site “International” section).

However, in trying to hijack the 17,000-ton Maersk Alabama, a U.S.-flagged, Danish-owned container ship, on April 8, the pirates bit off more than they could chew. The 20-man American crew retook the ship, but the pirates got away with the captain. The USS Bainbridge, a navy destroyer was dispatched to the area.

Both hijackings came to sudden and dramatic ends. U.S. Navy Seals went into action when observers saw Phillips being threatened with a firearm. After receiving the approval of President Obama, Navy sharpshooters opened fire, killing three pirates and freeing Phillips.

The fourth pirate, who was on a navy ship at the time, surrendered.

Negotiations reached an impasse with the hijackers of the French yacht Tanit, who were threatening to execute their hostages prompting President Nicolas Sarkozy to approve a commando strike. Although it successfully recovered the yacht, killing three pirates in the process, the owner, Florent Lemacon, was killed in the operation. French policy draws a “red line” at hostages being taken to land.

A number of governments, including the U.S., the UK, China and Japan, have dispatched warships to the area in an effort to stop the piracy. It has lessened somewhat along the Somali coast, but the pirates have responded by making forays further afield.

The German container ship, taken on April 6 was near the Seychelles Islands; the Maersk Alabama was about 300 miles offshore.

As reported by Reuters, the pirates typically launch speed boats from mother ships, meaning they can sometimes evade warships patrolling the strategic shipping lanes and strike far out to sea.

As a result “ship-owners navigating the Gulf of Aden are seeing insurance premiums for kidnap and random (K&R) increase tenfold as piracy escalates,” reported Aon Risk Services.

“This means ship-owners could be paying

$30,000 premium for $3 million of cover for one journey through this piracy hotspot.”

There’s a growing demand for “Specialist Piracy Policies” for K&R insurance. Aon explained that these can include “cover for consultant and negotiator costs, ranThe 17,000 tonne Maersk Alabama, a U.S.-flagged, Danish-owned container ship is seen in som demands and this undated handout image, taken when the ship was named differently, released to Reuters medical care.” They on April 8, 2009. Somali pirates hijacked the Maersk Alabama on April 8, with 20 American can be bought for crew on board in a major escalation in attacks at sea off the Horn of Africa nation, officials individual transits or said. REUTERS/Maersk Line Ltd/Handout on an annual basis to 2010. FERMA issued a bulletin noting that the bring down the cost. “legal certainty provided by the current BER Ashley Leszczuk from Aon’s crisis managehas fostered cooperation among insurers to ment team indicated that “despite the prescreate competitive insurance markets with ence of naval ships, the spate of piracy attacks sufficient capacity to meet the needs of large over the last six months does not seem to be international insurance programmers. A abating with increased civil unrest and renewed BER in March 2010 will continue to pirates’ easy access to rocket launchers and achieve this fundamental objective by AK47s. As such, we’ve seen enquiries for cover exempting joint calculations, tables and studescalate as ship-owners seek to protect their ies, and co-(re)insurance pools from EU comemployees and businesses.” petition rules.”

Numerous solutions have been discussed, The statement also approved the EC’s but each one seems to have its own drawactions on joint calculations and studies, an backs. They include: 1) more naval patrols; 2) issue raised by “large commercial buyers.” In putting armed guards on vessels; 3) a convoy relation to pools, the EC said the renewal of system, similar to that used in the North the BER is necessary not only to clarify the Atlantic in World War II; 4) Taking out the safe harbors, but also to induce compliance by Mother Ships; 5) Bombing the pirates sanctupool members,” a stance FERMA agrees with. aries in Somalia but there’s also the risk of FERMA was disappointed, however, that civilian casualties; 6) avoid the “at-risk” area; 7) try to regenerate Somalia so it isn’t a failed and the Commission didn’t endorse the view of the industry that cooperation in relation to essentially lawless state. standard policy conditions (SPC’s) should continue to be covered by the BER. FERMA’s Renewal seems set for the European bulletin pointed out that it is “very valuable to insurance industry’s Block Exemption large commercial buyers as it reduces transacRegulation (BER). The European tion costs, facilitates the comparison between Commission (EC) recently endorsed continupolicy conditions and provides better coning the regulations, which exempt insurers tract certainty. Accordingly, FERMA believes from the European Union’s rules governing that, to the extent that SPCs will fall outside competition, much to the relief of the 16-memof the BER, the Commission should at the ber Federation of European Risk Management very least issue guidance so as to provide sufAssociations (FERMA - www.ferma.eu). ficient comfort and legal certainty as of March The exemptions were first introduced in 2010.” IJ 2003, and are currently scheduled to expire in

