Insurance Journal

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CALIFORNIA STATE FUND Workers’ Comp Assets for Sale

MANAGING FINANCIAL TURMOIL Golden Opportunity for Industry

MONTANA SURPLUS LINES DOI Handles Stamping Operations

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Inside This Issue July 6, 2009 • Vol. 87, No. 13 • West Region

WEST COVERAGE

N10 Closer Look: Salute to Near National Carriers Leading Near-National P/C Carriers Revealed

NATIONAL COVERAGE N10 | Closer Look: Salute to Near National Carriers Leading Near-National P/C Carriers Revealed N15 | Special Report: Commercial Auto The Road to Savings: Five Best Practices to Control Costs N18 | Special Report: Commercial Auto Beware of Symbol 7 Only Auto N20 | Special Report: Commercial Auto Car Dealers in the Storm Dealers Left Standing Will Be Stronger, Leaner and Better N23 | Closer Look: Construction Safe and Sound: Making the Connection for Contractors N24 | P/C Industry Posts $1.3B Loss in Q1; Combined Ratio Up to 102.2 N25 | International Report Jackson’s Death and Event Cancellation; Max Cap Rejected; Still Searching Air France Crash Cause; Den Dekker is New FERMA President N27 | Correction: Program Directory N28 | Spotlight: 2009 Digital Product Guide 4 | INSURANCE JOURNAL-WEST REGION July 6, 2009

8

| California Governor Proposes Selling Some State Workers’ Comp Insurer Assets Aims to Raise $1 Billion from Private Party to Alleviate Budget Shortfall

9

| Montana Takes Back Surplus Lines Stamping Office Operations Auditor Hopes to Streamline Operations

DEPARTMENTS 10 | People 12 | Business Moves N8 | MyNewMarkets

14 | Swimming Downstream: How a Regional Insurer Buys Others Through Demutualization Donegal’s Group Strategy Has Taken It From Writing in One to 19 States in 20 Years

IDEA EXCHANGE 16 | State Regulation Needed Idaho DOI Director Bill Deal Wants State-Based Regulation, But Updated Federal Regulatory Structures

8 California Governor Proposal Want to Sell Some of State Compensation Insurance Fund’s Assets

N1 | Salvaging Success How to Boost Producers’ and CSRs’ Revenue- Generating Ability in Tough Times N4 | International Insider Cyber Security: Global Risk and Rising Complexity N12 | Minding Your Business The Worst Ways to Manage Producers N31 | How Independent Agents View Super Regional Carriers Survey Says Claims Service Continues to Top List of Agency Demands

14 Swimming Downstream Donegal’s Group Strategy Has Taken It From Writing in One to 19 States in 20 Years

N32 | Closing Quote: Turmoil Breeds Opportunity A Golden Moment for the Insurance Industry

N1 Salvaging Success How to Boost Producers’ and CSRs’ Revenue-Generating Ability in Tough Times

www.insurancejournal.com

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Idea Exchange Opening Note

Consider the Crisis

I

nsurance is no doubt used in times of crisis — to recover from such events as a house fire, when a driver is in an accident, or a business suffers a loss, for example. But recently, California Gov. Arnold Schwarzenegger has proposed using insurance and its well-earned assets to solve, in part, another type of crisis.

The state is facing a $24.3 billion budget shortfall and at press time, the Legislature was unable to approve the budget.

So far, Schwarzenegger has forwarded two proposals to the Legislature. The first, aims to seek a private party to purchase some of the State Compensation Insurance Fund’s assets for $1 billion. Selling some of the workers’ compensation insurer’s assets has three main objectives: 1) to maintain a sound workers’ compensation system; 2) continue with the SCIF as the insurer of last resort; and 3) achieve the highest value for the state, according to a spokeswoman for the Governor.

But what’s troubling is that the Governor’s proposal omits the Insurance Commissioner or Attorney General’s oversight from any transaction, leaving the state’s Director of Finance to act as agent for the state to sell a portion of or otherwise obtain value for SCIF assets and liabilities.

As critics of the Governor’s plan point out, selling SCIF is a complex matter, that could easily wreak havoc on the stabilOne wonders ity of workers’ compensation insurance rates. And when such affects a company that writes more than one if the Governor aouttransaction of every five workers’ compensation policies and is the has thought largest insurance company in the state, Commissioner Steve Poizner is right in that his office should have at least some through the input or oversight on the matter. consequences The second proposal aims to raise $99.9 million by eliminating the current sentencing options for specified crimes of this idea. that may be treated either as felonies or misdemeanors, making them punishable by a jail term rather than state prison.

Insurance crimes are part of the list of crimes that would be downgraded. Reprioritizing certain crimes would result in incarceration cost savings, Schwarzenegger said.

Yet one wonders if the Governor has really thought through the consequences of this idea. If criminals know they won’t be prosecuted, what’s to deter them from doing more misdeeds?

