Insurance Journal West 2014-08-04

WEST Preparing for the Next Big Solar Storm Calif. Workers’ Comp Reforms Working?

Wildfire Citations Uneven in California

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WEST

Inside This Issue

On The Cover

Special Report:

Top 100 Independent Agencies

August 4, 2014 • Vol. 92 No. 15 • West

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W2

10

28

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

10 Hartwig Turns Back King

Hammurabi’s Playbook

on Resilience

W2 AP Finds That Wildfire Citations

in California Applied Unevenly

W1 Power Risk: Time to be Afraid –

Preparing for the Next Big

Solar Storm

14 Closer Look: 10 Things to Know

About Auto 18 Study Tracks Rise in Attorney

Involvement in Auto Claims 23 Special Report: Top 100

Independent Agencies 26 Special Report: Top 20 Agency

Partnerships

W2 Fired Oregon Police Chief Sues

City Over Military Service W4 NRA Insurance Enables Oregon

Shooting Ranges to Reopen W4 Allstate Seeks Agents

in Washington, Oregon, Idaho,

Alaska and Hawaii

30 The Competitive Advantage: Chris

Burand on Small Commercial 34 Effective Non-Piracy Agreements

Protect Your Business 38 Closing Quote: Observations

on TRIA

W10 California Workers’ Comp

Officials Continue to Praise

Reforms

27 Special Report: Top 20 Banks

in Insurance 28 Closer Look: Opportunities

Abound in High-Value Home,

Luxury Condo Segment

6 | INSURANCE JOURNAL-WEST August 4, 2014

DEPARTMENTS 8 Opening Note W6 People 11 Declarations 11 Figures 22 Business Moves 32 MyNewMarkets

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NATIONAL COVERAGE

Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

Top 100 and More

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his year marks the 10th annual publication of Insurance Journal’s Top 100 Independent P/C Agencies report.

In our effort to identify the nation’s leading privately-held independent property/casualty insurance agencies a few things have changed, while others have remained the same. We have had to alter some of the eligibility criteria so that we adhere to the goal of identifying true independent agencies.

While there have been many agencies to make the Top 100 year-over-year — Lockton Cos., HUB International, USI Inc., Alliant Insurance Services Inc. to name just a few — there also are newcomers each year.

This year welcomes newcomers: BroadStreet Partners Inc.; Wortham Insurance & Risk Management; Hays Cos.; Answer Financial Inc.; NFP Property & Casualty Services Inc.; Westwood Insurance Agency; Rich & Cartmill Inc.; Tolman & Wiker Insurance Services LLC; R&R Insurance Services; Associated Insurance Management Inc.; Lipscomb & Pitts Insurance; and Insurance One Agency.

What about the Future Top 100? While the following agencies didn’t make the cut in 2014, their total P/C revenue came very close. Top 100 of Tomorrow?

We shall see.

Future Top 100

Total 2013 P/C Revenue

Baldwin Risk Partners Kapnick Insurance Group York International Agency LLC Ross & Yerger Insurance Inc. Crest Insurance Group Ahmann Martin The Crichton Group Emery & Webb Inc. The Odell Studner Group Vaaler Insurance Inc. LassiterWare Der Manouel Insurance Group Watkins Insurance Group Gibson Insurance Agency Inc. DFB Insurance Group LLC L/P Insurance Services Inc. The Sterling Insurance Group Ames & Gough Insurance/Risk Management Suhr Risk Services Wallace Welch & Willingham

$11,254,351 $10,914,000 $10,818,047 $10,519,139 $10,375,000 $10,179,676 $10,144,016 $10,106,070 $9,648,943 $9,325,112 $9,212,001 $8,606,391 $8,460,450 $8,205,000 $8,144,570 $7,844,147 $7,800,000 $7,300,000 $6,170,985 $6,065,980

The evolution of Insurance Journal’s Top 100 report would not have been possible without the willing participation of all of the agencies and brokerages that have shared their information with us. All information in this report is gathered from voluntary online submissions and best estimates based on other public information sources.

We thank the many agencies that have contributed over the years and invite others that have never submitted information for the report to consider it next year. Be proud of what you have accomplished. For questions, comments or criticisms, write to us at Insurance Journal. And congratulations to this year’s Top 100 P/C agencies!

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL-NATIONAL August 4, 2014

EDITORIAL Editor-in-Chief Andrea Wells | awells@insurancejournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Chris Burand Contributing Writers Daniel Byrne, Lloyd Dixon, Michael Dworsky, John Kemp, Tom LaTourrette, Gary Miller, Michael White, Henry Willis SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 855-814-9547

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insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, 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 2014 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-0708 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Ly Nguyen at 1-800-897-9965 ext. 125 or lnguyen@insurancejournal.com Visit insurancejournal.com/reprints/ for more information.

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NATIONAL COVERAGE

News & Markets Hartwig Turns Back King Hammurabi’s Playbook on Resilience

By Don Jergler

officials in communities understand which areas and which infrastructure he U.S. government may be starting to are at risk as a consequence embrace concepts that date back to of climate change,” Obama Babylonian King Hammurabi’s reign some said. “We’re going to help 3,800 years ago. communities improve ...

When President Barack Obama on July we’re also going to invest in 16 issued climate change initiatives encourstronger and more resilient aging steps like guarding the electricity infrastructure.” supply, improving flood planning, protect When Hartwig gets the ing against coastal erosion and storm surge, same basic question over and predicting landslide risks, he could and over again from the have been calling shots from the insurance government and the media, industry’s playbook.

“What is the industry doing The basics of that playbook harken back to prevent climate change?” to early human history, when Hammurabi there are myriad ways and company realized risks and disaster Hartwig answers. needed to be addressed — ergo the code “We’re not a greenhouse of Hammurabi, which contained possibly gas emitting industry,” is the first insurance policy written decreeing one. His favorite answer is a debtor didn’t have to pay back loans if to point out that the indusdoing so was impossible due to catastrophe. try is constantly evaluating For those who are coming to the real Not necessarily. Major hurricanes, tornarisk, and thanks to the policy seller-holder ization that climate change requires not does, floods, earthquakes and massive wildrelationship in which policyholders pay less only action but risk management, Robert fires year-in and year-out haven’t changed for being and building safer, insurance buyHartwig has some news. “The private insurhow people behave or their view of risk. ers have an economic incentive to reduce ance industry has been at the vanguard of “More people are moving into homes and risk. these issues for decades,” said the economist working in businesses that are in harm’s When disaster strikes, the industry and Insurance Information Institute presiway,” Hartwig said. People still flock to responds by paying claims and adapting. dent. coastal zones to live by the sea, or they “The industry has been managing vari There is a growing cacophony of calls yearn to own homes in places that offer ability since the first insurance for better understanding of airy lifestyle opportunities that come with policy was written,” extreme weather events and living in the wildland-urban Hartwig said. “What is ‘We’re not the how they will impact people interface. People haven’t stopped very often lost [when climate change migrating to beautiful but often and businesses, he said, and the topic of climate noted that what the industry dangerous areas. police.’ change arises] is that has been doing for millen While the government it is at the core of the insurance nia in regard to resilience is may deem areas risky and create laws, industry’s DNA to continue to “absolutely consistent with incentives and regulations to deal with risk, monitor these risks.” everything the administration the insurance industry has to let nature Many of Obama’s climate would want to achieve.” take its course. change related incentives are Obama hit on several top“The insurance industry is not the Robert Hartwig a call-to-arms to make society ics for which the insurance demography police in the Unites States,” more resilient. If a push from the industry already has its terms: Hartwig said. “We cannot tell people where government means homes start to be built “modeling,” “underwriting” and “resi-lience” they can live. All we can do is send them a better and communities are planned with — the latter is a concept that has become signal about the riskiness of all of that.” disasters in mind, wouldn’t this reduce new again due to climate change.

Emphasizing his aversion to authoritarian claims payouts and make the industry more “We’re going to do more, including new measures, Hartwig added, “We’re not the profitable? data and 3D maps to help state [and] local climate change police.”

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10 | INSURANCE JOURNAL-NATIONAL August 4, 2014

www.insurancejournal.com

IDEA EXCHANGE

Power Risk

Time to be Afraid – Preparing for the Next Big Solar Storm

By John Kemp

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he probability of a solar storm striking Earth in the next decade with enough force to do serious damage to electricity networks could be as high as 12 percent, according to solar scientists.

One such storm erupted from the surface of the Sun two years ago, on July 23, 2012. If it had been directed at this planet, it would have produced the worst geomagnetic storm in more than four centuries and caused extensive power problems.

Fortunately, on this occasion, the eruption pointed away from Earth and the storm www.insurancejournal.com

blasted safely out into space.

But if it had occurred just a week earlier, when the site was pointed directly at our planet, billions of tons of highly charged particles would have raced towards Earth’s magnetic field at a speed of 2,500 km (1,500 miles) per second.

The result would have been a spectacular display of the northern lights (aurora borealis) and southern lights (aurora australis) visible as far as the equator, turning the night sky as bright as daytime.

But it could also have fried the world’s electricity grids and left hundreds of millions of customers without power for

months or even years.

In the event of an eruption directed at Earth, politicians and power grid operators would have just a few hours from the first signs until the full fury of the storm hit to protect the electrical systems on which modern life depends.

“The July 2012 solar storm was a shot across the bows for policymakers and space weather professionals,” U.S. solar researchers warned in the journal Space Weather (“A major solar eruptive event in July 2012: defining extreme space weather scenarios,” October 2013). continued on page W14 August 4, 2014 INSURANCE JOURNAL-WEST | W1

WEST COVERAGE

News & Markets Fired Oregon Police Chief Sues City Over Military Service

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brigadier general in September 2011, some city employees began expressing concerns that his commitments to the National Guard were taking him away from the police department too often.

Bush was in South Korea with the National Guard from Aug. 4 through Aug. 31. On Aug. 28, the city retained the Local Government Personnel Institute

he recently fired police chief of a central Oregon town says he was undone by an ambitious deputy who had eyes for his job and a city government that resented the leave he took for military service.

Former Prineville Police Chief Eric Bush says in a lawsuit that he was unjustly fired in early July after a 10-month investigation by the city that centered on his alleged abuse of the city’s flex-time policy and the falsification of hours worked.

The investigation also looked at his possible misuse of office computers for personal and National Guard-related matters. The city has declined to release the investigation.

The Bulletin reported Bush was placed on paid leave Sept. 3 of last year, the first day he returned to work after a nearly monthlong National Guard assignment in South Korea, and more than three weeks before Prineville officials announced it publicly.

Police Capt. Michael Boyd was positioning himself to be Prineville’s next chief and described Bush as “corrupt,” an “embezzler” and a “liar” to others in the department, the suit says.

Shortly after Bush had been placed on leave, the suit says, Boyd reportedly told department employees, “Chief Bush might just kill himself and that would be the easiest outcome.”

Neither Boyd nor City Manager Steve Forrester immediately returned a call from The Associated Press.

According to the complaint, shortly after Bush was promoted to

to begin investigating Bush.

Mayor Betty Roppe said she was unable to comment on Bush’s suit, but has confidence in the city manager’s ability to make day-today personnel decisions and supports his dismissal of Bush.

She said council members received regular updates on the investigation over the past 10 months and conceded the process dragged on longer than she would have preferred.

