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On The Cover

Special Report:

Inside This Issue

Good Times for Surplus Lines

September 23, 2013 • Vol. 91 No. 18 • West









W1 Wyoming Man Refiles Wrongful Death Lawsuit Against Walmart

34 Changing Realities of the Wholesale Market

11 Insurance Prices Continued Up in Q2: Towers Watson

W2 Agent Ted Gaines Eyes California Commissioner Seat

36 Bloggers Beware: Defamation Claims Brought by Public Figure Plaintiffs

16 E&O Insights: Mother Nature’s Effect on E&O Claims

W2 Beth Gaines Wants More ‘Business-Friendly’ State

22 Crowdsourcing and the New Risks of Emerging Technology

W6 After Suggested Workers’ Comp Rate Hike California Employers Hope Reform Kicks In

Third Time’s a Charm for Producer Licensing Bill?

44 Growing Your Property Casualty Agency: Alan Shulman 50 Closing Quote: The FSB’s Report Misses The Mark

27 Spotlight: Lloyd’s Syndicates W8 Cooley Masters Quake Insurance 30 Special Report: Good Times for Surplus Lines 32 Special Report: Wholesale – More Special Than Ever

W12 Oregon Marketing Firm Grades Digital, Social Media Efforts W18 Scientists Defining Cascadia Subduction Zone in Pacific Northwest W20 Garamendi Says Economy Needs Insurance

4 | INSURANCE JOURNAL-WEST September 23, 2013

DEPARTMENTS 6 Opening Note W10 People 12 Declarations 12 Figures 14 Business Moves 42 MyNewMarkets

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Opening Note Anticipation


he fight against insurance fraud never ends. And despite efforts to combat fraud most insurers anticipate an increase in fraud. One in three U.S. and Canadian insurers do not feel adequately protected against fraud, according to a survey by FICO, a predictive analytics software company. And more than half of those surveyed expect personal lines and workers’ compensation fraud to increase this year. The survey found that insurers expect the biggest fraud loss increases to hit personal property, workers’ comp and auto insurance. In terms of fraud by individual policyholders, 58 percent of insurers forecast an increase in personal property fraud, 69 percent forecast an increase in workers’ comp fraud, and 56 percent forecast a rise in personal auto fraud. The majority of insurers (51 percent) attributed the increases in fraud to inconsistent economic recovery in low-growth areas. The survey also found that 63 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems. No-fault insurance has come under fire in recent years due to spiraling medical costs and fraud. ‘Insurance claims fraud is big While only 11 percent business — and it’s getting of insurers blamed the bigger.’ expected growth in fraud on the increasing sophistication of criminal rings, at the same time, 55 percent are seeing a rise in workers’ comp fraud rings, and 61 percent are seeing a rise in auto fraud rings. Insurers feel vulnerable to premium leakage and new applications, when policyholders underestimate or leave out such information as annual auto mileage that would have an adverse effect on the cost of the policy, according to the survey by FICO. In the survey, 35 percent of insurers estimated that insurance fraud costs represent 5 to 10 percent of their total claims, while 31 percent said the cost is as high as 20 percent. More than half (57 percent) of insurers expect to see an increase in fraud losses this year in personal lines, while only 5 percent of insurers expect to see a decline in dollar fraud losses in personal lines. “Conventional industry wisdom has held that fraud losses average around 10 percent of claims volume, but according to our survey the actual number is significantly higher,” said Russ Schreiber, vice president of the insurance and healthcare practice at FICO. “Insurance claims fraud is big business — and it’s getting bigger.” FICO said its Insurance Fraud Survey included responses from 260 insurers throughout the U.S. and Canada Andrea Wells surveyed in July 2013.



EDITORIAL Editor-in-Chief Andrea Wells | V.P. Content Andrew Simpson | East Editor Young Ha | Southeast Editor Michael Adams | South Central Editor/Midwest Editor Stephanie K. Jones | West Editor Don Jergler | International Editor Charles E. Boyle | Senior Editor Susanne Sclafane | Editor Denise Johnson | Associate Editor Amy O’Connor | Columnists Curtis Pearsall, Alan Shulman Contributing Writers Tom Brown, David A. Lieb, Brian S. Martin, Francis E. Mastowski, Lisa Miller, Graeme Newman, David Snyder, Lori Widmer SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | West Dena Kaplan (800) 897-9965 x115 | South Central Mindy Trammell (800) 897-9965 x149 | Midwest Lauren Knapp (800) 897-9965 x161 | Southeast Howard Simkin (800) 897-9965 x162 | East Dave Molchan (800) 897-9965 x145 | New Markets Sales Manager Kristine Honey | Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | Advertising Coordinator Erin Burns (619) 584-1100 x120 | New Media Producer Bobbie Dodge | Videographer/Editor Matt Tolk | DESIGN/WEB V.P. of Design Guy Boccia | V.P of Technology Joshua Carlson | Design and Marketing Executive Derence Walk | Web Developer Jeff Cardrant | Web Developer Chris Thompson | IJ ACADEMY OF INSURANCE Director of Education Christopher J. Boggs | Online Training Coordinator Barbara Whiffen | ADMINISTRATION Chairman Mark Wells Chief Executive Officer Mitch Dunford Accounting Manager Mark Wooster |


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Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Publishing, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2013 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 3618, Northbrook, IL 60065-3618 ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or Visit insurancejournal. com/reprints for more information.

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News & Markets Third Time’s a Charm for Producer Licensing Bill? By Andrew Simpson


multistate basis. This board would establish ill the third time be the charm? standards for membership that supporters Insurance groups and lobbyists in say exceed the existing requirements in any Washington are hoping so, after the House state. of Representatives this month overwhelm An agent or broker seeking approval ingly passed a bill (H.R. 1155 ) to streamline would be required to be fully licensed in his the insurance producer licensing process. or her home state and satisfy membership This is the third time the House has done criteria, but once approved the agent or so. broker could obtain the regulatory approval However, in past years, the Senate — necessary to operate in any other selected preoccupied with other matters including jurisdiction. the recession and Dodd-Frank reforms — IIABA is one of a number of insurance never followed the lead of the House. groups that have been pushing for NARAB This year is looking different. A bipartifor years. san version — the National Association of “NARAB II is vitally important for tens Registered Agents and Brokers Reform Act of thousands of Big ‘I’ members who operof 2013 or NARAB II (S. 534) — has been ate on a multistate basis,” says Robert A. introduced in the Senate. There are two Rusbuldt, IIABA president and CEO. lead sponsors — Sen. Jon Tester (D-MT) It’s also vitally and Mike Johanns ‘I think this year is different. important for (R-NE) — and 24 co-sponsors. There is a lot more support.’ wholesale insurance brokers oper The Senate and ating across state lines, according to Brady House bills are essentially the same, accordKelley, executive director of the National ing to industry lobbyists. Association of Professional Surplus Lines In June, the Senate bill moved closer to Offices (NAPSLO). a vote on the Senate floor after the Senate “Our association and its members have Banking Committee approved it. put significant effort into advancing this Now the bill’s fate is up to Senate leaderlegislation, taking advantage of every opporship and the calendar. tunity to highlight its impact and impor “The major impediment to Senate considtance to the industry,” said Kelley. “There is eration is simply finding floor time for its still a lot of work to be done, but NAPSLO consideration. However, given the support is committed to continuing to play a key in the Senate, and the overwhelming 397-6 role in the success of this legislation.” vote in the House, we are hopeful we can Kelley said he is also seeing positive signs cross the finish line sometime soon,” said and is optimistic the Senate will act on it John Prible, vice president, federal governthis year. ment affairs for the Independent Insurance “I think this year is different,” he told Agents & Brokers of America (IIABA). Insurance Journal. “There is a lot more sup While the measure’s fate is uncertain, port and there’s been a lot more work.” Prible said IIABA is encouraged by indica Nat Wienecke, senior vice president tions from Republican and Democratic leadof federal government relations for the ership offices that something might happen Property Casualty Insurers Association of soon. America (PCI), shares the optimism. The legislation would create a nonprofit “NARAB II has broad support in the board — on which state regulators would Senate and we are confident that the Senate have a majority — for insurance agents and will work through any procedural issues brokers to obtain approval to operate on a 8 | INSURANCE JOURNAL-NATIONAL September 23, 2013

that are outstanding and will take up this measure later this year,” said Wienecke. Supporters say NARAB would achieve reciprocity in producer licensing and help policyholders by permitting greater competition among agents and brokers and giving consumers greater choices. “By streamlining the licensing process for agents and brokers across state lines, this legislation will increase competition to the benefit of those in the marketplace for coverage, while still maintaining the state’s authority to regulate the marketplace and protect consumers,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Cos. (NAMIC). Following the House vote this month, Ken A. Crerar, president/CEO, The Council of Insurance Agents & Brokers, noted that support for the reform is widespread. “It is supported by every stakeholder group, including the National Association of Insurance Commissioners, and is on a path to final passage,” Crerar said. The National Association of Professional Insurance Agents (PIA) also supports the bill, after some early reservations about it encroaching on state regulation of insurance. The group responded to the House vote by cautioning against using NARAB to expand federal regulation. “PIA believes that supervisory authority over NARAB II should never be granted to the Federal Insurance Office,” the group said in a statement.

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News & Markets Wyoming Man Refiles Wrongful Death Lawsuit Against Walmart


Utah Registers 39 Workplace Deaths in 2012


man suing a Sheridan, Wyo. Walmart, claiming his wife died after she ate a contaminated cantaloupe purchased at the store, has refiled his lawsuit in federal court. Attorney Nicholas Murdoch, representing Frederick M. Lollar, said the wrongful death lawsuit was withdrawn from District Court and refiled in federal court. Lollar says he bought the cantaloupe around Sept. 1, 2011, ate about a quarter of it, and his wife, Jaqueline Lollar, ate the rest. The Food and Drug Administration later identified the lot the Colorado cantaloupe came from to be contaminated with Listeria monocytogenes. Lollar’s lawsuit says Walmart removed the cantaloupes, but didn’t post public notice regarding potential customer exposure. Jaqueline Lollar died at a hospital Sept. 19, 2011, and tests confirmed the presence of the bacteria. Walmart spokesman Randy Hargrove has declined to comment.

ew figures from Bureau of Labor Statistics show there were 39 workplace deaths in 2012 in Utah — the same total as the year before. The preliminary data shows that transportation-related deaths were the most frequent in Utah accounting for 16 of the deaths in 2012. There were seven deaths caused by contact with equipment and seven by violence and other injuries. Thirty-four of the Utah workers killed were men, with only five of the deaths being women. Nationally, worker deaths decreased 7 percent in 2012 from the previous year. Labor statistics show that Utah has seen a significant drop in workplace deaths in the last three years. The state had an average of 60 deaths each year from 1992-2009. In 2010, that dipped to 41.

Copyright 2013 Associated Press. All rights reserved.

Copyright 2013 Associated Press. All rights reserved.

Family of Bicyclist Killed in San Francisco Files Suit

Suit Seeks $1.75M from Oregon Dentist for Pulling Wrong Teeth


he family of a 24-year-old woman hit by a truck and killed while riding her bike in San Francisco has filed a wrongful death lawsuit against a Bay Area food distributor and its truck driver. The initial police report blamed Amelie Le Moullac for the Aug. 14 crash on Folsom Street. But after a bicycle advocate tracked down a surveillance video from a nearby business, police changed the report to say the truck driver was at fault. The suit names Milpitas-based Daylight Foods, and the driver, 45-year-old Gilberto Alcantar. No criminal charges have been filed.


Copyright 2013 Associated Press. All rights reserved.

Copyright 2013 Associated Press. All rights reserved.