“Taking the power out of the hands of the public prosecutor to charge someone with a felony crime will have a serious impact on public safety. Insurance fraud is a serious crime that demands serious consequences,” the Coalition Against Insurance Fraud, National Insurance Crime Bureau, National Health Care Anti-Fraud Association and the International Association of Special Investigation Units said in a joint letter.

Insurance may be “the DNA of the modern world,” as Willis CEO Joe Plumeri recently said, noting that without insurance available in times of crisis, buildings don’t get rebuilt, victims don’t get compensated, goods don’t trade, careers aren’t saved, global economic life is finished and millions of people remain in poverty.

But when the crisis is merely an effort to balance the budget — especially when the state seems to struggle with this monetary Patricia-Anne Tom problem year after year — one has to ask if West Editor ptom@insurancejournal.com insurance is the appropriate solution.

Publisher Mark Wells Chief Executive Officer Mitch Dunford

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

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

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

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

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

A D M I N I ST R AT I O N Accounting Manager Megan Sinclair | msinclair@insurancejournal.com Cover designed by: Jamie Bethell

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio 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 July 6, 2009

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

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

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West Coverage Snapshot California Governor Proposes Selling Some State Workers’ Comp Insurer Assets • demonstrated competence and professional qualifications for the alifornia Gov. Arnold continued satisfactory performSchwarzenegger is proposing ance of the workers’ compensato sell a portion of the state tion insurance services offered workers’ compensation insurer for sale or other disposition.

State Compensation Insurance • The proposal has three main Fund for $1 billion, Rachel objectives: 1) to maintain a Cameron, deputy press sound workers’ compensasecretary for the govertion system; 2) continue nor, confirmed. with the SCIF as the insurer In his 2009-10 May of last resort; and 3) achieve Revision General Fund the highest value for the Proposals, Schwarzestate, according to negger proposed seeking Cameron. “a private entity to purJanet Frank, SCIF chase a portion of CEO, said she was SCIF’s book of busiaware of the legislaness, with the SCIF CA Gov. Arnold Schwarzenegger tive proposal to sell remaining as the State Fund assets, insurer of last resort.” and said her organization would Established by the California “continue to work with all stakeLegislature in 1914, SCIF is a selfholders during this process to supporting, nonprofit enterprise ensure that State Fund retains its that provides workers’ compenability to fulfill our mission of prosation insurance to California viding California businesses a employers at cost. With assets strong and stable option for their resulting from its book of busiworkers’ compensation insurance.” ness, surplus and reserves, sellHowever, Insurance Commising part of the quasi-public insur- sioner Steve Poizner voiced coner could bolster the state’s gener- cerns over the Governor’s proposal fund. The state is facing a $24.3 al, and issued a list of 16 considerbillion budget shortfall. ations that policymakers should The Governor’s office forward- consider in such a transaction. ed the proposal to the state For example, he noted that Legislature on June 19. As proSCIF is the insurer of last resort, posed, the state’s Director of as well as a market competitor, Finance would be authorized to which allows SCIF to spread its act as agent for the state to sell a risk more broadly. “What is the portion of or otherwise obtain implication for rates if the risk value for SCIF assets and liabilipool contains only the highest ties to an entity that the director risks? If SCIF loses the ability to determines will provide the best balance its book by writing volcombination of: untary business in addition to • the highest price for SCIF’s ‘insurer of last resort’ business, insurance assets and liabilities will it be able to adequately manand/or the best value to the age its risk and remain viable?”

General Fund; he asked.

• the greatest security for the He also questioned the propospayment of the purchase price al’s decision to remove oversight and/or the best value to the of any sale from his office or the General Fund; and Attorney General, especially

By Patricia-Anne Tom

C

8 | INSURANCE JOURNAL-WEST REGION July 6, 2009

when such a transaction affects a company that writes more than one out of every five workers’ compensation policies and is the largest insurance company in the state.

“Notwithstanding any other provision of law, neither the approval of the Attorney General, Insurance Commissioner, nor of the Director of General Services is required for execution and implementation of the sale or other disposition of the assets and liabilities of the State Compensation Insurance Fund,” the proposal states.

Yet no other agency in the state besides the Department of Insurance that has the necessary expertise to determine whether any systemic change to SCIF’s structure is appropriate, especially one of such magnitude, Poizner said.

“No such change should be made without affording the Commissioner the opportunity to assess the change, to inform the stakeholders of any associated hazards or benefits, and to ensure that the workers’ compensation market remains financially sound and that California’s employers continue to have access to affordable workers’ compensation coverage. Is it good public policy to prohibit the primary insurance regulator from having any active role in imposing possibly historical changes on SCIF?” he said. “State government should cooperate to ensure the least market disruption. With unemployment at record levels, California employers and employees deserve nothing less.”