“The city had to be really cautious and make sure our investigation was thorough,” she said. “Public employees have a lot of rights, and we had to make sure our i’s were dotted and our t’s were crossed.”

Bush’s suit seeks more than $2.5 million from the city to compensate for the loss of future wages and benefits along with additional noneconomic damages for defamation and the deliberate infliction of emotional distress.

Copyright 2014 Associated Press.

AP Finds That Wildfire Citations in California Applied Unevenly

Oregon Irrigators Out of Water as Drought Persists

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I

review by The Associated Press of California government data has found a wide discrepancy in how state and local fire officials apply fines and citations for failing to clear vegetation in areas prone to wildland blazes.

Property owners in Southern and Central California were cited 5,076 times during the past three fiscal years for not doing enough to clear their properties and protect their homes from wildfires. During the same period, just eight such citations were issued in all of Northern California, and all of those came in a single year. The discrepancy is potentially important as the drought-stricken state enters the heart of its wildfire season. Lower compliance with the state’s defensible-space mandate could mean more homes lost when wildfire breaks out.

Copyright 2014 Associated Press.

W2 | INSURANCE JOURNAL-WEST August 4, 2014

n the third year of a drought, reservoirs in far Eastern Oregon are low, and farmers are running out of irrigation water.

South of Ontario, Jay Chamberlin of the Owyhee Irrigation District in Nyssa says he’s been telling farmers who still have some of their allotments that they should use the water wisely.

He told the Ontario Argus Observer that later on the irrigation district will have trouble providing water.

There was hope that the Owyhee Reservoir would be able to supply water into the first week of August.

Copyright 2014 Associated Press. www.insurancejournal.com

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News & Markets NRA Insurance Enables Oregon Shooting Ranges to Reopen

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hooting ranges in White City, Ore., have reopened after the National Rifle Association agreed to provide insurance coverage.

The 18 ranges were forced to close July 1 because their insurance carrier dropped coverage after a man filed a claim after he was injured by a piece of debris that flew back during target practice.

White City is an unincorporated community in Jackson County, about 10 miles north of Medford.

Phil Grammatica, president of the Rogue Valley Shooting Sports Association, said the NRA agreed to provide coverage as long as users sign a liability waiver before they target practice. The NRA insurance will cost less than $2,000 a year, compared with $6,700 under the canceled policy.

The waiver requires a printed name, signature, date and the day-pass number.

However, no identification is required.

If the waiver isn’t signed, then using the range is considered theft of county property, Grammatica said.

According to the waiver, only cardboard targets are allowed and all safety rules must be followed. No glass, metal or rocks can be used as targets.

The waiver notes that the shooting ranges involve potentially hazardous and dangerous activity with the risk of personal injury, including death and loss or damage to personal property.

Moreover, ear and eye protection is required during target practice, Grammatica said. Previously, protection was recommended but not required.

Bob Drysdale, president of the Medford Rifle and Pistol Club and treasurer of the shooting sports association, said the association’s goal is to have a ranger present at all times. Eventually, another ranger could be posted at the entrance to make sure the money is collected and the waivers signed.

Another area of the shooting ranges is set aside for 19 law enforcement agencies, but these weren’t affected by the shutdown because police carry their own insurance.

Copyright 2014 Associated Press.

Allstate Seeks Agents in Washington, Oregon, Idaho, Alaska and Hawaii

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llstate Insurance Co. plans to add several local agency owners in Washington, Oregon, Idaho, Alaska and Hawaii in 2014.

Allstate’s plan is to recruit 51 new exclusive agents, 13 financial specialists and the company expects agency owners will be looking to add 102 sales producers.

“Allstate is committed to growing in the Northwest,” said Brian Smith, Allstate’s Northwest region strategic deployment leader. “We are looking for candidates who have an entrepreneurial spirit, driven personality, a heart for the community and a

W4 | INSURANCE JOURNAL-WEST August 4, 2014

desire to be a small business owner.”

Candidates for Allstate agency ownership need a minimum of $50,000 of liquid capital to invest in their agency. Agency owners will be in charge of hiring licensed sales and customer service staff as part of building their business plan.

Allstate’s Northwest region has more than 500 exclusive agents. Allstate reportedly insures roughly 900,000 passenger cars and trucks plus more than a 340,000 homes throughout the five states in the region.

Interested candidates can log on to www. allstateagent.com, or call (877) 711-1006.

Insurer Says OK to Settlement in Wrongful Death Suit Against Hawaii Driver

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$1.1 million settlement has been reached in a wrongful death lawsuit involving the death of a 26-year-old pedestrian.

The settlement came in a civil lawsuit against Robert Wayne Yount, 83, and the civil case will be dismissed.

Attorneys for both sides, along with Yount’s insurer, State Farm, agreed to the terms of the settlement.

The Kauai Police Department reported that on March 16, 2013, Yount was driving an SUV when he allegedly hit Jill Garnett of Waimea as she walked along the shoulder of Kaumualii Highway.

Yount also faces criminal charges, including first-degree negligent homicide, in Garnett’s death.

However, in March, he was found unfit to proceed to stand trial, and he is in custody at the Hawaii State Hospital.

Among other charges Yount faces is an attempted murder charge for firing in the direction of police officers who were attempting to serve him with a criminal indictment in the Garnett case.

The civil lawsuit was filed by Garnett’s estate, represented by her mother and two brothers.

Garnett had lived in Hawaii for six years at the time of her death.

Copyright 2014 Associated Press.

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People Andrea Levin

Matt Hunter

Edgewood Partners Insurance Center has added Andrea Levin as a vice president in its Petaluma, Calif., office.

Levin will report to Mike Ryan, property/casualty practice principal in the North Bay. Her responsibilities will include acquiring clients, growing accounts and overseeing the insurance and risk management programs of current clients.

Levin has 24 years of experience. Prior to EPIC, Levin spent more than nine years as an underwriting director with CNA Insurance.

Before CNA, Levin was a vice president in the FINPRO division of Marsh Inc. EPIC has California offices in Los Angeles, Irvine, Inland Empire, Fresno, Folsom, San Francisco, San Mateo, Petaluma and San Ramon, as well as offices in Atlanta, Ga., Boston, Mass., Chicago, Ill., Denver, Colo., and New York.

Novato, Calif.-based Fireman’s Fund Insurance Co. named Matt Hunter as national loss prevention leader.

Hunter will be based in Southern California and will be a part of the risk services and solutions team focusing on

the development and deployment of loss prevention programs nationally that support the high net worth personal insurance business.

He has more than 24 years of experience, with expertise in high net worth loss prevention, including water mitigation. He most recently worked as a loss prevention technical specialist at AIG Private Client Group. Prior to that, he held various claims and risk management roles at AIG, Travelers and Nationwide.

Fireman’s Fund is a member of the Allianz Group.

Farmers Insurance has named Thomas White president of Farmers’ non-insurance businesses.

This is a newly created position. White will oversee Farmers non-insurance businesses, including Farmers Financial Solutions and Kraft Lake, as well as the development of future new business opportunities.

White will report to Farmers Chief Executive Officer Jeff Dailey.

White has more than 30 years of experience, serving most recently as group head of human resources for Zurich.

He also served as Zurich Japan’s chief executive officer and Farmers New World Life’s president and chief executive officer.

Prior to Zurich, White held a variety of senior positions with AIA, Prudential and AIG. Los Angeles, Calif.-based Farmers Insurance Group of Cos. is an insurer of automobiles, homes and small businesses.

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W6 | INSURANCE JOURNAL-WEST August 4, 2014

7/16/14 3:14 PM

Louis Castoria has been named partner and director of the West Coast professional liability practice group at Kaufman Dolowoich & Voluck.

Castoria will work out of the San Francisco, Calif., office.

His practice focuses on professional liability defense in the financial services sector representing securities brokers, lawyers, insurance agents and brokers, accountants, and financial planners; insurance coverage litigation; commercial litigation; insurance regulation; and reinsurance arbitration.

Castoria has 30 years of insurance industry experience. He was formerly a partner at Wilson Elser.

Karen K. Delaney has been named vice president and Southern California employee continued on page W8 www.insurancejournal.com

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People continued from page W6 benefits market leader at WoodruffSawyer & Co. Delaney will work with the firm’s leadership and provide marketing solutions to clients.

Delaney has nearly 20 years of experience

on the insurance carrier and brokerage side, with experience working for both private and public firms. Most recently she was a vice president and senior consultant at Lockton Cos. San Francisco, Calif.-based Woodruff-

Sawyer has offices throughout California, in Portland, Ore., and in Denver, Colo.

Burnham Benefits Insurance Services named Helen Vits a senior account executive in its Irvine, Calif., office.

Vits will consult with Burnham clients as they structure their employee benefit packages.

Vits’ career in employee benefits began at Baker, Thomsen Associates, which was acquired by Brown & Brown. Prior to her career in employee benefits, Vits worked in different accounting and advertising roles.

Irvine-based Burnham Benefits has offices in Orange County, the San Francisco Bay Area, Los Angeles, San Luis Obispo and Santa Barbara, as well as satellites in Oregon and the Washington, D.C., metro area.

Leavitt Pacific Insurance Brokers in San Jose, Calif., has hired Alex Miller as a safety specialist.

Miller will focus on assisting organizations develop effective loss prevention programs.

Prior to joining the agency, Miller conducted risk assessments for organizations.

He began his safety career in 1992 as a safety specialist.

Leavitt Pacific Insurance Brokers is part of the Leavitt Group.

Heffernan Insurance Brokers has tapped Lawrence Thomas to join its Orange County, Calif., branch as assistant vice president.

Thomas will focus on building the nonprofit, entertainment and fashion apparel manufacturing specialties for Heffernan in Southern California.

Thomas has a background in business consulting, and he spent time working in major market development throughout Southern California.

Walnut Creek, Calif.-based Heffernan has California offices in San Francisco, Petaluma, Menlo Park, Los Angeles and Orange County, as well as in Portland, Ore., St. Louis, Mo., and New York, N.Y.

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News & Markets California Workers’ Comp Officials Continue to Praise Reforms

By Don Jergler

T

outing California’s still-young workers’ compensation reform law as a “pragmatic middle” compromise that seems to be working, two of the top officials responsible for the system talked up some of the reform’s finer points on last month.

David Lanier, secretary of California’s Labor & Workforce Development Agency, and Department of Industrial Relations Director Christine Baker were at the California Coalition on Workers’ Compensation annual convention in Anaheim to give an update the impacts of the sweeping reform known as Senate Bill 863.

The reform passed in 2012 with Gov. Jerry Brown reportedly having a personal hand in getting labor and employers to compromise on enough points to last-minute bill passed Legislature.

The bill provided an immediate 30 percent increase in permanent disability indemnity rates for workers phased in over two years, and a host of reforms to the system.

Despite the pair’s praise of the system, there have been plenty of kinks reported in the new law, including a major backlog in a new review process which has had the contractor for the system under scrutiny, a legal decision that may be undermining some of the changes and a constitutional challenge that threatens to undo some key provisions of the reforms.

On the day Lanier and Baker, spoke DIR also issued an official update on the reforms in conjunction with their appearance at the conference.

W10 | INSURANCE JOURNAL-WEST August 4, 2014

The update states SB 863: • Successfully trimmed 3 percentage points off the rate increase, although employers still had to endure an increase of more than 10 percent in their workers’ comp costs; • Strengthened California’s self-insurance marketplace by lowering the rate

‘We know we’ve got progress.’ of defaults, thereby reducing costs to all remaining self-insurers; • Reduced ambulatory surgery center facility fees from 120 percent to 80 percent of Medicare’s hospital outpatient fee schedule.