Eugene, Ore. dentist is being sued for $1.75 million for allegedly pulling the wrong teeth during dental surgery on a 4-year-old boy two years ago. The lawsuit claims dentist and dental surgeon Gerald Harper mistakenly removed two of the boy’s permanent teeth when he was supposed to remove two extra teeth. The lawsuit says the boy also endured postsurgical infection and other problems that will require him to have more dental surgery when he is older. The lawsuit was filed in Lane County Circuit Court by Khoi and Cherwyn Nguyen, the godparents of the boy, who is now 6. No trial date has been set.

September 23, 2013 INSURANCE JOURNAL-WEST | W1


News & Markets Agent Ted Gaines Eyes California Commissioner Seat By Don Jergler Editor’s note: This is part of a series on insurance professionals in politics. This is a national series. Some of the articles focused on the Western U.S. region can be read in the pages of this issue of Insurance Journal. The rest of the series can be found on


rom agent to politician, state Sen. Ted Gaines wants to have his cake and eat it too. Gaines, R-Roseville, recently announced he’s running for California’s insurance commissioner, likely pitting him against Democrat incumbent Dave Jones and others for the coveted post. Gaines has positioned himself as an advocate for small businesses and a staunch opponent of higher taxes and government programs — first as an assemblyman and now as a senator. He owns Gaines Insurance, following in

the footsteps of his insurance agent father, Robert. The family-owned business, which he runs with the help of his politician wife, Assemblywoman Beth Gaines, R-Rocklin, offers a variety of products for individuals and businesses including auto, homeowners, life, boat, flood, earthquake and umbrella. Insurance Journal: How did you get into the insurance business? Gaines: I always wanted to run my own business so it was a wonderful opportunity when my dad asked me if I was interested in joining him in the family business. I love helping people and I love owning my own business. The freedom is awesome. Who could ask for anything more other than passing the opportunity to my children. My daughter, Caroline, is a licensed agent at Gaines Insurance, and I have another daughter Haley who is a commercial lines

Ted Gaines

underwriter at Allied. I will never forget Haley telling me after arriving home from continued on page W4

Beth Gaines Wants More ‘Business-Friendly’ State By Don Jergler

Ted Gaines worked at his father’s Sacramento area insurance agency, Gaines Insurance, through high school and then Editor’s note: This is part of a series on insurance after he graduated from college, eventually professionals in politics. This is a national series. taking over the reins of the business. Some of the articles focused on the Western U.S. After the two would-be politicians marregion can be read in the pages of this issue of ried, Beth Gaines began working at the Insurance Journal. The rest of the series can be insurance agency and rose to the position of found on vice president, and part of her role in that post as she sees it is ensuring the family lthough California Assemblywoman legacy in the insurance business lasts. Beth Gaines, R-Rocklin, married into “I love working with people and menthe insurance business, it seems to run toring my own kids as in her blood, they decide to go into the because it’s her ‘I love working with people insurance business also,” blood that boils and mentoring my own kids said. “I love the when she feels as they decide to go into the Gaines insurance business. I just small businessinsurance business also.’ love working with people es are being and also just helping my attacked by kids, because when my oldest daughter fellow state Legislators. was 23, she said, ‘I don’t know what it is, Gaines’ husband is state Sen. Ted Gaines, mom, but I walk into a place of business, who recently announced his bid for the a restaurant, wherever I am, and I look for state insurance commissioner seat.


W2 | INSURANCE JOURNAL-WEST September 23, 2013

Beth Gaines

the sprinkler system. I look for the exits. I look at the stairs. I look at all the hazards continued on page W4

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News & Markets continued from page W2 her Allied internship two years ago ‘Dad I love insurance.’ Does it get any better than that?

‘It’s a great responsibility to have employees who depend on you, and it’s a great responsibility to have taxpayers who depend on you to be a good steward of their tax dollars.’

Insurance Journal: What do you do in the insurance business? Gaines: I own Gaines Insurance, which I run with my wife and my daughter. It’s a brokerage where we serve businesses and individual clients.

Insurance Journal: Are you still in the insurance business? Gaines: I am. Even with the demands of being a state senator, I try to get to my business as much as I can and I am still writing policies and prospecting for clients just like I always have. Insurance Journal: What did you like

about the insurance business? Gaines: The autonomy was a huge draw to me and the chance to be rewarded directly for your efforts. Over the years, I have really found it fulfilling to build relationships with my clients and to help them grow their businesses. Insurance Journal: When and how did you get into politics? Gaines: I had always had an interest in politics and even helped on the Gerald Ford campaign while I was still in high school.

I started at the local level on a county board of supervisors and feel very fortunate that the people have continued to put faith in me and elect me to serve as their assemblyman and now senator.

Insurance Journal: What lessons from your insurance career have you brought into politics? Gaines: I think the fact that I’ve run my own business has been of the most value. I make the case all the time that government needs to be run more like a business, with an eye towards conservative money management and planning for the future. It’s a great responsibility to have employees who depend on you, and it’s a great responsibility to have taxpayers who depend on you to be a good steward of their tax dollars. continued on page W16

continued from page W2 because of small infractions for the ADA several pro-business bills since she was and potential things.’ She said: ‘We’re just a requirements by state law, then there’s elected. family of insurance.’ We think along those something wrong,” Gaines said. Among the legislation she wrote last year lines and we love insurance.” Many of Gaines’ bills this year are busiwas a bill addressing the Americans with As Gaines followed her husband into ness related, or are bills with which labor Disability Act. ADA is what Gaines calls a business, she also followed him into poliand public employees’ unions may take “very well-meaning piece of legislation,” but tics. She won a special election in 2011 to exception. with unintended consequences. take her husband’s Assembly seat when Ted Among the bills she authored this year Gaines’ Assembly Bill 1878 addressed the Gaines won a special election to the Senate. is Assembly Bill 902. The bill raises the $50 liability of businesses that don’t adhere to “He, just as a small business owner, got fine to $100 for failure to slow and pass cauADA requirements regarding access rights sick and tired of the government telling tiously stationary emergency vehicles, tow of a disabled individuals. him how he had to run his business, who trucks and Department of Transportation Her bill would have established notice he was going to hire, who he could not sepvehicles displaying emergency or warning requirements arate from,” lights. for aggrieved Gaines said. ‘The whole reason that I got Gaines’ Assembly Bill 947 enables school parties to follow involved was to help improve this “The harddistricts to deviate from the rule of senioribefore bringing ships that economy by reducing regulations ty when terminating employees for certain an action, and businesses, and with limiting the size of govern- would have reasons, including authorizing school disour clients, ment and the power of government.’ required that tricts to terminate an employee on the basis were having of performance evaluations. party to provide to deal with Her Assembly Concurrent Resolution 58 a notice to the owner of the property, an were not because of the industry. They would designate Sept. 22, 2013, and Sept. agent or other responsible party where the weren’t created by the market, but they 22, 2014, as “California Business Women’s violation occurred. were actually created by the government. Day” and would encourage Californians to AB 1878 died in Judiciary Committee on a He just got tired of the overregulation and celebrate the occasion. party line vote in 2012. wanted to get involved and do something And don’t be surprised to see even more “When a person can singlehandedly shut about it.” business-friendly legislation from her. down a mom-and-pop business overnight The adverse reaction her husband had to “The whole reason regulation is just as intense in Beth Gaines, who has authored To hear the full podcast with Cooley visit continued on page W16 W4 | INSURANCE JOURNAL-WEST September 23, 2013

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News & Markets After Suggested Workers’ Comp Rate Hike California Employers Hope Reform Kicks In


partially through their efforts to implement Network, a group that represents the a variety of process changes intended to interests of employers, expressed hope that make the system work more efficiently. reforms ushered in last year will take hold These changes, however, were really intendand keep rates from continuing to head ed to offset the upward. Senate Bill 863 con‘It’s too early to tell whether benefit increase, rather than cut tained several cost-savthe 2012 reforms will help costs.” ing measures intended blunt or reverse the trend.’ Azevedo to boost benefits for noted there are injured workers and also “significant front-end costs” for systems reduce wasteful spending. created by the law, such as independent However, a WCAN spokesman said what medical review and bill review processes, the group finds most distressing about what as well as the possibility of unanticipated he said has been a 35 percent increase in costs, like the new physician fee schedule. premiums since 2009 is that the both the In its filing the committee stated that the cost and frequency of claims now seem to indicated average pure premium rate does be trending up again in 2013 after a few flat not reflect any provision for the impact of years. the Resource-Based Relative Value Scale “It’s too early to tell whether the 2012 (RBRVS) currently under consideration by reforms will help blunt or reverse the the Division of Workers’ Compensation. trend,” Azevedo said. “The system is in the “The margin of error in getting the SB process of absorbing substantial benefit 863 reforms right is very small, and we still increases under SB 863. Regulators are only won’t know their impact for months or years,” Azevedo said. “There’s also litigation and other attacks that could undermine 2.7 Percent Workers’ Comp Hike Sought for Washington in 2014 what the legislature was attempting to achieve. We’re cautiously optimistic, but number is 3.4 percent. However, because he Washington Department of Labor & employers continue to look for ways to Washington’s rates are based on hours Industries has proposed an average 2.7 make the system more fair and efficient for worked and not payroll like other states, percent rate increase for 2014 workers’ comall parties.” Washington needs to raise rates to get the pensation premiums. The committee will meet on Oct. 23 to revenue that other states get automatically, Over the past two years, workers’ comconsider the impact of any adopted changes according to L&I. pensation surveys have shown an increase to the fee schedule and whether an amend Public hearings on the proposed rates in rates nationally, however this will be ment to WCIRB’s proposed Jan. 1, 2014 pure will be held: L&I’s first rate increase in three years, the premium rates is appropriate. organization stated. The suggested pure premium rate reflects • Tukwila, Oct. 22, 10 a.m. at Tukwila “This proposal is part of a long-term plan June 30 experience, according to a stateCommunity Center to ensure steady and predictable rates, help ment from the committee, which is higher • Bellingham, Oct. 23, 10 a.m. at Central injured workers heal and return to work, than the indicated $2.62 per $100 of payroll, Library Lecture Room and reduce costs by improving operations,” based on March 31 experience, which was • Spokane Valley, Oct. 24, 10 a.m. at L&I Director Joel Sacks said in a statement. reviewed by the committee at its Aug. 7 CenterPlace Event Center “My goal is to reduce costs by an additional meeting. • Richland, Oct. 25, 9 a.m. at Community $35-70 million in 2014.” CDI will schedule a public hearing to Center Activity Room He added: “I want wage inflation to be consider the filing and once the notice of • Tumwater, Oct. 28, 10 a.m. at L&I our benchmark for steady and predictable proposed action and notice of public hearAuditorium rates. Wage inflation is a good benchmark ing is issued, and the WCIRB will post a • Vancouver, Oct. 29, 10 a.m. at Northwest because workers’ comp costs increase as copy in the Regulatory Filings section of its Regional Training Center Rainier wages increase.” webiste. Auditorium Washington’s most recent wage inflation

he reaction from an employers’ group to a suggested hike in California’s advisory workers’ compensation rates of nearly 7 percent was — surprisingly — cautiously optimistic. The insurer and public members of the Workers’ Compensation Insurance Rating Bureau’s Governing Committee voted unanimously on Sept. 11 to authorize WCIRB to submit a Jan. 1, 2014 Advisory Pure Premium Rate Filing to California Insurance Commissioner Dave Jones. The filing will propose advisory pure premium rates that average $2.70 per $100 of payroll, 6.9 percent higher than the industry average filed pure premium rate of $2.53 as of July 1. The deterioration is largely attributable to adverse medical loss development on pre2012 accident years coupled with sharply increasing indemnity claim frequency, the committee stated in a release. The Workers’ Compensation Action