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Idea Exchange Closing Quote

Too Big to Fail How the Feds Can Address Systemic Risk Without Creating More Bureaucracy

DiMuccio

By Robert A. DiMuccio

A

merica’s market-based economic system once created the largest economic engine in the world and gave this country one of the highest standards of living in history. However, that system now faces a credibility crisis of great proportions.

The extraordinary and severe contraction we are experiencing has disrupted not just financial markets, but more importantly, it has also disrupted people’s lives. Hundreds of thousands of Americans are losing their jobs every month as a result of the economic domino effect produced by the interconnectedness of a number of important financial services companies. That interconnectivity is known as systemic risk: the likelihood that a company’s failure or imminent failure would require government intervention to prevent or limit the failures of other vital companies.

The existing system failed to anticipate the problems that created the condition in which we find ourselves today, and people only want to know one thing: how are we, as a nation, going to avoid similar crises in the future?

The onus is on the financial services sector to present a compelling vision to address the current crisis to Congress and the American people, who are demanding action to restore economic opportunity and well-being. If we fail to present a viable plan, we can rest assured that Congress will put forth its own plan. If that happens, it is likely that our ability to innovate and our freedom to adapt or fail — which are necessary in a market economy — will be severely limited.

How to Address Systemic Risk My company, Amica Mutual Group, is a member of a trade association that has proposed to Congress a detailed and focused framework for monitoring, limiting and addressing systemic risk. This plan, proposed by the Property Casualty Insurers Association of America (PCI), would help America respond to the current crisis and restore investor confidence in our marketplace.

PCI has proposed a definition and analysis of systemic risk focusing on entities that are “too interconnected to fail” rather

N32 | INSURANCE JOURNAL-NATIONAL REGION April 20, 2009

than “too big to fail.” This level of interconnectivity is measured by the counter-party risks and third-party leveraging tied to a company’s activities — in other words, how many additional failures would be caused by a company’s impairment — and the correlation of a company’s risks with other systemic waves and What is needed economic cycles. is a single federal We now know that even relatively small derivatives firms can overseer with create enormous leveraging the institutional throughout the global economy, vulnerable to market downturns, expertise and and becoming too interconnected to fail. This stands in contrast to independence large auto insurers whose risk to monitor exposures are independent from economic cycles and who can fail systemic risk. with negligible systemic impact.

What is needed is a single federal overseer with the institutional expertise and independence to monitor systemic risk.

Systemic risk oversight must be flexible, to quickly adjust to market innovations. It also should be tiered, focused on greater transparency and disclosure to the regulator to allow broader risk monitoring, with increased information sharing for larger risks, and specific risk management standards and oversight for significant systemic risks. Additionally, it requires the ability to coordinate responsive action that allows failure to occur within an organized, predictable and managed framework.

PCI has also made specific proposals for greater regulatory coordination and anti-fraud information-sharing globally, in a manner avoiding duplicative or excess reporting burdens.

PCI’s suggestion of a systemic risk overseer, which has been rapidly gaining support, fills the regulatory gaps and addresses the vulnerabilities identified by Congress. Importantly, it does so without imposing a massive new regulatory system or opening the door to social engineering that would create moral hazards and undermine our nation’s competitiveness.

It is clear that the federal government is going to take action in response to the existing economic crisis and the causes that precipitated it. We advocate that this action address the specific problem of systemic risk and do so without creating needless additional bureaucracy, and we believe our plan accomplishes these ends. IJ DiMuccio is president and CEO of Amica Mutual Group in Providence, R.I. www.insurancejournal.com

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