This is not the first time talk of selling all or a portion of SCIF’s assets has surfaced. The issue arose under former Gov. Pete Wilson. Also in May 2008 as

the state predicted a $3.3 billion shortfall for that fiscal year, Schwarzenegger’s administration confirmed that the idea for a sale was floating around and put forth by a couple of people, although at the time Cameron said it was no more likely to become a reality than any other budget proposal being discussed.

SCIF’s Frank noted the issues surrounding a sale of SCIF’s assets are “incredibly complex” and “require substantial and thoughtful analysis not only because of their complexity but because the stakes associated with them are so high.”

“Many Californians rely on the security and certainty State Fund offers the state’s employers, particularly small businesses and new ventures — keys to California’s economic recovery; and injured workers and their families,” she added.

Frank said the State Fund is needed as a viable and affordable option when market conditions worsen and private insurance companies scale back their product offerings as was the case in 2000-2002, when 28 private carriers claimed insolvency and left the California market.

“State Fund stepped up to fulfill its leadership role as a critical safety net for the market by providing coverage for most of those policyholders and preventing a workers’ comp market collapse and subsequent drain on the state’s economy,” Frank said.

As the Legislature evaluates ways to close its budget gap, the Governor’s office “welcomes and looks forward to a debate of the proposal, but will not support anything that rolls back the Governor’s historic workers’ comp reforms,” Cameron concluded. IJ www.insurancejournal.com

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Montana Takes Back Surplus Lines Stamping Office Operations

By Patricia-Anne Tom

M

ontana’s Department of Insurance is now handling the operations of the Surplus Lines Stamping Office, duties it assumed from the Montana Surplus Lines Agent’s Association. Under the change, the DOI will directly review and process surplus lines submissions, verify that agents are licensed, determine the applicable stamping fee owed, and send surplus lines agents tax statements.

MSLAA turned over operations of the Surplus Lines Stamping Office to the DOI on July 1 and terminated its contract with PRIM, which handled stamping office services for MSLAA. Moving the function in-house will allow DOI “to better regulate the surplus lines industry, and monitor and address problems on a regular and ongoing basis,” said Jessica Rhoades, communications director for the Montana State Auditor’s office. She noted that since taking office, Commissioner Monica J. Lindeen has been focused on making the agency more efficient to better serve citizens.

In addition to efficiency, the agency took the action based on pending federal legislation, such as the recently introduced Nonadmitted and Reinsurance Reform Act, aimed at making access to the surplus lines market more efficient for consumers and the brokers and agents who assist them.

“Should federal legislation pass and this agency was required to take back these functions, the state of Montana would be ahead of the game and spared the expense of a new e-filing system,” Rhoades said.

According to MSLAA, which has served as the designated Surplus Lines Advisory Authority for the past 19 years, the Department notified MSLAA of its intention to bring the Stamping Office Operations in house in April 2009. Since that time, the MSLAA Board, Public Risk Insurance Management (PRIM) representatives and legal counsel have been in negotiations with the Department regarding the transition.

“Attempts were made to reach an agreement that would allow for a transition that would run through the end of the year; however, in spite of our mutual efforts we could not reach an acceptable agreement,” MSLAA said in a statement.

MSLAA was hoping to create a six- to nine-month transition period for handing over the operations that it believed would make processes smoother for all parties involved, but the association and DOI couldn’t agree on the appropriate compensation for that period, Bob Beskupiak, MSLAA executive director said. “We made every effort and the DOI tried hard as well, we just couldn’t come to an agreement on it,” he said.

MSLAA will continue as a nonprofit organization with the mission to serve surplus lines producers. “MSLAA remains a resource to surplus lines producers in regards to the surplus lines segment of the insurance industry; however, we simply will not be handling the Stamping Office operations for the State of Montana,” the association said. IJ www.insurancejournal.com

Declarations Above and Beyond Autos “Insurance fraud in the islands is not solely committed against automobile insurance, and the state’s effort should not be restricted to a single line of insurance.”

— Coalition Against Insurance Fraud applauding Hawaii’s new law that expands the authority of the insurance division’s insurance fraud investigations unit, andrenames the insurance fraud investigation branch to prevent, investigate and prosecute insurance fraud beyond motor vehicle insurance cases to all lines of insurance except workers’ compensation.

Simplifying Surplus Lines “This bill would simplify the tax remittance and compliance responsibilities surplus lines brokers must discharge and bring efficiency and cost reduction of regulatory compliance in placements with multi-state exposures.”

— Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices, commenting on the Nonadmitted and Reinsurance Reform Act (NRRA) of 2009, or S 1363. The legislation would create a uniform regulatory system, while preserving the role of the state regulator, supporters say. The bill was introduced

by Sens. Evan Bayh, D-Ind. and Mel Martinez, R-Fla.