W6 | INSURANCE JOURNAL-WEST September 23, 2013


News & Markets Cooley Masters Quake Insurance By Don Jergler

bump for people.” “That’s true across the board, whether it’s property and casualty, life and health, Editor’s note: This is part of a series on insurance workers’ comp — all of these things,” professionals in politics. This is a national series. Cooley told Insurance Journal. “It is a buffer Some of the articles focused on the Western U.S. against bad things in life, and I think it’s an region can be read in the pages of this issue of industry that is able to touch people’s lives Insurance Journal. The rest of the series can be in a positive way, so it’s a great business to found on be in. In that sense, I think it is a good fit, actually, with public service.” hen it comes to mixing insurance and Thanks to his insurance background the politics, the two might as well be one freshman Legislator is already getting called and the same for California Assemblyman on for his input on insurance matters by Ken Cooley. senior members. Cooley, D-Rancho Cordova, started his “I can say, on contentious bills this year career in the 1970s working on earthquake in the insurance committee, I’ve definitely issues with a unit of government in the San had members literally say to me, ‘What do Francisco Bay area. you think, Ken?’” Cooley said. Since that time, Cooley has mixed the Of all the expertise Cooley brings to the businesses of insurance and politics quite legislative table, earthquakes are something often and quite well. Ken Cooley he knows and cares a great deal about The McGeorge School of Law graduate important issue for the long-term future of — he served on the state Seismic Safety was chief of staff to Assemblyman Louis J. the CEA because, unless they find a way to Commission and has often advised the govPapan from the late 1970s to early 1980s, and accumulate greater quantities of cash, year ernment about earthquake issues. for a time in the mid-80s he served as legisin, year out, it’s harder to modify the poli High on his political wish list is protectlative counsel at the California Land Title cies to make them more accessible.” ing the California Earthquake Authority, Association. All these experiences put Cooley in a which Cooley would like Then in the late ‘It is a buffer against bad to see eventually benefit good position to offer advice to any insur80s Cooley was ance professionals considering entering from off-again, on-again chief counsel to the things in life, and I think public service — whether it’s local politics, efforts to establish a fedAssembly Finance it’s an industry that is able at the state or beyond. eral earthquake insurance and Insurance to touch people’s lives in “The skill set of working with your clibackstop. Committee before a positive way, so it’s a ents, being in a customer-facing business, Having such a backstop taking a position great business to be in.’ listening to them, understanding what’s would lower the cost of as legal counsel going on, applying your diligence as a propremiums for earthquake to State Farm fessional to figure out the most apt way to protection by allowing the federal governInsurance, a post he held from 1991 to 2008. meet their need — that is great training for ment to guarantee bonds issued by state Following that stint Cooley moved over public service, at the local level and evencatastrophe insurance programs, he said. to Senate to serve as the principal consultually the state level,” Cooley said. “Mastery “I actually am sympathetic to the interest tant for the Banking, Finance and Insurance of one’s own profession, I think, is a good of the CEA in finding some way to get a Committee. preparation for public service.” federal backstop that would allow them During all this time Cooley has made to not have to put money out on a regular room in his schedule to serve as a city counbasis for reinsurance so that they might cilman and mayor for Rancho Cordova in See related stories: Agent Ted Gaines Eyes accumulate more of a corpus of funds to Northern California. California Commissioner Seat (Page 2), Beth back up their system and ultimately lower It’s clear he enjoys public service, and Gaines Wants More ‘Business-Friendly’ State the cost of insurance or reduce deductibles,” as for insurance Cooley said he feels it (Page 2) and Garamendi Says Economy Needs Cooley said. “Cash accumulation is an touches people’s lives in a beneficial way, Insurance (Page 20). “trying to mitigate the adverse consequences of when life has a To hear the full podcast with Cooley visit


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Michael P. Golden has joined Novato, Calif.-based Fireman’s Fund as a strategic relationship manager. Golden will be responsible for building and strengthening relationships and results with global brokers. Most recently Golden was an executive vice president at Zurich, where he headed a team of broker relationship leaders while providing distribution management support. Prior to his insurance career, Golden served in the U.S. Navy as an intelligence officer and as an engineering officer in the Naval Nuclear Submarine Program. Fireman’s Fund is a member of the Allianz Group, one of the world’s largest providers of property/casualty insurance. Lockton announced the expansion of its global benefits practice with the addition of Ron Brewer as regional practice leader of the Western region.   Brewer will have an office in La Jolla, Calif., and be responsible for consulting with clients on global employee benefits engagements and managing a team of global client service employees. Brewer has more than 25 years of employee benefits experience. He previously worked for Aon Hewitt as vice president of global benefits and for Mercer Health and Benefits as a principal in the international consulting group. He also worked for Willis and Marsh in employee benefits. Kansas City, Mo.-based Lockton employs more than 4,950 professionals. Terri Chester joined NFP Property and Casualty as commercial lines vice president. Chester will be based out of Scottsdale, Ariz. At NFP P&C, Chester’s responsibilities include strategic planning and implementation, leadership development, team formation, training and recruitment and legal compliance.

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Chester has worked in the insurance industry since 1985 at the agency and company levels. Poms & Associates Insurance Brokers Inc. named Matthew Slotkin vice president of new business development in the Woodland Hills, Calif office. Slotkin has several years of executive recruitment experience and has previously worked with Poms in an independent capacity. He specializes in property/casualty, employee benefits and personal lines. Prior to Poms, Slotkin was director of insurance recruitment at American Recruiters. Poms has offices in California, Colorado, New Mexico and Washington. The MGIS Companies Inc. named Paul Fischerkeller assistant vice president of medical professional liability insurance sales. Fischerkeller will be responsible for managing and growing the firm’s MPL business, including managing sales and broker relationships. Fischerkeller has more than 25 years of experience in program and sales management for medical-professional liability and related products. MGIS is a provider of insurance products and services for physicians and works exclusively through local brokers. USI Insurance Services hired Sean Reardon as a property/casualty broker. Reardon will be working out of USI’s office in Woodland Hills, Calif. He has 10 years of experience of commercial underwriting experience focused on commercial property, casualty, auto and workers’ compensation. USI, based in Briarcliff Manor, N.Y., is ranked as one of the 10-largest insurance brokerages in the United States.

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News & Markets Oregon Marketing Firm Grades Digital, Social Media Efforts By Don Jergler


hen it comes to digital and social media marketing there’s a lot of white noise, with plenty of consultants, authorities, know-it-alls and bloggers on the popular topics. Amid a sea of advice on those topics,

there is at least one question that often seems to go unanswered. “How well are you doing?” Determining whether all of these efforts are effective can be quite a task, but there’s at least one marketing consultant who’s offering some free help in answering that question. With a website called Scorecard launched in mid September agents can input the name of their website and get some quick feedback — from 30 seconds to four minutes — on how well they are doing. The site, which is free to use, is from Agency Revolution, a marketing company in Bend, Ore.

‘Our goal with this from an industry perspective is to raise the consciousness, awareness and capability of agency principals in the world of digital marketing.’ “Literally every single part of this system is free to anybody who wants to use it,” said Michael Jans, the firm’s CEO said of Beside the service, Jans has gathered what he calls a “circle of experts,” professionals who are considered savvy in digital world, who will pen advice articles on the site. They include: Steve Anderson; Jeff Yates; Marty Agather; Claudia McClain; continued on page W14

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News & Markets continued from page W12

‘Being active and adept in the digital world is no longer an option, no longer a luxury, it is absolute necessity.’

Jason Cass; Ryan Hanley; Brent Kelly; John F. Carroll; ​Chris Paradiso; Rick Gilman; Mike Wise; Jeff Yates; as well as Jans and his technology partner and son Lucas Jans. No cash has changed hands to draw the experts, instead they are on the site to offer advice, and of course gain notoriety as experts, with which visitors can then contract if they so choose, according to Jans. “Our goal with this from an industry perspective is to raise the consciousness, aware-

ness and capability of agency principals in the world of digital marketing,” Jans said. To get a grade visitors to the site must type in the name of their agency’s website and up pops a score that includes an overall grade and grades on visibility, reputation, trust and website. An example provided for demonstration purposes that gave a “D” in the area of visibility explains some of the problems: “Your rankings are poor. You need to


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make sure your page is optimized for search engines, using your keywords in the content, and many high quality links pointing to your website.” The explanations also offer useful factoids, such as that more than 64 percent of desktop searches and 97 percent of mobile searches are done on Google’s search engine, followed up by advice like most of “your focus should be optimizing your site to rank at the top of Google’s search engine.” Other advice includes ensuring pages on the site use keywords and company name, creating separate pages for each line of insurance and updating sites weekly. The average overall grade that has been given so far among more than 1,000 trials is “D+.” Only two “A” grades and less than 100 “B” grades have been handed out, according to the firm. “Visibility,” for example, is tracked by checking keyword rankings; “reputation” is a measurement of business reviews, the firm looks at Yelp and Google+ Local for the quantity and quality of reviews; and “website” is scored on what kind of files are being used, including a sitemaps file, page content and other search engine optimization measurements. The site encourages visitors to sign up for a “monthly scorecard,” which provides digital marketing alerts. Jans, who often speaks at conferences about how independent agents need to be more tech savvy to keep up with the “Geicos” and “Progessives” of the insurance world, said small and mid-sized agencies who aren’t willing to change as fast as the world is changing are “facing deterioration.” “Being active and adept in the digital world is no longer an option, no longer a luxury, it is absolute necessity,” Jans added.

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News & Markets continued from page W4 Insurance Journal: What are some good Insurance Journal: How has your expeand bad lowlights and highlights of your rience in insurance informed your public experience in politics thus far? service, your positions, your issues? Gaines: I’m an optimist, so I don’t focus Gaines: I have seen how competition ultion the lowlights. I know that throughout mately provides the best opportunities for my career I’ve fought to keep taxes down consumers to meet their needs, not governand to make California the No. 1 place to ment mandates. I don’t want to see barriers do business, so when I see us moving backto entry in California’s insurance markets or wards it’s frustratother markets, either.  ‘I think my background as a ing to me because Competition lowers prices and leads to new broker, agent, and of course, I know it makes it and innovative prodconsumer, gives me a great tougher on my conto make ucts and services that and well-rounded perspec- stituents a good living and benefit us all. tive on the industry and raise their families Insurance Journal: benefits me as a legislator.’ here.  Helping my Have you worked on constituents is an everyday highlight for insurance legislation or issues? Any examme and I make sure that my staff and I go ples? all out to give them the best service we can Gaines: I am vice chair of the Insurance possibly give them. Committee, so I deal with insurance issues all the time. I think my background as a broker, agent, and of course, consumer, See related stories: Beth Gaines Wants More gives me a great and well-rounded perspec‘Business-Friendly’ State (Page 2), Cooley Masters tive on the industry and benefits me as a Quake Insurance (Page 8) and Garamendi Says legislator. Economy Needs Insurance (Page 20).

continued from page W4 that I got involved was to help improve this economy by reducing regulations and with limiting the size of government and the power of government,” Gaines said. “I don’t think that it’s a very business-friendly state. When we go down to the capitol in Sacramento, we’re not looking at ways that we can improve business and help small mom-and-pop businesses. We’re looking at ways to regulate. We’re looking at ways to penalize businesses.” And like her husband, who serves on the Senate’s insurance committee, Gaines serves on the Assembly’s version, the Assembly Insurance Committee. As such, she gets to offer her fellow legislators her insights both as a person who is trying to successfully operate an insurance agency, and the perspective of a small business person. “A lot of times, I find that the majority party is interested in focusing on things that don’t matter, that don’t help promote business, that don’t help businesses get healthy again,” she said. “My main focus seems to be a little bit different than theirs. I’m very much looking out for the businessman who has put everything on the line to make his business work and to try to keep afloat in this struggling economy.” Whatever measure of success she achieves, her best bet may be placed on the Gaines Insurance legacy, which has a good shot at living on for quite some time. Of the Gaines’ six children, one of the oldest daughters has worked for Allied for the past two-and-a-half years as a commercial underwriter, and one of the younger daughters is working at the agency as a licensed insurance agent. “And she’s out there selling insurance,” Gaines said. “She’s doing a great job, and she’s in the office answering phones and just helping a whole lot with the family and with our business.” See related stories: Agent Ted Gaines Eyes California Commissioner Seat (Page 2), Cooley Masters Quake Insurance (Page 8) and Garamendi Says Economy Needs Insurance (Page 20).