“We know we’ve got progress,” Lanier told the crowd of several hundred workers’ comp professionals, pointing to the most notable, and positive, impacts the reforms

have had: the new independent medical review process; addressing the state’s coagulated lien process; reducing ballooning costs of the hardware used in spinal surgeries.

Lanier said Brown has so far let the system work as is before stepping in and making any adjustments and fixes along the way.

“We know it’s not perfect, he knows it’s not perfect,” Lanier said.

“It’s a dynamic system. It’s not a static system.”

One of the biggest early impacts of the reforms was changes to the lien process, Baker said Under SB 863, liens for reasonable medical expenses incurred by or on behalf of the injured employee are subject to a filing fee of $150. For liens filed before Jan. 1, there will be a $100 activation fee which must be paid prior to Jan. 1, 2014, or the lien will be subject to dismissal.

The fees were intended to reduce the hundreds of thousands of liens filled each year costing the system hundreds-of-millions of dollars, according to SB 863 backers.

“We halved the liens,” Baker said. “The lien fee is saving employers and insurers $270 million per year.”

According to Baker, the average payment per spinal surgery involving implantable hardware fell 56 percent after a provision in SB 863 eliminated a duplicate payment loophole that was being exploited by workers’ comp physicians.

It’s not just those who run the system who say the reforms have had an impact.

A study from the California Workers’ Compensation Institute in January showed continued on page W12 www.insurancejournal.com

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News & Markets continued from page W10 Bradford and Barthel LLP, said in response more than 95 percent of workers’ comp the IMR process, and many believe that to Baker’s assessment that IMR is working. medical treatment requests were approved WCAB’s reconsideration of their decision Barthel said the IMR process is far too following the utilization review and indewill only back up what the board has backlogged to be cleared up even by the pendent medical review processes estabalready decided and open the floodgates end of the year. lished by SB 863, which the report states wider.

“I don’t have great “dispels the assertion that these programs

“I think most folks in hope,” he said. are generating wholesale denials of necesthe industry believe there’s Barthel believes sary care for injured workers.” not going to be much of a the contractor for the The pair also talked extensively about change between Dubon 1 IMR and independent IMR. and Dubon 2,” Barthel said. review services for Under the process, a doctor treating an The decision has appliCalifornia, Maximus, injured worker will submit a request for cants’ attorneys ready to was given a “get out payment authorization, and an insurance clog up the workers’ comof jail free card” when adjuster may approve the request or ask pensation system even more Baker declined to that the request be sent to a utilization by forcing them to go two penalize the firm review doctor, who in most cases will routes in workers’ comp under the auspices of review, but may reject the payment. cases to avoid potential the contract for falling The patent can appeal under the IMR malpractice lawsuits from so far behind in the process if treatment is rejected. clients whose utilization IMR process.

Initially DIR reported tens of thousands reviews were determined California Department of Industrial He and others have of IMR requests were received in the first flawed, when those clients Relations Director Christine Baker also argued that one year the process was initiated, creating a are forced to wait for a reason for the backlog is that the new large backlog. judge’s review because their lawyer didn’t system drove many cases that would have When the reforms were passed IMR simultaneously file for an expedited review. otherwise been informally settled between requests were expected at a rate of about “Applicants’ attorneys, to avoid malworkers and employers into the IMR pro4,000 per month. practice, have to go via two routes at the cess.

“They ended up coming in at about same time,” Barthel said. “One, they have “It brought these disputes into the fold 20,000 a month,” Baker said. to file for an IMR request and ask that the and put Maximus so far behind,” Barthel Baker said those cases are being worked utilization review be reviewed by IMR, said. through. and two, they have to file for an expedited In fact, people like Barthel worry rough “I am confident we will catch up and hearing in hopes that the judge will deterer seas could lie ahead for IMR. keep pace,” she said, adding that she mine that the utilization review decision The Workers’ Compensation Appeals expects DIR to catch up on IMRs around was somehow fatally flawed.”

Board in May agreed to reconsider its Feb. September.

If the decision was flawed, under Dubon 27 decision in Dubon v. World Restoration, The report released by DIR shows that case can be determined by a judge.

Inc. that held that if a defendant’s utilizaroughly 185,000 IMR applications have A constitutional challenge filed earlier tion review is found invalid been filed, and the this year is another potential wrench. It ‘It’s a dynamic system. the issue of medical neces- was filed by applicants’ attorney Joseph qualified medical evaluator process that It’s not a static system.’ sity is not subject by IMR Waxman asking the California Court of but is to be determined by IMR replaced cost Appeals to review language in SB 863 that the WCAB based on medical evidence. at least three times more than the $420 states the utilization review and IMR pro Essentially that decision puts the medaverage cost of an IMR — QMEs averaged cesses are not appealable to the courts. ical decision making back into hands into $1,653, according to the report.

The challenge had an early setback and the hands of workers’ comp judges in some is no longer in the Court of Appeals, but cases, and flies in the face of one of the Barthel and others say it will be back and Doubts Remain finer points of establishing the IMR pro Not everyone agrees the state is on its they wouldn’t be surprised if it casts sericess, which was to take medical decision ous doubt on the constitutionality of one way to catching up on IMRs, or that the making out of the hands of judges and let process has worked as well as the officials of SB 863’s main premises. doctors make those judgments.

“I think many of us have been preaching say it has.

Applicants’ attorneys have already been “I couldn’t disagree more firmly,” employthat ever since SB 863 first passed,” Barthel using the Dubon decision to challenge said. ers’ attorney Don Barthel, a partner in W12 | INSURANCE JOURNAL-WEST August 4, 2014

www.insurancejournal.com

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Power Risk continued from page W1 “Our advanced technological society was very fortunate, indeed, that the solar storm did not occur just a week or so earlier. Had the storm occurred in mid-July the Earth would have been directly targeted … and an unprecedentedly large space weather event would have resulted,” the researchers wrote.

“There is a legitimate question of whether our society would still be picking up the pieces,” they concluded.

wrote (“Severe space weather events: undernumber of them has not been previously standing societal and economic impacts,” contemplated,” the U.S. government’s Oak 2008).

Ridge National Laboratory warned in 2010 “The loss of electricity would ripple (“Geomagnetic storms and their impacts on across the social infrastructure with water the U.S. power grid,” January 2010). distribution affected within several hours; The problem is not just manufacturing. perishable foods and High-voltage transmedications lost in ‘In the event of an eruption formers are excep12-24 hours; loss of tionally large and directed at Earth, politicians heating/air condiheavy, so they have tioning, sewage dis- and power grid operators to move slowly by The Next Big One posal, phone service, would have just a few hours ship, road and rail, Scientists and power grid operators fuel re-supply and and cannot be air from the first signs until the remain divided over how much damage the so on,” according to freighted. Moving full fury of the storm hit to power grid would suffer in a severe solar a study funded by one even a few storm aimed directly at Earth. the U.S. government. protect the electrical systems kilometers requires on which modern life depends.’ weeks of planning.

A moderately severe geomagnetic storm Older electrical aimed at the United States could cut power transformers would

“It may take to 130 million people and damage more be at particular risk of being damaged by one week to move a 250,000-volt transformthan 350 high-voltage transformers, which the enormous electrical currents induced in er a short distance in major metropolitan would take months to replace, according the power grid by a severe storm. areas,” Oak Ridge explained. “Even the to a report published by the U.S. National Transformers cannot just be ordered from distance of a few miles may take an entire Academy of Sciences in 2008. a store. Spare units are in limited supply. weekend, as a number of traffic lights have A really severe storm could inflict damOrdinarily, it takes up to 15 months to order, to be removed and reinstated as the load is age and disruption estimated at between manufacture, install and test a high-voltage moved at snail’s pace in special trailers and $1 trillion and $2 trillion, 20 times the cost transformer — even longer for some specialthe route taken has to be fully surveyed for of Hurricane Katrina, with a full recovery ized equipment. load-bearing capability by civil engineers.” time between four and 10 years, the academy “The need to suddenly replace a large Grid operators are more sanguine about the risks. Severe geomagnetic storms are more likely to cause blackouts and shortterm power loss, rather than permanent damage, according to a report prepared by the North American Electric Reliability Corporation (NERC) on behalf of the industry (“Effects of geomagnetic disturbances on the bulk power system,” February 2012).

NERC thinks a severe storm would heat up a fully loaded transformer to around 120 degrees Celsius [248°F] for roughly four minutes, well below the 200-degree [392°F] design threshold used for modern equipment. A really severe storm could P OL IC Y CR A F T ED W I T H A SSU R A NCE push temperatures over 200 degrees for 14 WSS is ma ering the cra of insurance. Visit us at wssib.com to learn more. minutes, potentially causing failures, but is unprecedented in modern times, according to NERC. california (800) 733-5844 Nonetheless, the industry has established texas (888) 977-3255 a special working group on mitigating the effects. And in May 2013, the Federal Energy Regulatory Commission formally directed CA Lic. #0622580 TX Lic. #15210

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NERC to develop reliability standards to help protect the U.S. grid from solar storms (“FERC Order 779: Reliability standards for geomagnetic disturbances,” May 16, 2013).

Carrington Events NERC characterizes severe geomagnetic storms as “high impact, low frequency” (HILF) risks. High impact, low frequency risks are particularly hard to manage because policymakers must decide how much money to spend on reducing a risk that would be catastrophic but seems remote.

However, recent research suggests the probability of a severe storm hitting Earth may be much higher than NERC assumed.

The worst solar storm on record occurred on Sept. 1, 1859, and was observed by an amateur astronomer in England called Richard Carrington, after whom the Carrington Event is named.

A large solar flare erupted from the surface of the Sun lasting for around five minutes. At the same time, a huge mass of highly charged particles, known as a coronal mass ejection (CME), was flung towards Earth at speeds up to 2,000 km [1,242 miles] per second, according to reconstructions by modern solar scientists.

The first particles reached Earth within an hour and the storm peaked around 17 hours and 40 minutes after the flare was observed.

The Carrington Event occurred in a largely pre-electrical age, so the impact was limited. But it was strong enough to damage severely the new telegraph systems installed in North America and Europe.

The next big solar storm, reported in May 1921, brought the U.S. telegraph service to a halt between the East Coast and the Mississippi River, blowing fuses and burning some operators.

In March 1989, a severe geomagnetic storm blacked out Quebec’s power grid in less than two minutes — the worst impact to date.

In October and November 2003, the so-called Halloween storms caused isolated transformer failures in North America and Europe. www.insurancejournal.com

Measuring the severity of a storm is tricky because it depends on so many factors, including the size of the flare, the scale of coronal mass ejection, the speed at which it travels from the Sun to Earth, magnetic flux,

time of day, and location of the direct hit.

But one common summary statistic used by solar researchers is called “disturbance-storm time,” or Dst for short. continued on page W16

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Power Risk continued from page W15 The Dst index measures how hard Earth’s magnetic field shakes when a storm hits, according to NASA (“Near miss: the solar superstorm of July 2012).

Dst is measured in nano-Teslas (nT). The more negative Dst becomes, the worse the storm.