It Figures $99.9 million The amount California Gov. Arnold Schwarzenegger believes the state could raise for the General Fund if it eliminates current sentencing options for specified crimes that may be treated either as felonies or misdemeanors, making them punishable by a jail term rather than state prison. The proposal was made in his 2009-10 May Revision General Fund Proposals. However, the Coalition Against Insurance Fraud, National Insurance Crime Bureau, National Health Care Anti-Fraud Association, the International Association of Special Investigation Units and Insurance Commissioner Steve Poizner warned Sacramento policymakers that the proposal would have the unintended consequence of severely eroding the state’s efforts to fight insurance fraud and convict criminals.

July 6, 2009 INSURANCE JOURNAL-WEST REGION | 9

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West Coverage People

Ed Maucere

Deena Garinger

Howard Kohler

Phillip Chavez

Edward J. Maucere, former owner of London American General Agency Inc., a San Diego-based wholesale brokerage and underwriting manager for commercial transportation business, passed away unexpectedly on June 12, 2009, at Palomar Hospital in Escondido, Calif.

Maucere’s commitment to professionalism, determined underwriting, his service to his customers and markets, as well as his emphasis on innovation, contributed to London American’s steady growth within the specialty insurance marketplace. Most recently, he was executive vice president for AmWINS Transportation Underwriters Inc. Maucere is survived by his father, Casper, wife, Joan, daughter Marie and her husband Joseph Pospichal; daughter Kristin and her husband Ermanno Maccarrone, son Mark and his wife Kelly; and his grandchildren, Joey, Liddy, Nick, Jack and Sam. He is also survived by: brothers Cas (Joan); Jeff (Gail); Ray (Cheryl); and sister Pam (Kurt) Metzler and many nieces, nephews and cousins. He is also survived by his Brazilian exchange son Rodrigo Zulian.

In lieu of flowers, the family requests donations be made to the Ed Maucere Memorial Fund for Culture of Life Family Services Inc. (www.colfs.org), a 501(c)(3) nonprofit organization where Maucere served on the board of directors and held a great passion for its services.

Signature Select, a retail insurance broker subsidiary of The IMA Financial Group Inc., hired Deena Garinger as account manager/account executive for its Denver employee benefits practice; Howard Kohler as a Denver business development executive focused on property and casualty insurance lines; and Phillip Chavez as employee benefits director.

Garinger has more than 12 years of employee benefits insurance industry experience including account management, sales and set-up of new insurance accounts for selfinsured employee benefits plans. She previously worked for CIGNA HealthCare.

Kohler was chosen to establish Signature Select’s property and casualty sales presence in the Denver marketplace because of his brokerage experience and his background as a risk manager on the client side. He has nearly a decade of experience as an insurance agent and as an in-house risk manager for a Metro area retirement community.

Chavez will be responsible for developing Signature Select’s Denver employee benefits practice and client service platform. He has nearly a decade of insurance sales and marketing experience, and he has a track record establishing offices in new markets.

Charles B. Whittaker joined insurance broker Lockton in San Francisco as a senior vice president. This appointment expands Lockton’s expertise in property and liability insurance, especially for commercial real estate clients. Whittaker will have a lead role in expanding the company’s presence in the San Francisco Bay Area and

10 | INSURANCE JOURNAL-WEST REGION July 6, 2009

throughout the western region. He has held business development and management roles during his career.

Previously, he was a senior vice president at Willis.

E.P.I.C. (Edgewood Partners Insurance Center), a California-based retail property, casualty and employee benefits insurance brokerage, appointed Denise Vance principal in its San Mateo, Calif., office and appointed Scott Gaddy principal in its San Francisco office.

Vance brings 23 years of insurance experience specializing in the technology, financial institutions, retail and biotechnology sectors. In her previous role as an account executive for Marsh Inc. and as a producer for Willis, Vance acquired expertise in group health underwriting, customer relations, sales and marketing. Her new position with E.P.I.C will focus on employee benefits.

Gaddy brings more than 22 years of experience in the insurance industry specializing in new business development and client relations in the surety sector. He started his insurance career with Cresap Tillinghast, and also worked in the Management Consulting division of Towers Perrin. After investing 10 years in the consulting industries, Gaddy began his surety career. He initially worked as an underwriter at the Fidelity & Deposit Co. of Maryland and then founded Gaddy Ward & Co. Insurance Brokers.

The Mt. Diablo Chapter of the Chartered Property Casualty Underwriters Society elected its new officers for 2009. New officers are: President Darcena Shears of BB&T Tanner Insurance Services; President-Elect Susan Bohan of Dealey, Renton & Associates; Vice-President Renee Rupe of Civil Service Employees Insurance Co.; Treasurer Harry Lindstrom of Golden Eagle Insurance Co..; Secretary Gary Duckworth of Stanley M Davis and Co.; Director Linda Grace of Centurion Insurance Agency; Board member Bob Lewis; Director Kendra McKeen of Liberty Agency Underwriters; and Ex-Officio Robert Pick of Civil Service Employees Insurance Co. Ogden, Utah-based The Buckner Co. added Brian Stromberg as an Employee Benefits/Corporate Wellness account executive. Stromberg previously worked as a carrier representative for both Humana Group Health and Regence Blue Cross Blue Shield in Utah. He was also a sales executive for eight years with Utah’s Workers’ Compensation Fund.