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News & Markets Scientists Defining Cascadia Subduction Zone in Pacific Northwest By Jeff Barnard


t was early September and scientists were just back from a month-long research cruise in the Pacific Ocean off Washington, where they were trying to find the stickiest point on a section of the Cascadia Subduction Zone, the huge undersea fault that breaks loose every few hundred years, generating a massive tsunami and earthquake. Paul Johnson, a professor of geophysics at the University of Washington, was one of the principal investigators on the trip funded by the National Academy of Sciences. He says it will be some time before the data from deep-sea measurements of heat and gas emissions is fully analyzed, but preliminary indications are the strongest upheaval will be farther out to sea than previously thought, he said. That is important because the farther out to sea that upheaval occurs, the bigger the tsunami, and the greater the damage on land from flooding, and the less damage on land from earthquake. The subduction zone runs from Cape More than Mendocino, Calif., 10,000 people to Vancouver could die and Island, B.C. It is $32 billion in the place where the rocky plate property could underneath the be damaged Pacific Ocean when the next pushes under one hits. North America. It Source: A study last gave way on commissioned by the Jan. 26, 1700, genOregon Legislature erating a magnitude 9 earthquake and a tsunami that washed away houses in Japan, said Brian Atwater, a geologist at the U.S. Geological Survey in Seattle who investigates geological evidence stretching back thousands of year of subduction zone quakes. “Paul is trying to figure out how big the W18 | INSURANCE JOURNAL-WEST September 23, 2013

tsunami can be,” said Atwater, who was not part of the research team. “In deep water the tsunami generation can be especially effective. And Paul was out there in deep water.” A study commissioned by the Oregon Legislature has estimated that more than 10,000 people could die and $32 billion in property could be damaged when the next one hits. Scientists aboard the RV Atlantis were using the remotely operated submersible Jason II to take sensitive measurements of heat where the Continental Shelf gives way to the deep ocean. Their measurements were taken along a line from about 50 miles off Grays Harbor, Wash., to about 150 miles offshore. Robotic arms manipulated by the operators of Jason II stuck heat probes from 3 feet to 9 feet into the ocean bottom and spread out a blanket to measure surface heat. They also took measurements of gas emissions. Working at depths up to 1.5 miles, they were looking for changes that would tell them where heat is building up because the fault is locked, like the break on a bicycle, Johnson said. Similar work has been done off Vancouver Island, but this was the first

time it has been done off the U.S. Just where the stickiest points are along the 1,000-mile length of the fault are not known. The Cascadia is one of 10 subduction zones around the world being investigated. The San Andreas fault in California slides side to side, but the Cascadia Subduction Zone moves up and down. That vertical jolt is like throwing a log in the water. It generates a big wave, which can send a 40-foot surge of water at the speed of a jetliner slamming into the coasts of Washington, Oregon and Northern California. Scientists have done similar research off Vancouver Island, and Johnson hopes to do more off Oregon, perhaps by 2016, the soonest the RV Atlantis would be available for another cruise. Last summer, scientists did seismic research along the same area off Grays Harbor. Because the research was financed by the National Academy of Sciences, the data will be publicly posted on the Internet in coming months for anyone to access and analyze, Johnson said. Copyright 2013 Associated Press. All rights reserved.


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News & Markets Garamendi Says Economy Needs Insurance By Don Jergler Editor’s note: This is part of a series on insurance professionals in politics. This is a national series. Some of the articles focused on the Western U.S. region can be read in the pages of this issue of Insurance Journal. The rest of the series can be found on


without insurance, and a family really cannot prosper without insurance. So insurance is absolutely crucial, and therefore it plays a critical role in the political life of America. My career has been around or involved with insurance in one way or another. I’ve seen the importance John Garamendi of involvement from the insurance community increase in all the years I’ve been involved in it. For example healthcare, which is all about insurance, the Affordable Care Act is in fact a large expansion of the insurance market. It’s the expansion of private industry.

hen it comes to mixing insurance and politics Congressman John Garamendi, D-California, can be considered an authority on the topic. While Garamendi never served professionally in the insurance industry, after the rancher-turned-politician became California’s first elected insurance commissioner in the early 1990s he has successfully melded the topics of insurance and politics into a career in public service ever since. Garamendi was elected insurance commissioner in 1991 as a result of Proposition IJ: Did your involvement with the industry 103 in 1988. He served in office until 1995, shape the way you see things, or do things? then over the next eight years he went Garamendi: I was the insurance regulator into the private sector and was eventually of the largest insurance market in the U.S. named by President Bill Clinton as deputy I was the insurance regulator of California, secretary of the interior. He was elected and you’re asking me that? Oh yes. Oh yes it for another four years to insurance comcertainly did. missioner in 2003. He served a stint at lieutenant governor before winning election to IJ: Do you feel the industry needs more regCongress in 2009. ulation, or less? During his career he has also been in the Garamendi: I have always been a supportCalifornia Assembly and the state Senate, er of state regulation, as well as protecting and he has weighed in often politically on a consumers. Now, the Affordable Healthcare great number of insurance matters. Act mixes federal Garamendi, who ‘I have always been a supporter regulation with currently lives in state regulation Walnut Grove, talk- of state regulation, as well as on the health ed with Insurance protecting consumers.’ insurance side. Journal about the The result of that mixing has yet to be importance of insurance in politics. determined. We simply don’t know if it is going to work well or not. The elimination Insurance Journal: Can you talk about of the Glass–Steagall Act in 1999 created insurance and politics? Does the industry an opportunity for the insurance industry, play an important role in the political prothe baking industry and the investment cess? banking industry to merge. That led up to Garamendi: The industry first plays a the financial crash of 2008. Now the Doddcritical role in the economy and the society. Frank legislation tries to develop a regulaBottom line: you cannot have an economy W20 | INSURANCE JOURNAL-WEST September 23, 2013

tory program that addresses the problems created by elimination of the Glass–Steagall separation. That, in part, brings a federal regulatory program into the traditional insurance sector, which is creating some confusion on the financial regulation of the industry. IJ: What are the top insurance issues out there that need to be addressed? Garamendi: Most important, at the federal level, is a regulatory program that would separate the insurance operations of multifaceted financial institutions from the investment banking and banking operations to provide the financial security necessary for the insurance companies to be able to pay all of the claims. It’s not clear how that would be done. It all goes back to the repeal of Glass–Steagall and the merging of the three sectors creating a very difficult regulatory situation and frankly a very difficult financial situation where AIG goes down and it takes a lot of financial institutions with it, partly because they were involved in an insurance scheme that was not regulated thanks to the Glass– Steagall elimination. That particular product was never defined as insurance. IJ: Can you talk about the farm bill? Garamendi: The farm bill is another incident of federal regulation of a very significant insurance market, and that could expand as result of the farm bill. Should there actually be a farm bill. IJ: Will it pass? Garamendi: Yes, in some form. That’s to be determined. See related stories: Agent Ted Gaines Eyes California Commissioner Seat (Page 2), Beth Gaines Wants More ‘Business-Friendly’ State (Page 2) and Cooley Masters Quake Insurance (Page 8).


News & Markets Insurance Prices Continued Up in Q2: Towers Watson


ommercial insurance prices rose by 6 percent in aggregate during the second quarter of 2013, marking the 10th consecutive quarter of price increases, according to the latest Commercial Lines Insurance Pricing Survey (CLIPS) conducted by Towers Watson. CLIPS compared pricing data reported by carriers on policies underwritten during the second quarter of 2013 to those charged for the same coverage during the second quarter of 2012. Workers’ compensation and employment practices liability lines experienced the largest price increases year-over-year, as has been the case since the third quarter of 2012. Price increases for most lines of business fell but increases were still in the mid- to upper-single digits, with no lines having an overall price increase of less than 4 percent. While still significant, price increases for commercial property insurance underwent a slight dip in the second quarter. All account sizes for standard commercial lines showed price increases, with larger increases in midmarket accounts. In addition, companies using predictive models in pricing or underwriting saw higher price increases. “As we expected, pricing increases in property insurance have tempered, consistent with the abundance of capital in the market. Given midyear reinsurance renewal pricing levels, I would not be surprised to see a repeat in the third quarter, especially if we continue to see favorable windstorm experience,” says Tom Hettinger, Towers Watson’s P/C sales and practice leader for the Americas, in a statement. Towers Watson says that each of the nine quarters prior to second-quarter 2013 had a price increase either better or the same as the quarter before. Historical loss cost information reported by participating carriers points to an improvement in loss ratios in accident-year 2013 relative to 2012 (excluding catastrophes), as earned price increases more than

offset reported claim cost inflation for the second straight year. Carrier estimates of claim cost inflation continue to be moderate for year-to-date 2013.

CLIPS data are based on new and renewal business figures obtained directly from carriers and represents a cross section of U.S. P/C insurers.

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Declarations Lonely

Shake Up

Self-Driving Cars

“It’s lonely sometimes with all the guys.” —Sen. Katrina Frye Shealy, who is also an insurance producer, on being the only woman in the South Carolina Senate.

“We have gone above and beyond the requirements for most development projects in Los Angeles to conduct seismic studies that conclusively demonstrate the safety of our project site.” —Millenium Partners, developers of a $654 million skyscraper in Hollywood, issued a statement saying a lawsuit to halt the project because of earthquake concerns was unwarranted.

“It’s technology that is going to revolutionize transportation, the automotive industry and perhaps most importantly of all, it’s going to enhance automobile safety and I think efficiency as well.” —U.S. Rep. Bob Goodlatte (R-Va.) on Google’s development of self-driving cars. Google is teaming up with Virginia Tech researchers to bring its vision of cars that can drive themselves to reality.

Incentive Program “They succeeded in making a compelling case for us to make the move to Connecticut.” —Stanley Galanski, CEO of Navigators Group which recently moved its headquarters from Rye Brook, N.Y., to Stamford, Conn. The insurance group is receiving from Connecticut a 10-year, forgivable, no-interest loan of up to $8 million and a grant of up to $3.5 million, contingent upon reaching certain job milestones.

Team Effort “Putting together the risk management program, the insurance, the safety, the claims management, the data management, is never just a single risk manager’s job.” —Silverstein Properties’ risk manager Shari Natovitz on putting together the risk management program for the World Trade Center development projects in New York. The developer’s 4 World Trade Center tower is scheduled to open its doors later this year.

Figures 7.9%

The average reduction in workers’ compensation loss costs approved in Kentucky effective Oct. 1. It’s the same decrease as in 2012.

$500,000 Is how big of a fine Rosa Maria Barajas, 68, of Huntington Park, Calif., is facing for cashing her dead husband’s workers’ compensation checks. She also faces five years in prison.

$5.6 Billion The overall amount of federal assistance thus far for New Jersey’s Superstorm Sandy recovery efforts, as of Sept. 9. It includes $3.5 billion in total National Flood Insurance Program payments made for policyholders in New Jersey.

12 | INSURANCE JOURNAL-NATIONAL September 23, 2013


61% The percentage of young drivers in New Jersey who acknowledge having sent text messages while driving, according to a new survey by Plymouth Rock Assurance. The poll consisted of 1,000 consumers between the ages of 17 and 25, who have N.J. drivers’ licenses and operate a vehicle at least once per week.

The average price of a physician-dispensed Vicodin pill in Pennsylvania, compared to $0.37 for a pharmacy-dispensed Vicodin, according to a study from the Workers Compensation Research Institute.