The Carrington Event in 1859 is estimated to have had a Dst index of around -850 nT. The Quebec storm in 1989 clocked in at -589 nT and the 1921 storm was probably on a similar scale.

What frightened the solar scientists was that the July 2012 storm would have had a Dst index of up to -1,200 nT if it had struck Earth, making it much worse than the Carrington Event.

Scientists are able to analyze the July 2012 storm in detail because although it was angled away from Earth it made a direct hit on a solar observation satellite, STEREO-A, which is specially hardened to withstand extreme magnetic disturbances.

But had it hit Earth, it would have done severe damage to power grids and satellite communications.

it would impact vulnerable systems (including the grid, global positioning system, radio and television communications, satellites and aircraft), harden them where possible, and plan how to cope with the aftermath of a big storm.

Once a large flare is detected, the industry and policymakers would have just an hour or so to put the grid and other systems into the safest possible operating mode before the storm arrives.

Prior Preparation Before the next major storm arrives, it is essential to understand which transformers and other equipment are most at risk.

Policymakers must consider whether to replace, redesign or otherwise harden the most at-risk equipment to withstand the impact.

It is also essential to identify how the grid (and other systems) could be rendered as safe as possible before the storm strikes.

Readying the grid could ‘But even in the most involve turning the power Risk Management advanced economies, to customers down or off Severe solar storms to reduce the loading on a severe solar storm occur much more often critical transformers and than previously thought. could leave homes and make them less vulnerable businesses without Like many natural to overheating. phenomena, the fre If power and communipower for months.’ quency with which cations systems are likely solar storms take place scales as an inverse to be disrupted, businesses, households power of the severity of the event. But the and government agencies will need to be sheer number of large storms over the last informed quickly.

150 years suggests the Carrington Event is And once the storm has passed, grid unlikely to be an isolated occurrence. operators and policymakers must have a Calculations by solar scientist Pete Riley, plan for damage repairs. at Predictive Science Inc., suggest the prob Grid managers already plan how to ability of a solar storm of at least the power re-energize the grid after large-scale blackof the Carrington Event hitting Earth in the outs such as the one that hit the northeast next 10 years is around 12 percent (“On the United States and neighboring parts of probability of occurrence of extreme space Canada in August 2003. weather events,” February 2012).

The process is known as a “black start” While not high, a 12 percent probability and involves a careful sequence of steps to hardly qualifies as a “low-frequency” or restart power plants, re-energize power remote-probability event. lines and transformers, and gradually restore So it is essential that the power industry supplies. and policymakers better understand how But a severe solar storm might also cause W16 | INSURANCE JOURNAL-WEST August 4, 2014

more permanent damage, so the industry needs to supplement its black start procedure with a plan for handling multiple transformer outages.

Between 1996 and 2010, the SOHO satellite recorded almost 15,000 coronal mass ejections. It is only a matter of time before one of them is aimed at Earth and is of the same magnitude as Carrington, or worse.

Given the frequency of large solar storms, most people reading this article will witness at least one.

And given society’s increasing dependence on electricity and electromagnetic communications, storms could do much more damage in future, just one way in which new vulnerabilities are emerging in high-tech economies.

The biggest threat is probably in emerging markets, especially middle-income countries, where the combination of widespread electrification and electronic communications coupled with outdated and overloaded equipment makes them especially vulnerable.

But even in the most advanced economies, a severe solar storm could leave homes and businesses without power for months.

Proper risk management and preparation are therefore essential.

We cannot stop a big solar storm arriving, but we can prepare and try to avoid its worst effects.

Editing by Dale Hudson. Kemp is a columnist for Reuters.

Copyright 2014 Reuters www.insurancejournal.com

NATIONAL COVERAGE

FIGURES

$60,000

The reported amount of damage from a house fire in Seattle that ignited when a man decided a spray paint can and a lighter was the best way to kill a spider.

DECLARATIONS

$42,158

The amount in restitution a Texas man is required to pay to Oklahoma victims of home repair fraud. The Oklahoma Attorney General’s Office said that Randy Leroy Madewell of Danbury, Texas, accepted more than $42,000 from seven homeowners for home repair and roofing work, but never started the projects.

Multiple System Gaps

“What this investigation uncovered were multiple gaps in multiple systems.”

— Chris Hart, acting chairman of the National Transportation Safety Board, said a report showed a distracted pilot driver and an inadequate permitting process by the state of Washington all played a part in last year’s Interstate 5 bridge collapse north of Seattle.

Homeland Security Grants

“From Sept. 11 to Superstorm Sandy, our first responders and local law enforcement agencies have been essential in protecting New Yorkers and keeping our communities safe.”

— New York Gov. Andrew Cuomo in his July 9 statement announcing homeland security grants from the state and federal governments. Cuomo said cities and towns across the state will get $185 million for anti-terrorism initiatives, bomb squads and other homeland security-related programs.

Climate Change

166,000 The approximate number of New York employers who currently hold the New York State Insurance Fund’s workers’ comp policies, totaling $2.4 billion and constituting 40 percent of the New York market.

2,000 The number of structures in Fargo, N.D., that will need flood insurance because of a change in flood plain maps. The new FEMA flood map will go into effect next January.

“We are scientists, and we would like the opportunity to explain what is at stake for our state.”

$471,798 The amount a jury said Agape Baptist Church in Florida must pay to a man who was severely burned after setting fire to a brush pile while working off community service hours. The award in Ocala includes $300,000 for plaintiff Justin Castro’s past and future pain and suffering. The Ocala Star-Banner reported that Castro burned more than 30 percent of his body in September 2011 after pouring gasoline over the brush and lighting it.

— Scientists from Florida universities who asked to meet with Gov. Rick Scott about climate change. Scott and other Republicans have been skeptical of global warming, and the governor has worked with the GOP-controlled Legislature to dismantle climate change initiatives.

Hurricane Deductibles

“To ease the potential financial burden on

consumers as a result of this higher hurricane deductible, I have asked State Farm to give their policyholders statewide the option to buy back the lower 2 percent deductible.”

— Louisiana Insurance Commissioner Jim Donelon. State Farm Fire and Casualty Co. recently implemented a statewide 5 percent hurricane deductible for all new and renewal policies.

Detroit Bankruptcy

“We look forward to the confirmation hearing and demonstrating to the court that the plan cannot legally be confirmed given its unfair discrimination against financial creditors and other serious infirmities.”

www.insurancejournal.com

— James Sprayregen, an attorney for bond insurer Syncora which, along with Financial Guaranty Insurance, insures Detroit bonds. Both stand to lose millions if the city goes ahead with its bankruptcy plan. The two insurers pledged to aggressively challenge Detroit on the plan, which they say gives retirees and city workers special treatment and is unfair to other creditors.

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CLOSER LOOK

10 Things to Know About Auto

Auto liability insurance is compulsory in the District of Columbia and all states except New Hampshire. The percentage of uninsured motorists nationwide was estimated at 13.8 percent in 2009.

— Insurance Information Institute and Insurance Research Council

State Farm, the largest private auto insurer in the U.S., reported $33.6 billion in direct premiums written for private passenger auto in 2013, representing 18.5 percent of the market share.

— The National Association of Insurance Commissioners

State Farm was followed by Berkshire Hathaway’s Geico, which reported $18.6 billion in direct premiums written for private passenger auto in 2013, representing 10.3 percent of the market share. Allstate came in third with $18.1 billion in direct premiums written for private passenger auto, with a 10 percent market share. Progressive, Farmers Insurance, USAA, Liberty Mutual, Nationwide, American Family Insurance and Travelers were among the 10 largest insurers in this line of business.

— The National Association of Insurance Commissioners

In 2012, “direct writers,” including insurers that distribute through the Internet, exclusive/captive agents, direct response and affinity groups, accounted for 72 percent of the personal auto market. Meanwhile, “agency writers,” including insurers that distribute through independent agencies, brokers, general agents and managing general agents, accounted for 27.4 percent of the personal auto market, with other unspecified distribution channels accounting for the remainder. — A.M. Best

An Internet technology study conducted in 2013 estimated that approximately 3.1 million auto insurance policies were sold online in 2012.

— comScore

14 | INSURANCE JOURNAL-NATIONAL August 4, 2014

The uninsured motorist percentage varies greatly nationwide. Mississippi had the highest uninsured motorist ratio at 28 percent. Massachusetts had the lowest at 4.5 percent in 2009.

— Insurance Information Institute and Insurance Research Council

Among passenger vehicle occupants age five and older, seat belts saved an estimated 11,949 lives in 2011. If all passenger vehicle occupants age five and older had worn seat belts, 15,333 lives (an additional 3,384) could have been saved.

— The National Highway Traffic Safety Administration

Geico spent the most money for advertising among U.S. property/casualty insurers in 2013. Geico’s advertising expense in 2013 was $1.18 billion, up 5.2 percent from 2012. Its ratio of advertising to premium was 6.3 percent. Coming in second in advertising expenditure among U.S. P/C insurers was Allstate, which spent $886 million in 2013, up 7 percent from 2012. Allstate’s ratio of advertising to premium was 3.5 percent.

Other top advertisers include State Farm ($802 million spent on ads in 2013), Progressive ($595 million) and Liberty Mutual ($423 million).

— SNL Financial

Bodily injury (BI) and personal injury protection (PIP) claimants injured in accidents occurring in metro areas were more likely than those injured in medium cities, small towns, or rural areas to hire attorneys.

— Insurance Research Council In 2012, attorney-represented BI claimants’ losses averaged $15,970, compared with $4,125 for nonrepresented BI claimants.

The average claimed economic loss for PIP claimants with attorneys was $20,349, compared with $10,614 for claimants without attorneys.

— Insurance Research Council www.insurancejournal.com

HELP YOUR SMALL BUSINESS CLIENTS KEEP DATA SAFE A data breach can be devastating to a small business if it doesn’t have the proper insurance coverage in place. Beyond legal fees and other costs associated with responding to a breach, a small business’s reputation may be tarnished indefinitely if a breach occurs. However, many small business owners don’t realize they’re at risk and have misconceptions when it comes to data security. To name a few: Misconception: Data breaches are only caused by hackers or thieves.

Truth: Many data-related losses happen because of small, unintentional errors made by business owners or their employees. In fact, 1 in 3 data breaches results from human error.1 These could include: • Misplacing confidential customer, patient or employee information in public spaces.

• Mistakenly throwing sensitive client records in the trash instead of shredding them.

• Forgetting to secure a computer or cell phone that contains private customer information.

Misconception: Large companies — not small ones — are at greater risk of getting their data stolen because they have more valuable data to offer thieves.

Truth: Research shows that small businesses are often victims of data breaches because they are viewed by cyber criminals as easier targets than

A DATA BREACH IS NOT JUST A BIG BUSINESS PROBLEM.

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big businesses. Smaller businesses often have fewer safeguards in place to thwart attacks. The 2013 Data Breach Investigations Report by Verizon found that one in three documented breaches affected companies with 100 or fewer employees.2

DATA BREACHES CAN BE DISRUPTIVE AND COSTLY According to The Hartford’s 2013 Small Business Success study, 39 percent of small business owners do not think there would be an impact to their business if they experienced a data breach.3 However, no matter the cause, data security issues can be very costly and disruptive to a small business. There may be legal and liability expenses as well as fees associated with credit monitoring services and customer communications if a breach occurs.

And the monetary cost is only the beginning.