California Insurance Commissioner Steve Poizner appointed Michael Joseph Murray to the Workers’ Compensation Insurance Rating Bureau Governing Committee. Since 2001, Murray has been CEO of The Forma Group, a manufacturing company based in the Bay Area, and has served on the Contra Costa County Planning Commission since 2004. He has also was the president of Design to Build, a software services company. IJ www.insurancejournal.com

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West Coverage Business Moves Wells Fargo Insurance Services, Grady & Associates Wells Fargo Insurance Services Inc. signed a definitive agreement to acquire Grady & Associates, a retail broker in Las Vegas. The acquisition closed June 1, 2009, and terms of the transaction were not disclosed.

Grady & Associates has served customers across in Nevada since 1999. Founded by John

12 | INSURANCE JOURNAL-WEST REGION July 6, 2009

Grady, the agency focuses on health and benefits insurance. The company serves a broad customer base, including customers in the hospitality, construction, hospitals, auto sales and home development industry.

Universal Insurance Holdings, ICAT Holdings Universal Insurance Holdings of North

America and ICAT Holdings LLC of Boulder, Colo., received regulatory approval completing Universal North America’s purchase of ICAT Specialty Insurance Co. (ISIC).

Universal North America will acquire ISIC’s residential named hurricane program and business in Hawaii. ISIC, under ICAT’s ownership, underwrites small commercial property accounts in Florida and named hurricane coverage for homeowners in Hawaii.

The Florida commercial business will be transitioned on renewal from ISIC to ICAT’s Lloyd’s of London Syndicate 4242.

The Hawaii residential named hurricane business will be underwritten by ISIC (expected to be renamed Universal Specialty Insurance Co.). Universal North America has entered into a long-term agreement with ICAT Managers whereby ICAT will administer all functions related to the Hawaii residential named hurricane business, including claims functions.

Universal’s President Rick Espino stated, “Universal North America is focused on being a premier multi-regional insurance provider in the U.S.” The company entered the Hawaii residential property market in September 2008 offering homeowners, condominium unit owners, renters, dwelling fire and flood products through Universal Insurance Company of North America. ISIC (soon to be Universal Specialty Insurance Co.) will provide standalone named hurricane coverage.

ICAT Holdings LLC is an insurance holding company that specializes in underwriting small and middle market commercial properties located in catastrophe-exposed regions of the United States. ICAT is an underwriter at Lloyd’s of London through their Syndicate 4242 rated “A” by A.M. Best Co. and “A+” by Standard & Poors.

Universal Insurance Holdings of North America is a Delaware-domiciled property and casualty insurance group organized to market property and casualty insurance in North America. Universal North America currently writes in Arizona, Florida, Hawaii, Nevada, South Carolina, and California. IJ www.insurancejournal.com

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West Coverage News & Markets

Swimming Downstream: How a Regional Insurer Buys Others Through Demutualization Donegal Group’s Strategy Has Taken It From Writing in One to 19 States in 20 Years

By Ted Huntington

E

ven in a good economy, mutual insurers face challenges trying to raise the capital they need to grow because they don’t have any stock to sell. But one insurer has figured out a way to overcome this disadvantage.

Donegal Group Inc., a Marietta, Pa.-based regional insurance holding company that owns Donegal Mutual and several other subsidiaries writing property and casualty insurance has been using its own experience in forming a downstream holding company as a manual to gobbling up smaller, sometimes troubled regional mutual insurers.

The strategy unfolds in two steps: first it affiliates with the targeted mutual, then it begins the process of demutualizing it. The strategy has worked a half dozen times in the past 20 years.

It all began in 1986, when Donegal Mutual saw other mutual companies were forming downstream holding companies. It formed Donegal Group Inc. and completed a stock offering, with Donegal Mutual retaining a

14 | INSURANCE JOURNAL-WEST REGION July 6, 2009

majority interest. In the same year, it formed ings have provided capital necessary to supAtlantic States Insurance Co. as a whollyport growth in Atlantic States’ share of the owned subsidiary. Atlantic States and pooled business over time, and its stockholdDonegal Mutual created an agreement under ers, including Donegal Mutual, have benefited which their premiums, losses and expenses as the pool has grown substantially,” Donald are pooled and each company is allocated a H. Nikolaus, president and CEO, said. given percentage of the comThe concept worked so bined underwriting results. well, Donegal Group decided First Donegal The pooling agreement proto see how it might work for affiliates with the duces more stable underother mutuals in need. writing results for each comAccording to Jeffrey D. Miller, targeted mutual, pany and spreads the risk of senior vice president and then it begins loss. Each company has at chief financial officer for its disposal the capacity of Donegal, until last year, five the process of the entire pool, rather than of Donegal’s acquisitions have demutualizing it. being limited to whatever its involved demutualizations. own capital and surplus There are drawbacks to would permit. the demutualization process — it’s not quick.