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Business Moves

American Family, Homesite Group Madison, Wis.-based American Family Insurance reached agreement to acquire direct homeowners insurer Homesite Group Inc. for an anticipated $616 million. Homesite Group is a Boston-based direct writer of homeowners, renters and condominium insurance. The deal is expected to be finalized by the end of the year, pending regulatory approval. American Family said the move would strengthen its position in the marketplace by complementing its strong exclusive agent network with direct channel options to serve a different customer segment. American Family’s Chairman and Chief Executive Officer Jack Salzwedel said agents will remain American Family’s pri-

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mary distribution channel. The acquisition will have no immediate impact on operations or positions at American Family or Homesite. Fabian Fondriest will stay on as Homesite’s CEO, as will other members of the company’s leadership team. The purchase is the second time in less than a year that American Family has acquired a direct property/casualty insurance company. American Family purchased non-standard auto insurer Permanent General Cos. at the end of 2012. Homesite has been privately owned by multiple entities and individuals. Owners include Alleghany Corp., Metalmark Capital through its management of the Morgan Stanley Capital Partners funds and The Plymouth Rock Co. Inc. AssuredPartners, AxisPointe Lake Mary, Fla.-based AssuredPartners Inc., through its subsidiary Herbert L. Jamison & Co., completed the acquisition of AxisPointe Inc., an independent employee benefit advisory firm located in West Orange, N.J. AxisPointe offers employee benefits products and services; business and individual planning; and professional liability, general insurance and risk management services. Founded in 1991, AxisPointe has assisted N.J.-area public and non-profit corporations with diverse workforces with their employ-

14 | INSURANCE JOURNAL-NATIONAL September 23, 2013

ee benefit programs. AxisPointe has a workforce of four agents and staff that will join AssuredPartners’ Herbert L. Jamison & Co. AssuredPartners, a portfolio company of Chicago-based private equity firm GTCR, acquires and invests in insurance brokerage businesses (property/casualty, employee benefits, surety, MGA/wholesalers) across the United States and in London. Capital Benefits Group, Higginbotham Higginbotham and Capital Benefits Group have merged their operations, becoming what the companies believe to be the largest independent insurance and financial services employer in Central Texas. Higginbotham provides property/casualty insurance and employee benefit services, and Capital Benefits provides employee benefit consulting. Combined, the firms employ 75 insurance and administrative professionals in Austin. Headquartered in Fort Worth, Higginbotham is expanding its operations throughout Texas by partnering with other independent brokerages that add capacity to the Higginbotham group, which has grown to 19 offices and 543 employees statewide. Higginbotham entered the Austin market in 2004. Capital Benefits was founded by partners Troy Ahrens and Brian Penny in 2008. The firms will centralize operations by moving to a single location in early 2014. Existing staff will continue servicing accounts.

3/12/13 5:26 PM

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Disasters E&O Insights: Mother Nature’s Effect on E&O Claims


t seems that practically every time you turn on the news, a part of the United States is being threatened by a significant weather-related event. It’s sometimes anyone’s guess when and where the next weather-related catastrophe will hit and what it will look like. Will it be a hurricane, tornado, earthquake or something else? It would be nice to By Curtis M. Pearsall know so you can prepare for it. That means preparing your agency and your customers. Unfortunately, no one really knows the “when,” “where” and “how severe” of the next big weather event. This is why agents must be proactive in addressing the issues that will ultimately minimize the potential Could Your Agency Be Affected? of their agency facing errors and omissions It might. What actions has your agency litigation when a catastrophe strikes their taken to ensure that your files/records will community. survive? Presuming that most agencies Do not wait for the event to be in the are automated, what will happen to your news before your agency starts doing somesystem? What if the server resides in your thing about it. By then, it is probably too office and gets damaged? This happened to late. However, if many agencies as a result 100 — or even more Nothing brings out an of Superstorm Sandy. — of your customMost agencies, but not agent’s mistake as quick all, are diligent in backers suffered a loss, as a catastrophe. which is what haping-up their systems. pened to many agenWhere is your back-up cies because of Superstorm Sandy, the odds located? Having it in your office won’t do of a mistake or error definitely increase. your agency much good if your office is For example, tremendous devastation impacted by a catastrophe. If the back-up is often results from a hurricane. on a disk stored in your vehicle, what is the In the early 1990s when a hurricane hit, potential that your vehicle could be swept one agency pulled files when its customers away? This actually happened to an agency reported claims, only to discover that 14 during Hurricane Katrina. The system backcustomer files contained an application up was stored on a disk kept in the owner’s with a check attached. Coverage had never truck. Just guess what happened. been bound. Had the hurricane not hit, Backing-up your files is a good thing, as those files with the checks attached would is ensuring that the back-up will survive. probably not have been identified before Check with your agency’s IT folks to detera loss occurred — and this was only one mine the vulnerability of your back-up to a agency! weather-related catastrophe. In addition, if As the saying goes, “nothing brings out an a storm were to hit your community, make agent’s mistake as quick as a catastrophe.” sure your disaster recovery plan includes 16 | INSURANCE JOURNAL-NATIONAL September 23, 2013

your employees. Will you be able to get in touch with them? Do they have access to get into the agency system from their homes? Do No Wrong and Still Get Sued When there is an E&O action taken against an agency, the customer file will speak for itself, for the most part. What is the level and quality of the documentation? Does the file reflect the customer being advised in writing of various issues? Was specific coverage rejected by the customer? It appears from Superstorm Sandy — and is probably true for other weather-related catastrophes — that while some agents are facing E&O litigation, the file in question is in very good order. Issues include: • The client was advised in writing that the flood policy provided coverage for the building but not the contents. • The client was advised in writing of the 30-day waiting period. The customer delayed completing the application until it was evident the storm was going to hit. This prompted the customer to get the coverage, but the storm hit during the waiting period. • The agency required the client’s signature continued on page 18

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9/9/13 1:51 PM

rejecting the excess flood proposal. • The client was advised to read the policy. When customers face significant financial disasters they may believe they have no other choice than to sue their agent. Minimize Potential for E&O Litigation Educating your staff is one of the fundamental places to start for enhancing your agency’s E&O culture. After all, customers rely on the agency staff’s knowledge and expertise to help them understand their coverages and how they work. If the staff is not technically proficient, incorrect information could be communicated to customers. Did this occur during Superstorm Sandy? Some E&O claims are alleging this. Develop a campaign to offer coverages such as flood, earthquake or business interruption to all applicable customers. If the customer rejects the coverage, get the rejection in writing. Some agencies include this on their proposals, note that the offer is only valid for a certain number of days and, if the coverage is not requested in that time period, it is presumed the customer does not want the coverage. Getting a signature, though, is the best way to document a rejection of coverage because it removes any doubt of what the customer’s intentions were. A recent carrier study stated that 70 percent of those small businesses affected by Superstorm Sandy did not have business interruption coverage. Was the coverage ever discussed and offered? An annual account review with both personal and commercial customers would seem to address this. What else can you do? Become a “documentation fanatic.” Documentation really is the key that will determine the direction and path of an E&O claim. For example, agencies that advised their customers of the 30-day waiting period stand a much better chance of prevailing if E&O litigation occurs. In addition, don’t issue a binder if the coverage is technically not in effect. It is critical that agency staff be extremely familiar with the coverage and the rules for what is necessary for coverage to be bound. Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: curtis@ Blog:

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Emerging Risks Crowdsourcing and the New Risks of Emerging Technology


t its peak in 1996 Kodak — then the world’s largest camera maker and photo film supplier — had revenues in excess of $16 billion and employed more than 145,000 people. But after 130 years in business, the photography giant could no longer keep up with the digital world it helped create and filed for bankruptcy early last year. At the very same By Graeme Newman time, a new force was emerging in photography. At Internet start-up Instagram, an online photo-sharing and social networking service, business was booming. In just over a year, the number of registered users on the website went from one million to more 30 million. The company, employing just 13 people, was acquired by Facebook for more than $1 billion last September. How could a tiny online enterprise like Instagram thrive when an established company — one which once held two-thirds of the global market share in its industry — could not? The answer is crowdsourcing.

Crowdsourcing, a term first coined by Wired magazine in 2006, refers to the latest craze in outsourcing — the process of transferring work from employees to a vast, undefined network of people on an open basis. Generally facilitated by the Internet, crowdsourcing harnesses people power on a global scale and is seeing new business models emerge and traditional industries being disrupted. It is leading to pioneering discoveries in the fields of science and medicine, whilst also enabling tiny companies to compete on a global stage. At one end of the spectrum, crowdsourcing — as demonstrated by Amazon’s “Mechanical Turk” — involves the sub-division of labor into literally millions of micro tasks. These are then actioned by an anonymous global workforce who perform the seemingly mindless tasks. At the other end, websites like Wikipedia harness the knowledge of millions of contributors to create content on a size and scale that was unimaginable as little as a decade ago. The one remarkable thing that all of this has in common is that the “workers” contribute their labor for little or no financial reward.

Crowdsourcing Challenges As even the most traditional companies take advantage of this new breed of micro-laborers in a way that was never envisaged when employment law was originally drafted, companies and their insurers face new challenges with workers’ compensation models and employment practices liability. At the heart of this problem lies the classification of these workers and the limited remuneration that they receive. In a recent federal class action lawsuit filed against Crowdflower, a San Franciscobased crowdsourcing platform, two members of their “crowdforce” are claiming that they are actually employees of the Crowdsourcing company and harnesses people that the meagre $2 an hour they power on a global receive for their scale. labor is in direct contravention of minimum wage rates required under the Fair Labor Standards Act. With thousands of hours worked by millions of individuals all claiming to have been underpaid by at least $5 an hour, the claim, if successful, could be disastrous for the company involved and could seal the fate of many similar crowdsourcing companies. But it is not just employment law violations that threaten the future of this emerging technology and the companies that rely on it. Design and build by the masses brings with it a serious risk of intellectual property rights infringement. As large numbers of anonymous contributors add lines to software source code or content to online sites, the risk that infringing elements are introduced into the final product grows exponentially and with it the risk of infringement actions against the companies that commission these projects and those that sell and use the products. As the law in this area once more struggles to keep pace with the innovation, continued on page 25

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Emerging Risks

continued from page 22 tor but which transpires to be worthless. In a nutshell, it appears impossible to uncertainty over the ownership of each maintain the same level of risk management element contributed grows. Once again, when products are the confusion over not developed in the classification Crowdsourcing poses new and role of crowd- challenges for insurers when it the controlled environment of a tradiworkers challenges comes to intellectual property, tional employment traditional thinkworkers’ compensation and or outsourcing relaing, opening the door to claims employment practices liability. tionship with protocols, guidelines and that crowdsourced consequences for the individuals concerned. products are owned by the people who made them, not those that commissioned New Era of Growth them. Crowdsourcing looks set to launch a new This, alongside the risk of the work era of unprecedented productivity growth being copied from one place to another by that Adam Smith could barely have imaga crowd contributor, means that a compained when he originally coined the concept ny may develop a substantial intellectual of the “division of labor” back in 1776. More property portfolio which it believes to be of than 200 years later, almost ubiquitous great value to a licensee or potential inves-

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access to high-powered, cheap and highly mobile computing combined with highspeed networking has made this possible. But companies that seek to take advantage of this new technology face serious challenges. The insurance industry has a critical role to play. For the world to unlock the true power that crowdsourcing can bring, it is essential that we identify the major risks and find ways to manage and transfer them to remove the uncertainty and to allow innovation to flourish. Newman is a director at CFC Underwriting, a specialist lines UK-based underwriting agency backed by a number of Lloyd’s syndicates. CFC Underwriting distributes products through brokers in 16 countries around the world including America, Australia, Canada, and the UK.