Small businesses may also have to deal with the hassle of navigating state-specific data breach laws, sending notifications to affected customers and government agencies and losing the hard-earned trust of their customers, patients or employees.

HELP PROTECT YOUR SMALL BUSINESS CLIENTS Believe it or not, data security issues offer agents a great opportunity to help their small business clients protect themselves from these data security risks.

assessment and easy-to-follow tips can empower them to improve their data security. Help them understand how to: • Properly store electronic and paper files.

• Create strong computer passwords.

• Securely dispose of paper files.

• Control access to physical and electronic customer, patient and employee information.

Agents can also help their small business clients understand that data breach coverage is an affordable solution.

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1 IN 3

data breaches

human error

Take your relationship with your clients to the next level: • Help them understand the impact lost or stolen data could have on their business.

Start by educating them.

• Offer them tips on ways they can secure their personal customer data.

Make your small business clients aware of their risks and the potential high costs of a breach. Providing clients with a data breach risk

• Talk to them about coverage options that could help them prevent a breach from occurring — or recover if one does occur.

Visit THEHARTFORD.COM/PLAYON to access a data breach risk calculator, download the full data protection checklist and get more information.

42307A

1. 2014 Cost of Data Breach Study: United States, Research Sponsored by IBM; Independently conducted by Ponemon Institute LLC, May 2014 2. 2013 Data Breach Investigations Report, Verizon 3. The Hartford’s 2013 Small Business Success Study All property and casualty policies are underwritten by Hartford Fire Insurance Company, Inc., and its property and casualty affiliates, One Hartford Plaza, Hartford, CT. In TX and WA, this insurance is written by Sentinel Insurance Company, Ltd., Hartford Casualty Insurance Company, Hartford Lloyd’s Insurance Company, Property and Casualty Insurance Company of Hartford, Hartford Underwriters Insurance Company, Twin City Fire Insurance Company, Hartford Accident and Indemnity Company and Hartford Fire Insurance Company. In CA, this insurance is written by Sentinel Insurance Company, Ltd. (CA lic. #8701) and its property and casualty affiliates. Employee benefits are underwritten by Hartford Life Insurance Company and Hartford Life Accident Insurance Company, Hartford, CT. This article provides only a general description of coverages that may be provided. Coverage is subject to the policy terms and is individually underwritten. Please refer to the actual policies for complete details of coverage and exclusions. Data breach coverage must be purchased in order to have access to data breach services. © 2014 The Hartford Financial Services Group, Inc. All Rights Reserved.

Business Insurance Employee Benefits Auto Home

NATIONAL COVERAGE

News & Markets Study Tracks Rise in Attorney Involvement in Auto Claims

A

ttorney involvement in auto insurance claims is on the rise and varies significantly by state, according to an insurance industry study.

The percentage of auto injury claimants represented by attorneys jumped to 36 percent of personal injury protection (PIP) claimants in 2012, up from 31 percent in 2007 and more than double the rate found in a similar study in 1977, said the Insurance Research Council (IRC).

The rate of attorney involvement among bodily injury (BI) claimants rose slightly, to 50 percent in 2012.

In 1977, the difference in the attorney involvement between BI and PIP claimants was 30 percentage points (47 percent versus 17 percent). By 2012, the difference shrank to just 14 percentage points, challenging one of the arguments in favor of first-party auto

coverages, which is that they result in a less contentious settlement, the IRC said.

The lowest rate of attorney involvement was seen among medical payment claimants (26 percent).

The highest rate was in uninsured motorists claims (92 percent), which often involve serious injuries.

The IRC study also examined the factors associated with attorney involvement Source: Insurance Research Council and found that represented claimants: • Were much more likely than those withnance imaging (MRI) for similar injuries. out representation to receive treatment in • Were more likely to be involved in appara pain clinic and to undergo magnetic resocontinued on page 20

Retention Strategy

#5

POLICYHOLDER ACCESS

“ Keep customers connected for better service.”

Sara Richards, Business Technology Analyst

Connect your personal lines customers to EMC’s Policyholder Access for better service and satisfaction. This online service allows customers to do everything from manage payments to access valuable safety tips. It’s just one of the many reasons policyholders Count on EMC®.

Home Office: Des Moines, IA

|

800.447.2295

www.emcins.com © Copyright Employers Mutual Casualty Company 2014. All rights reserved.

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NATIONAL COVERAGE

News & Markets continued from page 18 lowest rate of attorney involvement among ent claim abuse.

PIP claimants in no-fault states was 12 per• Received, on average, lower net payments cent, in Kansas. (total payments adjusted for claimed eco Among BI claimants, Michigan showed nomic expenses and applicable legal fees) the highest rate of attorney involvement, than those who did not hire attorneys. at 89 percent. Coming in a close second, • Waited longer for payment of claims.

New York saw The rate ‘The role of attorneys is implicated 88 percent of of attorney involvement in many of the factors driving up the BI claimants hire attorneys. varied significost of auto insurance.’

Kansas, again, cantly by state. showed the lowest rate of attorney involveThe highest rate of representation was in ment among no-fault states — 34 percent of Florida, where 51 percent of PIP claimits BI claimants hired attorneys. ants hired attorneys in 2012 — a dramatic The study also found that claimants increase from 33 percent in 1997. injured in accidents occurring in metro In New York, 39 percent of PIP claimants areas were more likely than those injured in were represented, increasing somewhat medium cities, small towns, or rural areas from 34 percent in 1997. In Michigan, only 13 to hire attorneys. percent of PIP claimants hired attorneys. In Among BI claimants, 54 percent of claimall other no-fault states, the rate of attorney ants in metro areas were represented by representation increased moderately, from attorneys, compared with 45 percent in 25 percent in 1997 to 28 percent in 2012. The

other areas. Among PIP claimants, the rate of attorney involvement was 44 percent in metro areas, compared with 31 percent in other areas.

“The attorney involvement trends shown in this study undercut two of the envisioned benefits of no-fault auto injury systems: a less adversarial settlement process and more timely payments,” said Elizabeth Sprinkel, senior vice president of the IRC, in a press release. “The role of attorneys is implicated in many of the factors driving up the cost of auto insurance.”

The study, Attorney Involvement in Auto Injury Claims, is based on more than 35,000 auto injury claims closed with payment under the five principal private passenger coverages. Twelve insurers, representing 52 percent of the U.S. private passenger auto insurance market participated in the study.

The complete study is available for purchase on IRC’s website.

Acquisition Strategy

#4

LIGHT MANUFACTURERS

“ Light manufacturers

like our heavy-duty insurance program.”

Tanya Wentzel, Des Moines Branch Marketing Manager

With a range of insurance coverages including errors or omissions, extensive loss control resources, expert claims knowledge and local service from an independent agent like you, EMC offers an insurance program designed specifically for light manufacturers.

It’s just one of the many reasons why you and your commercial clients Count on EMC ®.

Home Office: Des Moines, IA

|

800.447.2295

www.emcins.com © Copyright Employers Mutual Casualty Company 2014. All rights reserved.

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NATIONAL COVERAGE

Business Moves Aon, National Flood Services Aon Affinity, the consumer, association and program business of Aon Risk Solutions, has completed its acquisition of StoneRiver National Flood Services Inc. and related entities from StoneRiver Group, L.P. National Flood Services offers policy administration, claims processing, customer service and agency support for clients in all 50 states and every U.S. territory. It manages 3 million flood policies and $2.3 billion of flood insurance premium annually. The firm has more than 800 employees in offices in Kalispell, Mont.; Overland Park, Kan.; and Lakeland and Coral Springs, Fla. Bill Vit, president and CEO of Aon Affinity, said NFS will help Aon Affinity “expand its flood solutions to reach a larger client base with this growing sector.”

Keith Brown, president and CEO of National Flood Services, will remain in his position at National Flood Services, reporting directly to Vit. USI, BHB Insurance USI Insurance Services has acquired BHB Insurance Services in Toms River, N.J. Terms of the transaction were not disclosed.

USI says BHB is best known for its community associations practice group (primarily condos and homeowners associations), which dates back to the 1970s. BHB also provides other commercial and personal property/casualty products and services. A new location for USI, BHB’s office and its employees will remain in Toms River and continue serving its clients throughout the state.

Cross Insurance, MN & Associates Bangor, Maine-based Cross Insurance has acquired Merchant, Needham & Associates Insurance, an independent insurance agency based in Northeast Harbor, Maine. Terms of the transaction were not disclosed.

Originally founded in the late 1890s, Merchant, Needham & Associates provides business, home and vehicle insurance for customers throughout Hancock, Washington, Penobscot and Knox counties in Maine. The agency will operate as a

member of Cross Insurance but will retain both its name and nine-member workforce.

Brightway Insurance The retail insurance franchise Brightway Insurance opened its first store in Pennsylvania. Associate agency owner Ryan George opened the store in Cranberry Township, near Pittsburgh. He previously spent four years with Luttner Financial Group, where he was an insurance agent.

Jacksonville, Fla.-based Brightway Insurance operates 116 franchise locations across eight states, which include Arizona, Florida, Georgia, Kentucky, Missouri, North Carolina, Pennsylvania and Texas.

BKCW, Greater Texas Insurance Managers Independent insurance agency BKCW L.P. of Killeen, Texas, and Greater Texas Insurance Managers and Agency of Austin merged operations.

Greater Texas Insurance Managers and Agency will continue to do business at its current location on Anderson Mill Road in Austin and all employees will remain part of the merged organization.

BKCW has been recognized as a Best Practices Agency by IIABA for the past 12 years, as well as being selected as the best agency in their size class four times.

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About This Report: Welcome to the 10th annual Insurance Journal Top 100 Independent Property/Casualty Agencies report.

The Top 100 list is ranked by total property/casualty agency revenue for 2013 and comprises only those agencies that are privately-owned firms whose business is primarily retail, not wholesale.

This report also features the nation’s Top 20 Agency Partnerships, which can be found on page 26. This list includes agency groups such as aggregators, clusters and franchise organizations, all of which play an important role in the independent agency system today.

www.insurancejournal.com

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SPECIAL REPORT

Also included is a list of the nation’s Top 20 Bank Holding Companies and Top 20 Banks in Insurance ranked by 2013 insurance brokerage fee income courtesy of the Michael White-Succeed Advisors Bank Insurance Fee Income Report sponsored

by Succeed Agency Advisors LLC - 2014 Edition. See page 27.

Insurance Journal wishes to thank all of the agencies and brokerages that were willing to share their information for the Top 100 report and cooperated in the process. The result is a glimpse at some of the nation’s most successful privately-held independent insurance agencies and brokerages.

All information in this report has been garnered from voluntary online submissions from agencies and brokerages and best estimates based on other public information sources. There may be agencies eligible for listing but for which no information was received or located.

We encourage all qualifying agencies to submit data for future reports. The more submissions and cooperation Insurance Journal receives, the more accurate and comprehensive this listing can be. Also, submitted data was not independently verified.

For more information about this report, or other reports, contact Andrea Wells at: awells@insurancejournal.com.

August 4, 2014 INSURANCE JOURNAL-NATIONAL | 23

Insurance Journal’s Top 100

Ranked by Total 2013 P/C Revenue

2013 Other than P/C Premium $12,900,000,000 $2,885,176,011 $6,941,635,878

3

Lockton Cos. HUB International USI Inc.

$823,073,000 $784,669,000 $394,791,752

4

Alliant Insurance Services Inc.