“Since 1986, the inter-company pooling “For example, in Wisconsin, the insurance agreement has allowed Donegal Mutual and department never experienced a demutualAtlantic States to fulfill their shared objective ization. The statutes weren’t clear and the of growing their premium and surplus. regulators had a number of questions about Donegal Group Inc.’s three public stock offerwhat we will do — or not do ... It turned into a lengthy negotiation that lasted over two years,” said Fred Dreher of the law firm Duane Morris LLP. Donegal has relied upon Dreher, one of the most prolific legal engineers of demutualizations for its transactions.

When it’s scouting for new acquisitions, Donegal looks only at independent agency system insurers. This is because Donegal is committed to the independent agency distribution channel. Donegal typically rules out carriers underwriting in areas prone to hurricanes (i.e. Florida or Louisiana) or earthquakes (California). It also tends to avoid carriers domiciled in states where the regulators may be “consumer-oriented to a fault.” Finally, it likes carriers in conservative areas.

According to Dreher, Donegal would consider acquiring stock companies but it has not found any it considers potential targets.

“Donegal tries to grow both organically and through acquisition. It does not rule out stock companies but it has found a niche with mutuals,” he said. IJ www.insurancejournal.com

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Indemnity group of insurance companies. With a market focus on commercial auto and general liability, National Indemnity is one of the leading property/casualty members of the Berkshire Hathaway group of insurance companies. insurance company.

PGIA operates in the far western and southwestern states principally writing business in California, Arizona, Nevada, and Oregon. We specialize in liability and physical damage coverage for commercial auto risks that cover a broad spectrum of exposures. We provide coverage (including stand-alone provide General Liability, Property and Package coverage for many classes of business that are a challenge to place, even in today’s marketplace.

Below is a detailed listing of the classes of coverage available. If your particular risk is not listed below, please do not hesitate to ask us about it.

Commercial Auto • Limousines • Transit Mix • Tow Trucks • Contractors • Truckers • Emergency Vehicles • Gas/LPG Haulers • Driver Training • Nursing Home Vans • Para-Transit Vehicles • Excess Liability • And Many Others

Garage Liability • Used Auto Dealers • Motorcycle Dealers • Used Truck/Tractor Dealers • Auto/Truck Repair • Motorcycle/ATV Repair • Auto Detailing • And Many Others

General Liability • Contractors • General Contractors • EIFS • Roofers • Light Manufacturing • Various Automobile Related Products Risks • Special Events • Amusement Devices

Motor Truck Cargo • Grain, Hay, Feed • Livestock • Trailers (Manufacturer to Dealer) • Building Materials • Auto Hauler • Food Products • And Many Others

Property/Package • Child Care • Bars/Taverns • Restaurants • Fitness Centers • Vacant Buildings • Apartments • Mainstreet Mercantile • And Many Others

• And Many Others

Please visit us online at www.pgiainsurance.com, where you may access our applications and our Commercial Auto rater.

For short fuse risks and the quickest service for demanding customers, please contact one of our underwriters for bindable telephone indications.

Pacific Gateway Insurance Agency 27200 Tourney Road, Suite 360 Valencia, CA 91355 Phone: 800-354-4844 or 661-257-5977 • Fax: 661-257-5988 • www.pgiainsurance.com License #0C04869 • Underwritten Through A++ XV, Admitted and Non-Admitted Markets

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Idea Exchange Insurance Regulation

State Insurance Regulation Needed

By Bill Deal

Deal

O

ur current system of state-based is outside the scope of insurance regulation. insurance regulation is under But any such proposals should preserve the attack by large insurance organistate-based insurance regulatory system and zations and members of its proven track record of strong solvency and Congress. For more than 150 years, state regconsumer protections. State insurance regulaulation has successfully guided insurance tion must remain part of the process. companies through many Financial regulators at all financial solvency issues. The levels must collaborate about The state-based emerging issues and trends, reforms currently under consideration would pass overallowing for early identificainsurance sight on to the federal govtion and swift action on issues regulatory ernment. that could affect the larger Under the current system, economy. State insurance regusystem [has] a consumers benefit from the lators can scan markets, see proven track time-tested protections of problems and react quickly. state oversight. State insurWe in the state-based regrecord of ance departments serve the ulatory system want to work strong solvency with the Obama Adminpublic interest by providing fair, prompt treatment for istration and Congress to help and consumer local consumers from local enact responsible, inclusive protections. representatives who live and reform efforts. It is imperative work where they do and that we preserve and build understand their needs. We also serve to upon the successful model of state regulation. promote competitive insurance markets. As The American people want more financial staa result, the insurance industry has bility, not less. IJ remained relatively calm in otherwise turbuDeal is director of Idaho’s Department of Insurance. lent financial times.