9/11/13 10:52 AM

September 23, 2013 INSURANCE JOURNAL-NATIONAL | 25



Lloyd’s Syndicates

Aon/Berkshire Deal Roils Lloyd’s Waters By Charles E. Boyle


on and Warren Buffett’s Berkshire Hathaway announced in March that they had negotiated the establishment of a “sidecar” facility to operate at Lloyd’s. The deal, which had been in the works for some time, benefits both parties. There are questions being raised, however, as to whether it benefits Lloyd’s. Under the agreement, Aon, which originates around 23 percent of all Lloyd’s business, will cede 7.5 percent of the premiums it receives on Lloyd’s business to Berkshire, which in turn will assume that portion of the insured risk. Berkshire will also pay Aon a commission, the amount of which hasn’t been disclosed. The two parties are well matched. Aon is one of the largest insurance intermediaries in the world. In addition to traditional brokerage services, it operates captives and runs several advisory subsidiaries. Berkshire is one of the biggest and richest global conglomerates. Under Buffett’s leadership it has collected shares in companies ranging from Coca-Cola, the Burlington Northern & Santa Fe railroad and General Re as well as GEICO, National Indemnity and other insurers. It also sits on a pile of cash — more than $30 billion. Both Aon and Berkshire are heavyweights that overwhelmingly deal with reputable,

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solvent enterprises. Their downside risk in this deal is minimal. Lloyd’s adheres to the same high standards and has the added capabilities, honed over 300 years, of specializing in complex risks. As its former U.S. president Wendy Baker once remarked: “If you want to insure Joe’s Garage, you go down the street; if you want to insure the [members of the] State Garage Owners Association, you go to Lloyd’s.” David P. Prosperi, Aon’s vice president of global public relations, says the arrangement with Berkshire represents an initiative to “serve our clients.” It “provides additional capacity and gives [Aon’s] clients

an opportunity to take advantage of that.” Aon sees the deal with Berkshire as a “win, win, win” initiative — for the company, for its clients and for Lloyd’s. It is potentially “a big and important part of the market,” Prosperi says. “It will strengthen the [Lloyd’s] market and will help it achieve the goals set for 2025.” He also notes that 75 percent to 90 percent of Aon’s clients — polled at a Risk and Insurance Management Society conference in Los Angeles in April — view the Berkshire tie-up favorably, especially as the additional capacity would facilitate further growth. He stresses that agreeing to cede 7.5 percent of a placement to Berkshire isn’t mancontinued on page 29

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continued from page 27 question the ability of Tom Bolt, perfordatory. It remains a decision to be made by mance director of the Lloyd’s Franchise Aon’s clients. Board, and his team to analyze the syndi Peter Hughes, managing partner cate business plans and to enforce strict of London-based consultants Litmus control. Analytics, wrote: ‘[T]here is a danger that In some respects “It seems to me that this is an arrange- the increasing power of the Berkshire is stepping ment between Big Three looks worrying to into the shoes of Lloyd’s Names, which also didn’t three parties involv- Lloyd’s.’ participate in underwriting something that ing. The difference being that Berkshire’s none of them owns — the right to choose agreement with Aon covers the entire where the contract is placed. Surely that market. That agreement, however, no doubt decision rests with the buyer alone? If the spells out the types of risk by line of busibuyer decides that Berkshire can have the ness that are included or excluded. 7.5 percent, or that it should be placed in Another point Savage made expresses an Lloyd’s, or that it’s up to Aon, it’s their deciexistential concern. sion.” Since 1994, when Lloyd’s admitted cor Despite the seeming advantages the deal porate capital to fund the syndicates, it has promises, Lloyd’s is concerned about how it undergone profound changes, most notably will ultimately affect the market. consolidation of the market from more than Lloyd’s finance director, Luke Savage, 300 syndicates to around 80. speaking at a conference organized by Lloyd’s changed its accounting system Insurance Insider, as reported by the Financial from three years to annual. Times, cited several ‘It will strengthen the Its syndicates now answer concerns. [Lloyd’s] market and will to the Franchise Board. It He pointed out that Berkshire won’t help it achieve the goals appointed its first CEO, Nick Prettejohn, in 1999 actually be doing any set for 2025.’ and is slowly increasing underwriting. It relies the use of digital technology. on the placements Aon makes with lead This has created larger, better capitalized and following syndicates, thereby avoiding brokers — Aon, Marsh, Willis and JLT — underwriting costs. With increasing scruthat have increased their market shares at tiny from regulators, the Financial Times the expense of smaller operations. Savage article also questions whether risk oversight justifiably sees the deal with Berkshire of the transactions is adequate. leading to similar arrangements, which will While these are legitimate concerns, they accelerate this trend. shouldn’t cause major problems. As far as In addition, as Baker recognized, Lloyd’s oversight is concerned, very few people

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strength comes from the ability of its underwriters and brokers to structure and price complex risks. More use of “big data” and number crunching turned out by computers means less need for the expertise that sustained Lloyd’s for over 300 years. Hughes also said “there is a danger that the increasing power of the Big Three looks worrisome to Lloyd’s.” Including JLT, the four largest brokers produced 58 percent of Lloyd’s primary insurance premium (more with reinsurance). When so much of one’s business comes from only four sources, it’s enough to worry anybody. With consolidation, Lloyd’s now faces the prospect of “commoditization.” There is a “possibility that the market is shifting to a more commoditized product, which could be a further fear,” Hughes said. “The more standardized modeling and pricing become, the more homogenized the systems and rules that are put in place, the more possible it is to commoditize the product,” Hughes said. As a result, he said, there’s “perhaps less value Lloyd’s can add.” For Lloyd’s that is indeed cause for concern.

9/11/13 10:57 AM

September 23, 2013 INSURANCE JOURNAL-NATIONAL | 29


Surplus Lines

By Andrea Wells


he surplus lines industry is letting the good times roll. Well, not exactly. But times are good and getting better for wholesalers and insurers doing business in the specialty insurance market, experts say. That’s how Westrope, one of the nation’s largest wholesale firms, sees it. “Quite honestly, it’s good to be us right now,” says Kevin Westrope, president and CEO of Westrope. “We — and I think most of my competitors who I have talked with — are all experiencing double-digit growth, year-over-year.” According to Westrope, who also serves as the vice president of the National Association of Professional Surplus Lines Offices (NAPSLO), the annual convention serves as a barometer. At the time of this interview, Westrope and other members of NAPSLO were getting ready for their 2013 NAPSLO annual convention to be held Sept. 29-Oct. 3. “For the annual convention, which is our biggest networking event of the year, all indications right now show record attendance, probably in excess or near 4,000 participants,” he says. “I think that’s a sign of a good market and great diversification in that market.” Matt Nichols, president of All Risks Ltd., and current president of NAPLSO, agrees that the record attendance of NAPSLO’s premier event is one way to judge the health of the industry and the health of his association. But he says it’s always a good time for surplus lines. “2013 maybe a little bit better than 2009 but I think 2009 was tough everywhere,” Nichols says. The tough times wholesalers experienced following the 2008 economic recession wasn’t surplus lines specific, or even insurance industry specific. “That was the entire country and much of the world facing challenges in 2008-2010. It’s always a good time to be in the surplus lines business.” Bryan Sanders, executive vice president at Markel Wholesale and also a member of NAPSLO, predicts the prevailing attitude will be positive at this year’s convention.

“There is record attendance this year and that’s a sign typically that people are feeling pretty good about the E&S segment and the results so far this year,” Sanders says. State of the Market The good times wholesalers are experiencing are a manifestation of increasing rates almost across the board and the growing trend of new business flowing back into the surplus lines market, says David Blades, senior financial analyst at A.M. Best Co. “We always talk about property catastrophe business based on the storms we’ve had the last couple years, and what that has brought about in terms of rate increases,” Blades says. “But on certain class of liability business, we’ve definitely seen rate increases as well.” Rate increases in addition to some business returning to the non-admitted market from the standard market is driving the good-time momentum, he says. “I think those two factors led to a definitive increase in direct premium that we definitely saw in 2012, that was different than the increases that we saw in 2011, where it was just some of the main carriers that pushed a little bit of the rate forward and led to somewhat of a premium increase, but not across the entire surplus lines market.” After four years of declining premiums for the industry, domestic surplus lines insurers saw just a slight boost in direct premium written (DPW) for 2011 by 3.2 percent, according to the “2012 U.S. Surplus Lines Market Review” by A.M. Best, which is sponsored by the Derek Hughes/NAPSLO Educational Foundation. However, the “2013 U.S. Surplus Lines Market Review” by A.M. Best will tell a much different story, Blades says, who also co-authors the report. At press time, the 2013 report had yet to be published. However, Blades says the report will show the surplus lines market with a more noticeable jump premiums in 2012. “That increase will come in at just under 12 percent for the industry as a whole,” he says.

market is back on track to produce the type Catastrophe property losses did take of results that the market has produced in their toll on overall surplus lines industry previous years.” performance in 2012, Blades noted. “One of the things that we saw from a 2013 and Beyond performance standpoint is that the surplus According to Blades, there’s been some lines market was affected definitively by talk that the rate increases in and of themproperty loss in 2012,” Blades says. selves have moderated a bit as the industry One of the more noteworthy results to be heads to the end of 2013. “But I think, for revealed in the 2013 A.M. Best report will whatever reason, it seems like that sort of be how the surplus lines industry in 2012 phenomenon seems to happen during the fared against the overall property/casualty second quarter, and for whatever reason, industry, Blades says. then maybe things pick up a little bit more “For the most part, on a consistent basis, in the second half.” the surplus lines market has outperformed Whether rates will continue to climb at the overall total P/C market. What we saw a moderate pace remains to be seen. But in 2012 — and a lot of this was driven by according to Westrope, the market is by no the impact that catastrophe losses, and, means softening. It’s not as hard as it was in particular, Superstorm Sandy, had on earlier in the year, Westrope says, but his surplus lines companies — was for the first company is up in every division. time in recent memory, the loss and loss “Everything from professional/executive adjustment expense and combined ratios of liability, workers’ comp, transportation, prithe surplus lines market was actually highmary and excess casualty as well as proper than those of the total P/C markets.” erty … We are beginning to see just a little Catastrophe losses, especially those drivbit of stress in catastrophe driven accounts en by Superstorm Sandy, had a big impact … that it isn’t unusual as we approach a on the year-end 2012 performance metrics year-end,” he says. “Particularly when we’ve of the surplus lines market, Blades says. come through a year … at least at this “That’s one of the stories that will be point — without any major hurricane damhighlighted in both the first two sections age and storms.” of our report,” he says. “You’ll see some of Overall, Westrope sees the surplus lines the performance metrics, and particularly market delivering profitable times in the on the underwriting side, that the surplus coming year. lines market for this one year was actual “The A.M. Best study that is coming out, ly outperformed by the overall total P/C I think, will show that we continue to have market. Again, a lot of that was driven by strong growth in the surplus lines market fourth quarter storm losses.” overall and project con Although it was beat by the overall P/C mar- ‘Quite honestly, it’s good tinued growth for the future,” Westrope says. “It ket in 2012, the surplus to be us right now.’ also indicates that we’ve lines market in 2013 is now gone nine years with no financially once again back on track. impaired companies in the industry, which “The results that we’ve seen through the I think is pretty impressive.” first half of this year — and again, we’re Blades concurs with that assessment: in September now, so we’re processing “You’ll see continued momentum in terms some of that data — I think you’ve seen of rate increases, and especially, in terms things return to normal in terms of the of more favorable terms and conditions performance,” Blades says. “We haven’t seen playing out through mid-year and maybe it in the first half (of 2013), some of the even through the third quarter. I think comsame issues that we saw particularly in the panies are optimistic about what’s going to fourth quarter of last year (2012). So from a happen through the year-end as well. performance standpoint, the surplus lines September 23, 2013 INSURANCE JOURNAL-NATIONAL | 31