$373,865,600

$177,689,200

$3,122,988,900

$4,513,702,900

1695

5

Confie Seguros

$305,000,000

$0

$850,000,000

$0

3120

6

AssuredPartners LLC Integro Insurance Brokers BroadStreet Partners Inc. Crystal & Co. Leavitt Group Insurance Office of America Wortham Insurance & Risk Management

$293,737,922 $132,510,000 $127,700,000 $121,400,000 $116,196,328 $96,562,551

$60,560,078 $7,596,786 $12,600,000 $23,400,000 $51,679,367 $9,841,192

$1,912,733,505 $1,790,000,000 $1,300,000,000 $1,349,800,000 $1,287,404,459 $976,292,058

$1,105,310,883 $260,928,000 $100,000,000 $334,200,000 $978,345,242 $148,553,468

1985 612 1000 365 1434 669

$96,142,000

$21,693,000

$1,000,591,000

$380,900,000

511

7 8 9 10 11 12

Full-Time Employees 5300 6923 3324

The IMA Financial Group Inc.

$90,229,281

$22,870,973

$1,200,000,000

$480,000,000

556

14

$85,200,000 $77,909,199 $77,287,222 $70,145,600 $69,000,000 $67,161,844 $62,335,860 $61,859,856 $60,750,000 $59,043,212

$69,400,000 $32,331,610 $16,694,937 $6,198,167 $0 $18,287,844 $34,689,343 $34,842,415 $47,266,000 $4,782,415

$732,000,000 $916,578,811 $584,301,442 $521,385,295 $531,000,000 $543,522,865 $499,360,455 $831,068,985 $450,600,000 $458,446,046

$900,000,000 $538,860,160 $199,513,048 $100,650,946 $0 $380,323,795 $1,026,654,100 $1,060,568,815 $1,181,545,000 $39,321,496

733 567 409 270 530 599 335 623 605 241

$58,335,010

$12,579,759

$402,743,878

$159,256,332

421

32

Hays Cos. J. Smith Lanier & Co. Heffernan Insurance Brokers Capacity Group of Cos. Answer Financial Inc. PayneWest Insurance Mesirow Insurance Services Inc. Hylant Group Inc. Higginbotham NFP Property & Casualty Services Inc. INSURICA Insurance Management Network EPIC (Edgewood Partners Insurance Center) Woodruff-Sawyer & Co. Acrisure LLC Frenkel & Co. Risk Strategies Co. Assurance Marshall & Sterling Enterprises Inc. SterlingRisk

21 22 23 24 25 26 27 28 29 30 31

TWFG Insurance Services Ascension Insurance Inc.

35

The Graham Co.

LS

33 34

47

Bowen, Miclette & Britt Insurance Agency LLC Houchens Insurance Westwood Insurance Agency Professional Insurance Associates Inc. The Mahoney Group Propel Insurance MHBT Inc. InterWest Insurance Services Inc. Starkweather & Shepley Insurance Brokerage Inc. Haylor, Freyer & Coon Inc. SullivanCurtisMonroe Insurance Services LLC Gowrie Group

48

Robertson Ryan & Associates Inc.

49

Lawley Insurance Andreini & Co.

36

W EL

37

38

39

40 41

42 43

44 45 46

50

$58,262,000 $57,700,000 $54,610,605 $47,403,011 $46,902,000 $45,059,235 $43,884,492 $43,700,000

$16,708,000

$26,400,000 $19,231,388 $20,820,602 $11,562,850 $17,776,525 $12,804,606 $6,900,000

Website

Kansas City, Mo. Chicago, Ill. Valhalla, N.Y. Newport Beach, Calif.

Huntington Beach , Calif.

Lake Mary, Fla. New York, N.Y. Columbus, Ohio New York, N.Y. Cedar City, Utah Longwood, Fla.

www.lockton.com www.hubinternational.com www.usi.biz

Houston, Texas

www.worthaminsurance.com

www.alliant.com www.confieseguros.com

www.assuredptr.com www.integrogroup.com www.broadstreetcorp.com www.crystalco.com www.leavitt.com www.ioausa.com

Wichita, Kan./ Denver, Colo.

Minneapolis, Minn.

Atlanta, Ga. Walnut Creek, Calif.

Mahwah, N.J. Encino, Calif.

Missoula, Mont.

Chicago, Ill. Toledo, Ohio Fort Worth, Texas White Plains, N.Y. Oklahoma City, Okla.

www.hayscompanies.com www.jsmithlanier.com www.heffins.com www.capcoverage.com www.answerfinancial.com www.paynewest.com www.mesirowfinancial.com www.hylant.com www.higginbotham.net www.nfppc.com

www.imacorp.com

www.insurica.com

$826,581,000

$360,670,000

418

San Francisco, Calif.

www.edgewoodins.com

$491,000,000 $497,776,561 $387,602,822 $575,000,000 $612,835,000 $560,597,967 $345,000,000

$544,000,000 $337,392,772 $303,767,088 $340,000,000 $238,191,000 $214,336,700 $121,600,000

335 557 257 250 300 363 210

www.wsandco.com www.acrisure.com www.frenkel.com www.risk-strategies.com www.assuranceagency.com www.marshallsterling.com www.sterlingrisk.com

$330,000,000

$5,000,000

71

$296,069,000

$393,157,000

436

San Francisco, Calif.

Caledonia, Mich.

New York, N.Y. Boston, Mass.

Schaumburg, Ill. Poughkeepsie, N.Y. Woodbury, N.Y. The Woodlands, Texas Walnut Creek, Calif.

$221,177,007

$42,994,962

157

Philadelphia, Pa.

www.grahamco.com

$9,966,428

$302,644,213

$161,467,554

219

Houston, Texas

www.bmbinc.com

$37,512,850 $37,308,000 $37,000,000 $36,449,994 $35,200,000 $34,350,200 $33,948,645

$13,700,150 $0 $0 $8,173,400 $12,000,000 $23,750,000 $9,561,781

$401,443,458 $199,600,000 $275,000,000 $229,666,448 $300,000,000 $323,600,000 $264,905,374

$333,947,143 $0 $0 $120,976,891 $185,000,000 $475,000,000 $147,104,323

253 100 50 192 218 288 268

Bowling Green, Ky. West Hills, Calif.

San Carlos, Calif.

Mesa, Ariz.

Tacoma, Wash.

Dallas, Texas Sacramento, Calif.

www.houchensins.com www.westwoodinsurance.com www.piainc.com www.mahoneygroup.com www.propelinsurance.com www.mhbt.com www.iwins.com

$32,540,000

$4,185,000

$247,650,000

$163,450,000

192

East Providence, R.I.

www.starshep.com

$32,076,271

$4,167,792

$185,000,000

$98,000,000

192

Syracuse, N.Y.

www.haylor.com

$31,242,000

$8,132,000

$227,000,000

$225,000,000

188

Irvine, Calif.

www.sullivancurtismonroe.com

$31,181,703

$1,600,000

$245,600,000

$11,549,000

130

Westbrook, Conn.

www.gowrie.com

$31,151,936

$3,147,336

$283,525,000

$50,000,000

220

Milwaukee, Wis.

www.robertsonryan.com

$30,570,587 $30,150,000

$16,372,445 $10,120,000

$234,895,240 $240,387,000

$515,898,993 $253,000,000

300 185

Buffalo, N.Y. San Mateo, Calif.

www.lawleyinsurance.com www.andreini.com

$40,690,500

$1,627,620

$40,626,000

$45,707,000

$38,169,799

$3,878,181

$37,760,895

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2013 Total P/C Revenue

Agency Name

IN C.

2013 Total P/C Premium Written $7,301,000,000 $5,962,435,439 $3,638,307,736

2013 Other than P/C Revenue $302,526,000 $266,852,000 $387,416,075

2014 Rank

www.twfg.com www.ascensionins.com

www.insurancejournal.com

2014 Rank

Agency Name

2013 Total P/C Revenue

2013 Other than P/C Revenue

2013 Total P/C Premium Written

2013 Other than P/C Premium

Full-Time Employees

Main Office

Website

$27,759,271 $27,023,000

$19,044,003 $7,621,000

$243,496,394 $224,927,000

$312,915,330 $193,835,000

253 182

Orland Park, Ill. Bellevue, Wash.

www.thehortongroup.com www.psfinc.com

$26,587,439

$12,180,517

$290,635,476

$79,032,030

237

Towson, Md.

www.rcmd.com

$26,553,000

$4,522,000

$200,000,000

$100,000,000

152

www.cookmaran.com

$25,739,984

$9,775,796

$245,303,065

$173,971,470

238

57

The Horton Group Parker Smith and Feek Inc. Riggs Counselman Michaels & Downes Inc. Cook Maran & Associates LMC Insurance & Risk Management Inc. Moreton & Co. TrueNorth

$25,365,000 $24,032,300

$11,944,000 $15,316,203

$451,954,000 $331,589,566

$256,000,000 $55,184,658

190 147

58

Scirocco Financial Group Inc.

$23,804,003

$2,628,608

$147,323,571

$46,722,860

107

59

63

Rich & Cartmill Inc. James G. Parker Insurance Associates Bouchard Insurance Tolman & Wiker Insurance Services LLC Advanced Insurance Underwriters LLC

$23,607,750 $23,606,313 $23,524,608 $23,382,549 $22,110,000

$196,875 $4,617,519 $7,259,677 $5,057,093 $663,300

$206,500,000 $185,171,643 $221,268,741 $173,435,493 $201,000,000

$6,500,000 $82,312,494 $152,162,806 $84,878,841 $6,030,000

158 195 197 159 151

64

Sihle Insurance Group Inc.

$21,411,478

$2,507,000

65 66

TIS Insurance Services Inc. HNI Risk Services

$19,417,967 $19,333,000

$5,393,596 $1,950,000

67

Ansay & Associates

$19,094,882

$5,305,025

54 55 56

60 61 62

PSA Insurance & Financial Services

$18,000,000

$12,000,000

John M. Glover Agency

$17,500,000

$500,000

70

$17,497,000 $17,420,000

$24,581,000 $2,600,000

$17,284,362

$1,742,929

74

SilverStone Group R&R Insurance Services Wood Gutmann & Bogart Insurance Brokers J.W. Terrill Risk Transfer LLC

$17,100,000 $17,030,829

$11,900,000 $150,000

75

Celedinas Insurance Group

$16,953,017

76 77

The Daniel and Henry Co. Lovitt-Touche Inc.

$16,896,000 $16,809,000

78

CHS Insurance Services LLC

79

Bolton & Co.

80

Otterstedt Insurance Agency

81

87

AHT Insurance The Loomis Co. SouthGroup Insurance Associated Insurance Management Inc. Insgroup Inc. ABD Insurance (The ABD Team) Lipscomb & Pitts Insurance

$15,487,427 $15,000,000 $14,755,409 $14,733,847 $14,600,000 $14,500,000 $14,447,407

88

Eustis Insurance & Benefits

89

93

MJ Insurance Inc. Turner Surety and Insurance Brokerage Inc. (TSIB) The Buckner Co. Shepherd Insurance LLC Dean & Draper Insurance Agency LP

94

TWG Insurance

$12,580,400

$0

95 96

Rogers & Gray Insurance Foa & Son Corp.