While other financial services businesses have failed under federal regulation in the past year, state insurance oversight has kept insurance companies stable and has protected policyholders from the worst of the financial meltdown. Through current regulations, companies can meet their obligations to the individuals and businesses who, as policyholders, have put their trust in them.

In Idaho, this state system protects policyholders by effectively monitoring more than 1,600 insurance companies that generate nearly $6 billion in premiums in the state. The Idaho Department of Insurance also licenses and regulates more than 60,000 agents, both resident and nonresident.

Federal regulatory structures must be updated to better identify and manage systemic risk in the broader financial system that 16 | INSURANCE JOURNAL-WEST REGION July 6, 2009

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Idea Exchange Sales & Marketing

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

By Carletta Neal

A

Neal

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

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

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

Encourage innovation.

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

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

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

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

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

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

July 6, 2009 INSURANCE JOURNAL-NATIONAL REGION | N1

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

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

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

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

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

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

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

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

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

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

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

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

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

N2 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Idea Exchange International Insider

Cyber Security: Global Risk and Rising Complexity

By Kathleen Ellis

M

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

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

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

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

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

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

Ellis

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

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

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

N4 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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Idea Exchange International Insider Cyber Security, continued from page N4

and Development Privacy Guidelines.

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

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

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

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

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

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

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

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

Canceled, declined, nonrenewed?

(800) 537-7362 www.pulic.com

N6 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

Available Limits: Up to $1 million.

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

Admitted.

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

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

There is a minimum 10 power units required.

Available Limits: Up to $5 million.

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

States: All except Mass.

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

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

Available Limits: $1 million to $5 million.

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

States: All.

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

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

Minimum premiums begin at $1,850.

Available Limits: Up to $5 million.

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

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

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

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

Available Limits: $1 million to $5 million.

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

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

N8 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

Available Limits: Up to $10 million.

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

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

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

nonadmitted.

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

7021 or e-mail rmcintyre@apogeeinsgroup.com.

Cemeteries - D&O and EPLI

Food Borne Illness

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

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

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

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

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

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

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

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Closer Look Salute to Near National Carriers

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

By Joseph L. Petrelli

T

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

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

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

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

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

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

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

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

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

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

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

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

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

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

N10 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

Other lines of insurance round out the remaining dollar volume.

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

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2009 Near National P/C Insurers Company Name

2009 Demotech Company Classification

2008 Demotech Company Classification

2007 Demotech Company Classification

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

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

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

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

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

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

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

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Idea Exchange Minding Your Business

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

By Catherine Oak and Bill Schoeffler

Oak

O

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

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

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

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

Schoeffler

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

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

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

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N12 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

D I F F ER E N T WORKS

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

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

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

them their goal, make them set it themselves.

goals on a monthly should be the minimum!

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

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

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

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

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

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

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

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

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

N14 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

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

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Special Report Commercial Auto

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

By David Money, Howard Hanscom and Charlie O’Connor

Y

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

And this creates an opportunity for you.

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

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

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

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

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

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

Hire the Best Drivers and Constantly Train Them.

Give Those Drivers the Right Tools.

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

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

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

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

Know What Happened.

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

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

Good documentation is fast and detailed.

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

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

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

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

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

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

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Special Report Commercial Auto

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

By Eric Galisdorfer

R

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

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

In addition to the issues above, the use

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

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

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

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

Risk Management Hired Non-Owned Auto Controls None

Weak

Good

Very Good

No Requirements

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

Requires $300,000 CSL PAP limits

Confirms annually that PAP in place

Confirms annually that PAP in place

Confirms annually that PAP in place

Requires drivers to report license revocation or PAP lapse

Runs MVRs on all regular drivers

Requires all accidents occurring on company time to be reported

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

N18 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Large number of named insureds.

• Heavy use of independent contractors.

• High volume of car rental costs.

• Many reimbursed miles of employee

vehicle use.

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

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

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Special Report Commercial Auto

dealerships from Colorado to Tennessee, and Minnesota to Texas.

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

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

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

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

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

By Andrea Wells

A

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

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

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

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

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

N20 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

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

“We are seeing all insur“Some insurers, like ance companies scrutinize ‘More than Zurich, do audits on a financial statements much anything we have monthly reporting form, more,” Beery noted.

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

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

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

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Closer Look Construction

Safe and Sound Making the Connection for Contractors

By Todd Bateson and John Komidar

C

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

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

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

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

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

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

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

States was $11.5 billion.

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

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

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

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

Effective Safety Planning and Training.

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

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

T

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Charles E. Boyle

www.insurancejournal.com

eries and reinstatement costs.”

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

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

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

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

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

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

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

Validus’ offer, as being too low.

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

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

Cause of Airbus A330 - Flight 447 crash remains unknown. Although French and Brazilian investigators have recovered 50 bodies and more than 400 pieces from the jet that crashed in the Atlantic at the beginning of June, no conclusions have yet been reached as to the

cause of the crash.