Surplus Lines Wholesale: More Special Than Ever Savvy wholesalers are meeting the demand for specialized knowledge By Lori Widmer


veryone loves the wholesale insurance business these days, or so it seems. “We’ve seen the entrance of a lot of other people coming into the wholesale market — aggregators, brokers, agents, program managers and administrators — all transacting business on a wholesale basis,” says Bernard Heinze, executive director at the American Association of Managing General Agents (AAMGA). Heinze’s group has seen the trend and decided to embrace it. AAMGA had planned to change its name to the American Association of Wholesale Insurance Professionals (AAWIP) but that is no longer the case. Its well-established name, AAMGA, will not change. But AAMGA’s membership will. For years, AAMGA membership has been limited to managing general agents, national and international insurers, stamping offices and business services. Over the past two years, the organization undertook a strategic review, looking at what’s happening in the wholesale marketplace and what impact the association might have in advancing the market, according to Heinze. As a result, the group’s membership is being opened to those working on a wholesale basis — surplus lines brokers, managing general underwriters, program administrators, program managers, aggregators and other wholesale entities. (See page 34) Heinze says the purpose of inviting the wholesale market into the organization is two-fold: to improve the depth of intellectual capital in the wholesale business and to deliver more productivity in the industry. The markets are changing right now, according to Danny Kaufman of Kaufman Financial Group, a global specialty insurance group, and that means a growing need for wholesalers right now. “A lot of standard markets are scaling back, so I think we’re going to see a lot of agents needing wholesalers more now than

they have in years,” Kaufman says. “Their direct contracts aren’t going to be as valuable just in terms of what they can put into them.” That’s where wholesalers can capitalize on the market, he adds. Because appetites are changing in those direct relationships, retail agents will be forced to go to the wholesale market a lot more than they have. “Part of that is because those standard companies were writing risks in the past few years that they traditionally weren’t writing or should not have been writing,” says Kaufman. “As the market is turning, they’re moving off those risks.”

needed. There was no in-depth expertise. “There will always be generalist wholesale brokers but the folks who make the big bucks are specialty intermediaries with specific skills in a defined coverage or industry group,” says Kerr. He says wholesale brokers have employees with technical expertise and market relationships that the retailers don’t have the time or capability to develop, and wholesalers are continuing to refine their skills and relationships. That is why Kerr doesn’t think surplus lines carriers bypassing wholesalers and going direct to retailers, a route some have

Specialization Need At the same time that the wholesale segment is becoming more popular and more entities are hopping into it, it is also becoming more of a field for specialists. Wholesale brokers are capitalizing on the demand for more specialization. Heinze says the financial crisis in 20072008 and the softening market forced the wholesale insurance industry to rethink its business strategy and find its core capabilities. Wholesalers came to recognize that one of their key strengths is their specialized knowledge of markets and industries. Richard Kerr, CEO of MarketScout, a large U.S. property/casualty specialty insurance exchange that itself started a wholesale unit a few years ago, says wholesale broking is experiencing a “resurgence” especially among those who are specialty product providers, and that the most successful intermediaries are those with a specialty expertise. Kerr says that the term “wholesale” broker is limiting because people really need to be “specialty intermediaries” in order to be successful. Kerr says the general wholesale broker in the past would handle more general business risks, such as transportation or inland marine, and would seek out the specialized products to cover the occasional hard-tocover risks such as lost shipments, when

32 | INSURANCE JOURNAL-NATIONAL September 23, 2013

taken, will become a major factor. “I don’t think it will change the wholesale distribution landscape materially,” says Kerr. He thinks there will continue to be increased demand for direct access, but with a growing need for the specialized advice and service that the wholesalers bring to the coverage conversation. The future is in very specific, specialized risk coverage. Role of the Wholesale Broker Others agree the most successful wholesale brokers will be those who have some specialization and who can capitalize on the need in the market for this expertise — not just in the future but today. Kaufman doesn’t believe the role of the wholesale broker is changing. As Kaufman puts it, it’s not the role that’s

changing, it’s the appetite. enough contracts. Wholesalers can consoli “I think agents have seen the need for date business and contracts while a retailer brokers more now than in the past. Brokers might have just a handful of contracts in have become more specialized. Agents their office.” look to certain brokers for certain lines of Hiscox, an international specialty insurbusiness. Brokers have built their careers ance group, relies on wholesale brokerage around lines of business,” he says. to be the distribution channel for the That specialization is an easy sell, says company’s U.S. business. Now with just six Kaufman. Agents looking for speoffices in the United States, Hiscox cialized coverage also look for a Wholesalers is hoping to increase its business specialized knowledge base, which in the states through specialized are in the wholesale broker now provides. wholesalers, according to Gary demand Head, chief underwriting officer for How deep is the knowledge? If by carriers the company’s U.S. operations. Kaufman’s company is any indication, the knowledge is quite as well as Head won’t divulge how many deep. “As wholesalers, besides agents. wholesale brokers the company having access in the markets, we utilizes, but says Hiscox has a “sighire top students from top universities and nificant and material amount” of business from top companies,” he says. “We put a lot with wholesalers and that wholesalers are of emphasis on our training and developplaying a big role in his firm’s U.S. business ment.” growth strategy. Kaufman believes another benefit of Hiscox thinks wholesalers are valuable wholesalers is that they free up time for for one trait in particular. “They bring a agents. “It’s a resource. Now you have access partnership, if you like, as to how to sell to knowledge and access to markets and specialist lines in the general marketplace,” products you don’t have,” he says. “Agents Head says. can focus on business without having to In Head’s estimation, wholesalers become know all these specialized products.” experts in a particular area and trusted There has been a shift in how wholeadvisers to the generalist brokers. salers approach the markets, according In Head’s experience, the specialty to Kaufman. The broker is dealing with wholesale broker has gotten stronger over the agent, but he’s also dealing with the time. “It’s a testament to their expertise and markets — markets that will have to be their ability to work with insurance carriers appeased, says Kaufman. to distribute those specialized products “They (brokers) have to make sure to over a much wider area.” maintain the right markets and provide the While many carriers do have relationships right business and right risk to those marwith wholesale brokers, it’s not universal. kets,” he notes. Savvy carriers, he adds, will According to Head, “There are many comknow what to focus on. “Are we bringing panies that won’t value the expertise and in the right business and working with the distribution the wholesalers bring to the right agents? There’s a lot of markets and table. That will be an interesting landscape agent management. The stronger wholesalto observe as things develop over time.” ers can maintain the stronger markets.” Paying attention to a changing landscape is essential to competing in the wholesale Partnerships broker market, says Head. “If you’re not As Heinze noted, new affiliations, partwatching how that landscaping is developnerships and relationships are gaining poping, you don’t have the full picture.” ularity within the wholesale community. As long as there’s a strategic reason for it, The benefit for carriers is access to a wider wholesalers will be focusing on specializadistribution channel than they could have tion, say the experts. accessed without the wholesaler. Kaufman says “most retailers can’t put enough volume Lori Widmer is a Philadelphia-area writer specializinto the market to maintain contracts or ing in insurance and risk management. September 23, 2013 INSURANCE JOURNAL-NATIONAL | 33


Wholesale Market Changing Realities of the Wholesale Market


hroughout our history, the American Association of Managing General Agents (AAMGA) has retained its mission and identity while adapting to changes in the insurance industry. We began in 1926 as the Association of Fire Insurance General Agents, then we became the American Association of Insurance General Agents in 1930. In 1948, we took our current name: AAMGA. During each change, By Francis E. Mastowski we admitted more market participants to our membership, refined our focus and revised membership standards. Association leadership has long worked to ensure opportunities for members mirror those offered by an ever-changing insurance market. Throughout these 87 years, the AAMGA has built a reputation and culture based on integrity, professionalism and strict membership standards. This reputation has distinguished the association, served as a source of pride for its members and incentivized new members. On Aug. 27, 2013, AAMGA members voted to proactively adapt to changing market conditions — just as they had twice previously since the association was founded in 1926 — when they voted to amend association bylaws and expand membership to all wholesale insurance professionals who meet membership requirements. Membership will now be open not only to MGAs, but also to managing general underwriters, program administra-

tors, aggregators, wholesale brokers and other wholesale insurance professionals. Membership will also continue to include risk bearing entities, insurers, reinsurers, captive insurers, state stamping and surplus line offices and organizations that provide supporting products and services to our industry. New Membership Our standards remain stringent. Membership is open to insurance professionals transacting business with underwriting or binding authority, and they must meet our standards for minimum years in business and annual written premiums. This vote comes on the heels of a twoyear strategic review that documented how MGAs had changed over the last decade, both in the size and scope of their operations. A prolonged soft market and economic forces spurred an increase in mergers and acquisitions, while the wholesale insurance market moved toward greater program specialization. The AAMGA board of directors felt a mandate to respond. In May, we proposed bylaws changes that create new membership categories for all professionals conducting business in the wholesale insurance market — as long as they meet the stringent membership requirements for which AAMGA is known. These changes were discussed with members for nearly two months and ballots were sent out on July 26. More than 63 percent of eligible members responded, and 83

percent of members responding voted to approve these critical changes. The amendment passed on Aug. 27. A More Sustainable Future A more diverse membership means a more sustainable future for AAMGA. By including a broader swath of the wholesale insurance market, we can expand and enhance technical underwriting and other professional educational development through the AAMGA University. We are excited to afford members more diverse and relevant programs, tools, resources and benefits. These efforts will lend greater credibility and strength to the entire market, as well as reinforcing our advocacy with domestic and international regulators and legislators. The membership expansion can only serve to enhance and sustain our association, while increasing our value to members and the industry. The Road Ahead This board and our committee members will continue to work cooperatively with other trusted associations that serve specific niches in the market. These include the National Association of Professional Surplus Lines Offices (NAPSLO), Target Markets Program Administrators Association (TMPAA) and the Council of Insurance Agents & Brokers (CIAB), among others. We expect many members will continue to maintain multiple association memberships and reap the rewards they bring. We will continue to communicate with our colleagues in the insurance industry about developments and, most importantly, we will continue to seek member feedback as we implement our renewed strategic focus. Mastowski, president of Jimcor Agencies, CMGA, in Montvale, N.J., is president of the board of directors of the American Association of Managing General Agents (AAMGA), the international trade association representing the wholesale insurance marketplace.

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Coverage Corner Bloggers Beware: Defamation Claims Brought by Public Figure Plaintiffs


t takes thick skin to be in the public eye. As Supreme Court Justice Antonin Scalia once observed, “harsh criticism, short of unlawful action, is a price our people have traditionally been willing to pay for self-governance. Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.” (See John Doe No. 1 v. Reed, 130 S. Ct. 2811, 2837, 2010). But when criticism goes beyond the realm of lawfulness, and includes statements that are libelous or slanderous, how do public figures respond? Mostly they ignore it. Or they say they never heard it in the first place. Sometimes, though, the public figure pushes back and sues for defamation. What happens then?