$12,400,000 $12,261,513

$2,200,000 $1,120,670

97

SGB-NIA Insurance Brokers

$12,227,907

$2,826,350

98

Insurance One Agency Eagan Insurance Agency LLC Harden & Associates

$12,000,000 $11,953,497 $11,446,768

$587,000 $1,516,156 $5,144,198

83 84 85

EL

86

90

W

91

92

99 100

184

$68,749,925 $20,000,000

128 105

$190,948,820

$261,631,350

180

$100,000,000

$200,000,000

160

$130,343,000

$10,000,000

160

Norwalk, Conn.

www.johnmglover.com

$153,448,000 $166,000,000

$1,141,625,000 $40,000,000

195 141

Omaha, Neb. Waukesha, Wis.

www.silverstonegroup.com www.myknowledgebroker.com

$155,454,000

$23,808,016

110

Tustin, Calif.

www.wgbib.com

$132,067,008 $57,690,805

$299,094,712 $150,000

185 38

www.jwterrill.com www.risktransfer.com

$129,979,745

$26,977,123

123

$137,089,000 $140,075,000

$74,390,000 $189,720,000

171 192

$132,240,065

$29,732,857

100

$144,326,795

$199,513,790

130

St. Louis, Mo. Orlando, Fla. Palm Beach Gardens, Fla. St. Louis, Mo. Tempe, Ariz.

Inver Grove Heights, Minn.

Pasadena, Calif.

Englewood Cliffs, N.J. Leesburg, Va. Wyomissing, Pa. Ridgeland, Miss.

Silver Spring, Md. Houston, Texas San Mateo, Calif.

Memphis, Tenn.

$5,156,000 $9,467,000

www.lmcinsurance.com www.moreton.com www.truenorthcompanies.com www.sciroccogroup.com

www.rcins.com www.jgparker.com www.bouchardinsurance.com www.tolmanandwiker.com www.advancedins.com www.sihle.com www.tisins.com www.hni.com www.ansay.com www.psafinancial.com

www.celedinas.com www.danielandhenry.com www.lovitt-touche.com

$16,497,264

$1,756,000

$16,164,601

$11,347,298

$16,030,485

$1,018,177

$95,399,466

$15,203,375

96

$9,580,913 $17,000,000 $1,946,916 $0 $1,008,500 $14,500,000 $5,587,716

$112,121,856 $150,000,000 $160,321,730 $105,085,598 $116,200,000 $150,000,000 $133,025,000

$166,543,144 $100,000,000 $18,909,644 $0 $10,700,000 $590,000,000 $176,359,000

154 300 175 63 71 160 129

$14,346,962

$1,931,152

$116,657,564

$35,868,481

103

Metairie, La.

www.eustis.com

$14,180,428

$9,033,041

$124,639,787

$413,014,007

118

Indianapolis, Ind.

www.mjinsurance.com

$13,371,280

$6,595,106

$89,146,540

$7,112,955

39

Woodcliff Lake, N.J.

www.tsibinc.com

$13,192,127 $13,135,000 $12,632,551

$2,515,769 $3,950,000 $3,718,658

$117,608,098 $91,475,000 $105,234,819

$36,572,111 $158,000,000 $57,903,354

119 149 110

Salt Lake City, Utah Carmel, Ind. Houston, Texas

www.buckner.com www.shepherdins.com www.deandraper.com

$72,358,000

$0

122

Irving, Texas

www.twginsurance.com

$85,000,000 $98,204,290

$37,900,000 $19,394,060

135 97

www.rogersgray.com www.foason.com

$82,654,660

$39,782

62

$80,000,000 $94,112,162 $116,614,241

$5,800,000 $10,700,000 $272,375,508

110 82 104

Kingston, Mass.

New York, N.Y. Woodland Hills, Calif.

Dallas, Texas Metairie, La. Jacksonville, Fla..

©2 0

82

$608,295

ED

73

M

72

LS

71

$18,692,000

$146,988,850 $220,000,000

IA

68 69

$204,878,000

East Hampton, N.Y. West Des Moines, Iowa Salt Lake City, Utah Cedar Rapids, Iowa Hasbrouck Heights, N.J. Tulsa, Okla.

Fresno, Calif.

Clearwater, Fla. Ventura, Calif.

Hollywood, Fla. Altamonte Springs, Fla. Knoxville, Tenn.

New Berlin, Wis. Port Washington, Wis. Hunt Valley, Md.

IN C.

53

GR 14 OU P

51 52

www.chs-insurance.com www.boltonco.com www.otterstedt.com www.ahtins.com www.loomisco.com www.southgroup.net www.aimcommercial.com www.insgroup.net www.theabdteam.com www.lpinsurance.com

www.sgbnia.com www.insuranceoneagency.com www.eaganins.com www.hardeninsight.com

Special Mention: The following bank-owned agencies reported Total P/C Revenue for 2013 that would fit within the Top 100 — Eastern Insurance Group LLC, First Niagara Risk Management Inc., People’s United Insurance Agency Inc., BW Insurance Agency Inc., Bankers Insurance LLC, Alaska USA Insurance Brokers, and Mang Insurance Agency.

The 2014 Insurance Journal’s Top 100 Independent P/C Agencies list does not include bank-owned agencies. However, the Top 100 list will include bank-owned agencies in 2015. www.insurancejournal.com

August 4, 2014 INSURANCE JOURNAL-NATIONAL | 25

IN C.

Insurance Journal’s Top 20 Agency Partnerships 2014 Rank Agency Name

2013 Total 2013 Total Other P/C Revenue than P/C Revenue

GR 01 O UP 4

(Ranked by 2013 Total P/C Revenue) Employee count for these groups does not necessarily include all affiliates responsible for total revenue.

2013 Total P/C Premiums Written

2013 Other than P/C Premium

1

Keystone Insurers Group

$284,675,691

$41,186,666

$2,372,297,425

$514,833,320

2

$280,083,125

$28,891,000

$2,053,250,000

$385,000,000

Full-Time Employees

Main Office

Website

2,820 Northumberland, Pa.

www.keystoneinsgrp.com

3

ISU Insurance Agency Network The Iroquois Group

$100,158,501

$0

$667,723,337

$0

60

Allegany, N.Y.

www.iroquoisgroup.com

4

Combined Agents of America

$92,010,888

$0

$707,820,320

$97,342,376

742

Austin, Texas

combinedagents.com

5

$84,329,044

$601,286

$481,242,674

$7,424,743

65

Natick, Mass.

www.renaissanceins.com

$64,062,425

$7,000,048

$512,499,396

$87,500,603

815

Fresno, Calif.

www.unitedvalleyins.com

7

Renaissance Alliance Insurance Services LLC United Valley Insurance Services Inc. United Agencies Inc.

$54,000,000

$3,200,000

$270,000,000

$55,000,000

309

Pasadena, Calif.

www.unitedagencies.com

8

Insurors Group LLC

$53,595,435

$12,162,603

$396,929,147

$135,140,033

385

www.insurorsgroup.com www.smartchoiceagents.com

6

1,655

San Francisco, Calif.

www.joinisu.com

Smart Choice

$44,516,481

$884,861

$341,193,385

$2,125,000

44

10

GreatFlorida Insurance

$42,380,000

$136,000

$326,000,000

$680,000

346

Stuart, Fla.

www.greatflorida.com

11

$41,680,000

$2,906,984

$396,000,000

$0

7

El Dorado Hills, Ark.

www.piib.com

12

Pacific Interstate Insurance Brokers Brightway Insurance Inc.

$1,968,629

$280,068,072

$79,687

176

Jacksonville, Fla.

www.brightway.com

13

Bainswest Inc.

$34,295,127

$9,577,736

$350,819,342

$119,522,314

238

Owasso, Okla.

www.bainswest.com

14

Networked Insurance Agents

$27,782,817

$0

$162,715,592

$0

102

Grass Valley, Calif.

www.networkedins.com

15

The Insurance Alliance of Central PA Inc. Fiesta Auto Insurance

$24,301,076

$0

$217,399,977

$0

244

Camp Hill, Pa.

www.tiacp.com

$23,530,000

$3,530,000

$116,000,000

$0

19

www.fiestainsurance.com www.estrellainsurance.com

©2

ED

M

$34,615,910

IA

9

College Station, Texas High Point, N.C.

Estrella Insurance

$20,959,048

$0

$168,360,622

$0

350

18

PacWest Alliance Insurance Services Inc. Northlake Insurance Group Ltd. Advantge Group LLC

$16,708,339

$1,939,591

$159,127,045

$29,839,868

186

Fresno, Calif.

www.pacwestalliance.com

$16,549,900

$542,200

$142,085,300

$18,200,200

152

Ponchatoula, La.

www.northlakeins.net

$15,567,565

$2,335,244

$100,244,856

$11,676,220

122

Edmonds, Wash.

www.theadvantagegroupllc.com

W EL

19

LS

17

Huntington Beach, Calif.

Miami, Fla.

16

20

Editor’s Note: List includes aggregators, clusters, and franchise groups.

26 | INSURANCE JOURNAL-NATIONAL August 4, 2014

www.insurancejournal.com

Top 20 Bank Holding Companies in Insurance Brokerage Fee Income

1

2013 Insurance Brokerage Fee Income $1,463,000,000

2 3

Rank

Bank Holding Company Wells Fargo & Co.

City, State San Francisco, Calif.

$1,377,772,000

BB&T Corp.

Winston-Salem, N.C.

$733,000,000

CitiGroup Inc.

New York, N.Y.

4

$289,000,000

Bank of America Corp.

Charlotte, N.C.

5

$184,000,000

American Express Co.

New York, N.Y.

6

$114,412,000

Regions Financial Corp.

Birmingham, Ala.

7

$99,000,000

Morgan Stanley

New York, N.Y.

$98,141,000

Bancorp South Inc.

Tupelo, Miss.

$78,906,000

Discover Financial Services

Riverwoods, Ill.

10

$76,736,000

First Command Financial Services Inc.

Fort Worth, Texas

www.bbt.com

www.citigroup.com

www.bankofamerica.com

www.americanexpress.com www.regions.com

www.morganstanley.com

www.bancorpsouthonline.com www.discovercard.com

www.firstcommandbank.com

GR 01 O UP 4

8 9

Website www.wellsfargo.com

IN C.

(2013/Nationally)

11

$72,558,000

First Niagara Financial Group Inc.

Buffalo, N.Y.

www.firstniagara.com

12

$68,120,000

Huntington Bancshares Inc.

Columbus, Ohio

www.huntington.com www.easternbank.com

13

$62,346,000

Eastern Bank Corp.

Boston, Mass.

14

$58,043,000

Stifel Financail Corp.

St. Louis, Mo.

www.stifelbank.com

15

$44,024,000

Associated Banc-Corp

Green Bay, Wis.

www.associatedbank.com

16

$43,270,000

Cullen/Frost Bankers Inc.

San Antonio, Texas

www.frostbank.com

17

$40,185,000

Raymond James Financial Inc.

Saint Petersburg, Fla.

www.raymondjamesbank.com

18

$40,181,000

M&T Bank Corp.

Boston, Mass.

www.mtb.com

19

$39,000,000

The Goldman Sachs Group Inc.

New York, N.Y.

www.goldmansachs.com

20

$38,132,000

Old National Bancorp

Evansville, Ind.

www.oldnational.com

Note about this report: With few exceptions, the Federal Reserve Board requires only what it defines as ‘large’ bank holding companies (i.e., BHCs with do not engage in significant banking activities.