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

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

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

N26 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

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Closer Look Construction Safe and Sound, continued from page N23

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

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

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

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

www.insurancejournal.com

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

protects their employees and profits.

IJ

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

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

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

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

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

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

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

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

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Agency Systems - Retail or MGA Versions Available

iVOSc Carrier Edition

Agency Systems provides practical, intuitive, high end agency management software that will save you money.

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

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N28 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

www.aon-esolutions.com www.insurancejournal.com

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Digital Product Guide ** The following are paid advertisements.

Decision Management

Document Management

DEMOTECH, INC.

FUJITSU COMPUTER PRODUCTS OF AMERICA, INC.

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Dublin, OH 43017 Contact: Joseph Petrelli Phone: 614-761-8602 Fax: 614-761-0906 www.demotech.com jpetrelli@demotech.com

1255 E. Arques Ave. Sunnyvale, CA 95085 Phone: 800-831-8094 http://us.fujitsu.com/scanners

Demotech, Inc.

Fujitsu

Demotech, Inc. is a Columbus, Ohio based financial analysis and actuarial services firm providing a wide range of services including pricing analysis, state filings assistance, Financial Stability Ratings® and support for other required regulatory reporting. Having worked with insurers of all sizes, Demotech possesses broad experience addressing actuarial and financial analysis issues, whether the issue is unique to a particular insurer or faced throughout the industry.

Fujitsu Computer Products of America, Inc., is an established leader in the document imaging market, featuring state-of-the-art scanning solutions and services in the workgroup, departmental, and production-level scanner categories. Fujitsu offers the industry’s most comprehensive and competitive product offering. With scanning solutions from 15-120 pages per minute (ppm), Fujitsu possesses an extensive scanner lineup to meet the functional needs of customers at affordable price points.

Document Management QUALCORP, INC.

VERTAFORE

27240 W Turnberry Ln, Ste. 200 Valencia, CA 91355 Contact: Allen Beggs Phone: 888-367-6775 www.QualCorp.com Products@QualCorp.com

11831 N. Creek Pkwy North Bothell, WA 98011 Contact: Agency Sales Phone: 800-444-4813 Fax: 425-402-9569 www.vertafore.com agencysales@vertafore.com

Vertafore QualCorp, Inc.

QualCorp, Inc. offers a state-of-the-art policy issuance & administration system in their flagship product – FormPlus. Data management, data movement and advanced reporting is accomplished with our newly released product – QueryPlus. QueryPlus is designed for the novice computer user that needs to report out of a variety of databases.

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

MGA / Wholesaler Website

Policy Administration/Processing

ANDERSON & MURISON

AON eSOLUTIONS

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5000 Executive Pkwy, Ste. 340 San Ramon, CA 94583 Contact: Peter Govek Phone: 925-242-4600 Fax: 925-901-1020 www.aon-esolutions.com Peter_Govek@aon.com

Anderson & Murison, Inc.

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

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Digital Product Guide ** The following are paid advertisements.

Policy Administration/Processing COVER-ALL TECHNOLOGIES INC.

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

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INSTEC MIT’s Technology Review categorizes Rich Internet Applications (RIA) as one of the top ten emerging technologies most likely to change the way we live.

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Rating Software DEMOTECH, INC.

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5035 S. 110th St. Omaha, NE 68137 Contact: John Dunn Phone: 877-273-7774 www.prioritydata.com

Priority Data

Demotech, Inc. Demotech, Inc. is a Columbus, Ohio based financial analysis and actuarial services firm providing a wide range of services including pricing analysis, state filings assistance, Financial Stability Ratings® and support for other required regulatory reporting. Having worked with insurers of all sizes, Demotech possesses broad experience addressing actuarial and financial analysis issues, whether the issue is unique to a particular insurer or faced throughout the industry.

Priority Data will help you become the “carrier of choice” with our easy to use rating tools for your agents and consumers. Our Agent Rating and Consumer Quote Solutions are 100% web-based. Priority Data is a full service partner for insurance carriers providing data entry, processing and marketing services, in addition to our rating solutions.

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Rating Software

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5000 Executive Pkwy, Ste. 340 San Ramon, CA 94583 Contact: Peter Govek Phone: 925-242-4600 Fax: 925-901-1020 www.aon-esolutions.com Peter_Govek@aon.com

Vertafore

iVOSc Carrier Edition

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

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

N30 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

www.aon-esolutions.com www.insurancejournal.com

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Idea Exchange Regional Carriers

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

By Ken St. Onge

Q

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

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

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

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

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

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

www.insurancejournal.com

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

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

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

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

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

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Idea Exchange Closing Quote

Turmoil Breeds Opportunity A Golden Moment for the Insurance Industry

By Joe Plumeri

Plumeri

I

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

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

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

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

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

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

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

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

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

N32 | INSURANCE JOURNAL-NATIONAL REGION July 6, 2009

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

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

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

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

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

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

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

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

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

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Ad Index

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