Well, for one thing, if the alleged defamer is an individual, his or her homeowner’s insurance probably will be in play. Homeowner’s insurance? In a defamation case? Yep. Strange as it may seem, most homeowner’s policies cover claims for defamation and related torts, libel and slander. These torts and a few others fall within the standard policy’s “personal injury” coverage. Of course, most people will never be sued for defamation. But with the rise of social media activity and special-interest blogging, this coverage is of increasing importance. As of December 2011, bloggers had suffered $47 million in adverse defamation judgments. (See Dan Springer, A $2.5 Million Libel Judgment Brings the Question: Are Bloggers

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Defamation Coverage Policyholders and insurers, as well as insurance agents and brokers who deal with homeowner’s policies, should be aware of this coverage. They also should know its limits, as not all defamation claims are covered. A typical “business activities” exclusion, for example, would preclude coverage if the insured made the defamatory statements for economic gain. Also common is the “knowledge of falsity” exclusion, which would apply if the insured knew what he or she said or typed was false. But even if an exclusion ultimately may relieve an insurer of liability for an adverse judgment or settlement, the insurer still might be obligated to pay for the insured’s defense. As a general rule, an insurer’s “duty to defend” is much broader than its “duty to indemnify.” When an insured is sued, the duty to indemnify does not arise until the insured loses at trial or settles with the plaintiff. Even then, the insurer can refuse

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Coverage Corner continued from page 36 usually may not use to indemnify the insured if the conduct givextrinsic evidence in ing rise to the insured’s liability falls within assessing its duty to an exclusion. defend. The insurer By contrast, the duty to defend is trigmay only compare the gered whenever the allegations in the plainallegations in the comtiff’s complaint against the insured potenplaint to the terms of tially could result in a covered loss. This the policy. is so even if the plaintiff alleges other facts If the plaintiff implicating an exclusion that would negate alleges that the insured coverage. The duty to defend continues made a defamatory until the insurer can definitively establish statement in connecthe exclusion’s applicability. tion with a nonprofit Before denying coverage for an insured’s activity, for instance, defense, the insurer must be able to prove the insurer may not that the only invoke the business Most homeowner’s fair reading activities exclusion to of the plaindeny a defense even if policies cover claims tiff’s comhas reason to believe for defamation and plaint “leads itthat the insured in fact the related torts, to one inevi- was being paid. The libel and slander. table conclu- insurer possibly could prove this in a consion” — i.e., temporaneous declaratory judgment action. that the allegations against the insured But in the meantime, it remains contractuunmistakably fall within an exclusion and ally liable for the insured’s defense costs. thus could never result in a covered loss. (See Burlington Ins. v. Sup. Nationwide Logistics, Intentional Acts Exclusions Ltd., 783 F.Anderson Supp. 2d Murison 958, 961ad(S.D. Tex. 2010)) 1These issues come to a head when conquarter pg Sept.pdf 8/28/13 5:13 PM As a matter of public policy, an insurer sidering the standard “intentional acts”

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exclusion. Although defamation commonly is thought of as an intentional tort, most states recognize claims for negligent or reckless defamation. This means the plaintiff need not prove that the defendant deliberately lied or meant to cause harm. As Seventh Circuit Judge Richard Posner explained: “[D]efamation is often not intended or expected to injure anyone. The defamer may have made a good-faith though inadequate attempt to conceal the victim’s name, may have thought the victim’s reputation already impaired beyond possibility of further damage, or the most common case, may have thought the defamatory statement true, in which event there would be no injury in a legal sense.” (See Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 746, 7th Cir. 2001). Since the plaintiff usually can prevail without proving intent, there almost always will be a duty to defend. Otherwise, the scope of the intentional acts exclusion would be so broad as to render the coverage for defamation illusory. It is for this reason that in most insurance-related defamation cases we reviewed from across jurisdictions, the insurer could not rely on an intentional acts or similar continued on page 40


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Coverage Corner continued from page 38 exclusion to deny the insured a defense.

means acting with “a high degree Public Figures of awareness of The analysis, however, does not end here. the probable If the plaintiff is a public figure, such as a falsity of the politician, celebrity, or prominent businessstatement or man, the insurer may be able to invoke the [with] serious intentional acts exclusion to deny not only doubts as to its duty to indemnify, but also its duty to the publicadefend. This is so because for a public figtion’s truth.” ure plaintiff, a showing of mere negligence (See St. Amant or recklessness will not suffice. v. Thompson, Under the First Amendment, a public 390 U.S. 727, 731, figure may not recover damages for a defa1968). mation-type tort “unless clear and convinc The actual malice inquiry “is thus a subing evidence proves that a false and defamjective one, focusing upon the state of mind atory statement was of the publisher of the published with ‘actual With the rise of social allegedly libelous statemalice’ — that is, with media activity and ments at the time of knowledge that it was special-interest blogging, publication.” (See Kipper false or with reckless v. NYP Holdings Co., disregard of whether it defamation coverage is of Inc., 912 N.E.2d 26, 29, increasing importance. was false or not.” (See N.Y. 2009). The plaintiff N.Y. Times Co. v. Sullivan, must establish that the 376 U.S. 254, 285-86, 1964). defendant knew his or her statement was A public figure plaintiff therefore must false, or that the defendant subjectively prove either actual intent, or at a minimum, intended for the statement to cause harm. “reckless disregard,” which in this context Either way, the allegations in the plaintiff’s

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complaint, if proven, necessarily would trigger the intentional acts exclusion. The plaintiff’s complaint could not even potentially result in a covered claim, and the defendant’s insurer could invoke the exclusion to deny its duty to defend. Whether a court will let an insurer disclaim the duty to defend in a defamation suit filed by a public figure plaintiff remains to be seen. We could not find a case addressing the intentional acts exclusion in this context. But as blogging and other forms of amateur online journalism become more and more prevalent, anyone who buys or sells homeowner’s insurance should know about the intentional acts exclusion and its impact on the defamation coverage. Most people probably don’t read every word of their homeowner’s policies. So they may not know that defamation claims are covered. Many insurers may not yet realize they have grounds for denying that coverage either. But they undoubtedly will learn. Insurance agents and brokers need to be vigilant when explaining policy terms to prospective insureds. After all, policyholders whose claims are denied often look to their agents or brokers for indemnity. To protect themselves, agents and brokers not only should highlight for their clients the “personal injury” provisions specifying defamation as a covered claim, but they also should clarify how those provisions interplay with the intentional acts and other potentially applicable exclusions. Matheson is an associate in the San Antonio office of Akin Gump Strauss Hauer & Feld LLP. His practice focuses on complex commercial litigation, with an emphasis on the insurance industry and professional liability. Jones is a partner in the firm’s San Antonio office. With nearly 30 years experience, he works primarily on financial services and insurance.

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Growing Your Property Casualty Agency 10 Ways to Help Producers to Promote Their Own Identity


on-owner P/C producers help drive the independent agency system. They account for a significant share of the commercial lines business written through this channel. Yet too often, these employees must find their own path in the dark forest of sales success. That’s too bad because it’s good for everyone when management assists By Alan Shulman producers. There are myriad ways to accomplish this without over-sharing agency commissions. Options include representing competitive carriers, utilizing special programs, buying expirations and appointments, organic marketing assistance and more. This column focuses on: producer publicity.

Some agencies hesitate to publicize their producers separately from the agency for fear they’ll grow their books, at their expense, and then move on. It happens, but good producer relations and a solid employment contract helps to reduce the chances. Besides, with the advent of “free” social media, producers can make names for themselves without any agency financing. So management is wise to join in and help their agents — and the agency — for the same investment. Give producers the latitude, ideas, and tools to promote themselves. Here are 10 ways to do it. Start a department. “Promote” producers who focus on particular industries

or policies to the head of that department. This department may consist only of them, but it’s good for their ego, business card, and LinkedIn profile. Send a news release announcing its formation to regional business and trade publications, blogs, websites, relevant social media influencers, continued on page 46

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Growing Your Property Casualty Agency continued from page 44 etc. Include a photo of the producer that’s suitable for the given medium. Social media. Encourage producers to establish individual LinkedIn and Twitter accounts plus their own business Facebook pages. Show them how to post self-authored (or acquired) business insurance information that’s relevant to their client and prospect base — along with some insight into their own non-work interests and personality. Videos. Help producers record informative and entertaining insurance videos, starring themselves. Post the finished product to their LinkedIn profiles and Facebook pages [above]. Potential topics: Happy insureds praising the producer, a photo slideshow of his or her showcase clients, and a list of target-specific risks, read “with feeling” by the producer accompanied by dramatic background music. YouTube and super-short Vine and Instagram videos offer additional options.

Audio. Producers can also make audio recordings that ask and answer targeted or general insurance questions. These don’t have to be full-blown podcasts, just audio bites posted to various social media. LinkedIn Groups. Active (but not over-active) participation in target specific groups helps a producer to become known by the membership. These are in addition to individual LinkedIn updates. Blogs and online newsletters. These modern classics help producers to display their expertise. Populate them with the above-suggested content. Email lists. Invite targeted insureds and prospects to sign up for free business coverage or savings tips from individual producers. Use e-lists to drive web visits and to develop tighter connections via social media. Also send list members insurance-related surveys to elicit data worth sharing with external media. Insurance webinars. Conducted by the

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agent and packed with practical tips and visuals, these online meetings are low-cost alternatives to in-person seminars. Print ads. It’s cool for agencies to buy ads in select trade publications to promote specific producers and their expertise, such as a “Q&A column” ad. Seeing oneself in print may motivate the agent more than socially posting to digital media. Ask your carriers about co-op cash to assist. Local media. Permit producers to author brief insurance columns for area newspapers or magazines. And when they have the skill set, encourage them to be insurance guest experts on local radio and TV shows. Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the many tools posted on the Agency Ideas Instant Download Store. Phone: 800-724-1435. Email: Website:

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Philadelphia Insurance Companies 9 Quirk & Company W16; SC10 Regency Insurance Brokerage Services FL12 RLI 39 Ryan Specialty Group 13 Scottsdale Insurance Company 2 South & Western SE9 St. James Insurance Group FL3 State Compensation Insurance Fund W13 Sunderland Insurance Services, Inc. 42 Tejas American General Agency 3 The Institutes 18 The Sullivan Group 37 U.S. Reports 11 Vertafore - Print 43, 45 Volunteers Insurance Services Association, Inc. 14 Western World Insurance Group 19 Westrope 10 Worldwide Facilities, Inc. 35 9/23/11 12:14 PM


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Closing Quote the FSB fails to appreciate the differences between the American insurance industry and the European insurance industry and the banking sector in general.

The FSB’s Report Misses The Mark

I By David Snyder

n the United States, football season has just arrived. In Europe, football season has been underway since August. While both are a sport and called “football,” they couldn’t be more different. They have different histories, scores are tallied differently, and most importantly, the rules of the game are different. Imagine, Premier League Chairman Anthony Fry calling Roger Goodell of the National Football League to share his assessment of the league and make recommendations on how it can be improved. While there may be some commonalities — professional athletes, intense fan loyalties and large facilities, for example — the differences are stark and must be adequately understood for the ideas to be on point. Surprisingly, this is a fitting analogy for recent developments in global financial regulation, particularly with the Financial Stability Board’s (FSB) Peer Review of the U.S. financial regulatory system. The FSB was established to coordinate global efforts to ensure that the global financial sector is safe, secure, and stable. The FSB’s peer review of the U.S. was ostensibly written to examine the progress made in implementing measures to increase financial stability. While on the one hand, the FSB praises the U.S. for “good progress” and that it’s “already regulating itself effectively,” the peer review’s recommendations attempt to impose bank-centric regulations on the American insurance industry. In doing so,

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American Insurance Market The American insurance market is not only financially strong, it is highly regulated, and extremely competitive. The state-based regulatory system in the U.S. has successfully weathered natural and financial storms for more than 150 years, ably guiding the world’s largest insurance system — a fact recently reaffirmed by Congress in the Dodd-Frank Act. The FSB’s report, and the global, non-elected team that prepared it, simultaneously acknowledges and ignores the U.S. system’s success while calling upon the U.S. to look more like the European system of centralized oversight. But our sector is simply not structured the same way the European system is. A few big companies, many of which are affiliated with very large banks, dominate the European insurance industry, while, by contrast, the American insurance market is composed of many companies of all sizes, most of which are unaffiliated with large banking conglomerates. That’s why it makes sense for centralized regulation in a European system that is very interconnected, while it’s more rational to focus on individual insurance businesses at the state level in the U.S. A recent report The report fails to of the E.U.-U.S. recognize the differences Regulatory Dialogue between the American concluded that, while they look difand European insurance ferent, both U.S. and industries. European insurance regulatory systems have been effective in protecting consumers and the soundness of their respective insurance markets. Just as it would be nonsensical to impose European football rules on American football games without regard for the differences in the sports they are trying to regulate, we believe that financial regulatory systems should be judged both by the nature of the markets they govern and by the results they achieve. We will continue to work with regulators at the state, national, and international level to ensure that our financial regulatory systems are agile, robust, and modern. That is our goal and I know it is the goal of the FSB as well. But in pursuit of that goal, we must not forget what works. It appears that the FSB’s peer review recommendations are little more than solutions in search of a problem. Snyder is the vice president, international policy of the Property Casualty Insurers Association of America.

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Insurance Journal - Sept 23, 2013  
Insurance Journal - Sept 23, 2013  

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