IA

consolidated assets in excess of $500 million) to file line item fee income like insurance brokerage. Ranking excludes several traditional life insurers that

ED

Source: Michael White-Succeed Advisors Bank Insurance Fee Income Report sponsored by Succeed Agency Advisors LLC - 2014 Edition

Top 20 Banks in Insurance Brokerage Fee Income

2

$653,000,000

3

$132,000,000

LS

M

1

2013 Insurance Brokerage Fee Income $1,377,590,000

Rank

Bank Name Branch Banking and Trust Co.

City, State Winston Salem, N.C.

Citibank N.A.

Sioux Falls, S.D.

www.citibank.com

Bank of America N.A.

Charlotte, N.C.

www.bankofamerica.com

©2

(2013/Nationally)

Website www.bbt.com

$97,408,000

BancorpSouth Bank

Tupelo, Miss.

www.bancorpsouthonline.com

$78,906,000

Discover Bank

Greenwood, Del.

www.discovercard.com

$72,558,000

First Niagara Bank N.A.

Buffalo, N.Y.

www.firstniagara.com

$62,346,000

Eastern Bank

Boston, Mass.

www.easternbank.com

8

$44,025,000

Associated Bank N.A.

Green Bay, Wis.

www.associatedbank.com

9

$43,270,000

Frost Bank

San Antonio, Texas

www.frostbank.com

10

$40,135,000

Manufacturers and Traders Trust Co.

Buffalo, N.Y.

www.mtb.com

11

$34,946,000

Towne Bank

Portsmouth, Va.

www.townebank.com

4 5 6

W EL

7

12

$31,157,000

People's United Bank

Bridgeport, Conn.

www.peoples.com

13

$30,826,000

Trustmark National Bank

Jackson, Miss.

www.trustmark.com

14

$28,548,000

Bank of the West

San Francisco, Calif.

www.bankofthewest.com

15

$19,959,000

Fifth Third Bank

Cincinnati, Ohio

www.53.com

16

$19,722,000

The Oneida Savings Bank

Oneida, N.Y.

www.oneidabank.com

17

$15,907,000

Valley National Bank

Passaic, N.J.

www.valleynationalbank.com

18

$15,874,000

Hancock Bank

Gulfport, Miss.

www.hancockbank.com

19

$14,479,000

PNC Bank N.A.

Wilmington, Del.

www.pnc.com

$13,025,000 National Penn Bank Boyertown, Pa. www.nationalpenn.com 20 Note about this report: These rankings include commercial banks, savings banks and savings associations (a.k.a. thrifts) which are required to report line item income like insurance brokerage.

Source: Michael White-Succeed Advisors Bank Insurance Fee Income Report sponsored by Succeed Agency Advisors LLC - 2014 Edition

www.insurancejournal.com

August 4, 2014 INSURANCE JOURNAL-NATIONAL | 27

CLOSER LOOK

Homeowners & Condos Opportunities Abound in High-Value Home, Condo Segment

By Amy O’Connor

T

he high-value homeowners and luxury condo markets have become competitive arenas to play in, with several new programs and companies in the past few years. But experts say agents and brokers shouldn’t be deterred by the added competition because this segment is full of opportunity.

Molly Rondeau, distribution sales and marketing executive for the new high-net worth insurer, Crestbrook Insurance in Scottsdale, Ariz., says there is plenty of untapped potential in this segment.

“If you look at the affluent market in general, it is defined by simple terms — homes with values of $750,000 or more. This is a $65 billion marketplace, and the direct writers have 85 percent market share of that.

There is still a whole lot of business out there that is ripe for the picking,” she says.

That fact is evidenced by the response two markets have seen since launching new programs in the past year. Crestbrook, which began operations in 2013, and a new program offered by General Star through

28 | INSURANCE JOURNAL-NATIONAL August 4, 2014

the high-net worth clientele is they have MGA All Risks, have both seen positive more to protect and more to lose,” she says. receptions to their product offerings, the “Protecting assets is what we do, and it’s companies report. what the affluent, high-net worth clients Rondeau says the response has been “very need.” powerful and in some cases overwhelming.”

This year, several new programs have In California and Illinois, the company has been launched for high value homes in addialready exceeded its premium expectations. tion to the offerings from Crestbrook and The carrier launched originally in Illinois All Risks, including: last October and in Direct writers control about •Primary California earlier this year. It is now 85 percent of the high value flood coverage from Ironshore, also in Washington, homeowners market.

•A new policy Oregon and for high value homes in Arizona, with plans Florida from American Integrity Insurance to start writing in Indiana in August, folGroup, lowed by Texas and Nevada in October. In •A high value homeowners program 2015, the company plans to expand into 12 available in the South from Specialty to 14 more states.

Insurance Managers, Rondeau says he attributes the positive •And a new luxury lines program from reception in part to the company’s strong XL, just to name a few. technology platform and product portfolio, The newer programs in the high-value as well as to having Nationwide as its parhomeowners market are also providing polient company. She also thinks this market is cies with more enhancements than before. looking for more specialized products.

Crestbrook took its offerings a step fur “The difference between affluent and ther by making certain options standard, like loss assessment coverage of $50,000 for luxury condo owners, with options up to $100,000, with a maximum of $10,000 for an assessment resulting from a homeowners’ association insurance deductible.

The condo coverage also includes: loss of use for a reasonable amount of time required to restore the insured’s home; and unlimited backup and sewer and drain, subject to policy or state-specific deductible. Homeowner and condo policies also include travel assistance and identity theft assistance benefits, as well as equipment breakdown benefits with up to a $100,000 limit for Coverage ADwelling, Coverage B- Other Structures, and Coverage C- Personal Property with a $500 per occurrence deductible.

If clients opt to add the Crestbrook Homeowners endorsement, more than 20 layers of additional coverage are available. www.insurancejournal.com

The luxury condo market has been a hot commodity as construction gets back underway and more multiuse condo facilities are built, say Rondeau and Sauter. As affluent baby boomers and empty nesters look to downsize and find more amenities and convenience, they are turning to luxury condos to accommodate their lifestyle.

Luxury condos are also a popular choice among high-net worth individuals looking for a second or seasonal home.

“We are seeing greater demand for condo coverage. It is very popular, particularly in resort type areas like South Florida,” says Sauter.

In many cases these individuals may rent out or use these second homes for “vacation swaps” where they trade homes with someone else in another area for a period of time. Rondeau says agents need to be aware that a client is doing this and pay particular attention to where the homes are located in these circumstances.

Other Trends “If we know people are exchanging Sauter says there are a lot of companies homes in a country that is more volatile, trying to get into this business right now, you don’t know what kind of a tenant you even in coastal regions like Florida where it are getting and that needs to be part of the is traditionally more difficult to find capaciunderwriting process,” says Rondeau. ty.

“Agents need to ask ‘is this home rented “This is a segment of the market that has to others? Is this a vacation traditionally performed well — you don’t see a Luxury condos are a rental?’ because then it lot of attritional losses. good bet for insurance becomes more of a commercial exposure and perThere is also an influx of companies. sonal lines carriers are not capital in the market that interested in investment is having an impact on this properties rented to several different tensegment as well,” he says. ants.”

Cat coverage was more difficult to find Rondeau says looking at all the different for coastal regions when capacity was properties an affluent individual has and scarce, says Sauter, but that currently isn’t all the pieces that go along with those, the case. “Because there aren’t a lot of attriincluding if the properties have been moved tional losses in this segment, underwriters into an LLC or trusts, need to be standard can just focus on the cat piece, unlike some during the renewal process. of the lower value [homeowners] business “Agents need to understand their cliwhere there are higher attritional losses.” ent’s exposures so companies can properly Luxury condos are an especially appealunderwrite clients,” she says. “The majority ing class to insurers in cat regions because of agents and brokers do not look at the they are well-constructed, fire-resistant renewal questionnaires every year [for any structures. changes]. On the homeowners and condo “They are a good bet for insurance comside, take a second look at LLCs and trusts panies because they are a completely differand the usage of secondary and rental locaent animal from high-value [homes] where tions, and understand their exposures.” you have a single structure,” he says.

Deductibles of up to $50,000 are also waived for a covered loss over $50,000, except if a special deductible applies.

The All Risks program underwritten

by General Star, also offers many enhancements like watercraft liability, coverage for golf carts, personal liability, the option to add replacement costs on contents for an additional premium, and the ability to offer scheduled personal property on the coverage form.

While Crestbrook has mostly stayed in the western United States, All Risks has been focused on the Mid-Atlantic region where it is based, with coverage available in 12 states and Washington, D.C. According to Scott Sauter, personal lines product leader for All Risks in Richmond, Va., there are no plans to expand yet because the company would like to get further established in its existing states first.

www.insurancejournal.com

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IDEA EXCHANGE

The Competitive Advantage Small Commercial Lines: The Good, The Bad, The Ugly

S

mall commercial lines is suddenly the Cinderella of the insurance industry.

The previously unwanted stepchild turned beauty queen is being courted, pursued, and being offered dowries for marriage. Dowries and marriage are the correct metaphors because companies are clearly willing to pay extra for small commercial, especially if they can or think they can marry the books to their service 7.25X4.75 centers.

JGS-PPP Program ad

By Chris Burand Umbrella Why did small INSURANCE commercial go fromJOURNAL neglected to throne?

Someone, a consultant probably, must have written a white paper and sold it over and over to carriers because they all became infatuated simultaneously. The more suit-

ors, the higher the dowry.

The attraction: The company lines mimic one another. Small commercial price elasticity is less. Translation: Companies can raise rates and charge more for small commercial without a commensurate decrease in retention. Small commercial is less price sensitive in their opinion. Agents do not shop small commercial as much so they can raise rates without fear of the business leaving, thereby decreasing loss ratios and making more money.

A key tactic to successfully executing the strategy to build small commercial books is locking up the business in a service center.

Otherwise, given the excess surplus that exists throughout the industry today, some company or another will begin cutting rates, others will follow, and then profits and retention will decline. The companies’

idea is that if the company “locks” up the business in their service center, rate competition will cease being a threat.

The Bad What happens if some company decides to compete on price anyway? It has always happened previously.

The Ugly Then the business moves. For agents the question is whether the accounts move within the agency or if the accounts move on their own to another agency/company. If the accounts move completely, the agency loses all the income. At $100 to $1,000 commission per account, the loss of any individual account is immaterial. The loss will not be limited to one or two accounts though.

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The Good them properly. Agencies tend to think subproperly is quite profitable once it is on the Write small commercial but do it well, consciously that $200 commission is worth books in enough volume. There are a lot of write it intelligently. Consider creating your X minutes of their time so they hurry ifs in that statement, which is why small own small commercial department rather through writing the account. commercial is not profitable for many agenthan using company service centers.

A much more profitable approach is to cies. They just cannot get their act together Three keys exist to developing a small write the risk properly. A small commercial completely. commercial department successfully. account written properly will usually gen For the agencies that have the discipline First is a good workflow and compliance erate more than $500 commission. On the to manage small commercial well, it is with procedures. In other words, from the other hand, small commercial accounts in a cash cow. The catch is putting enough point of first contact to renewal servicing, many agencies almost always generate on small commercial on the books to make it the workflow must be a machine that everyaverage far less than $500 commission. all work. Putting enough on the books is one does everything Agencies are leaving a lot of money on expensive and slow, Agencies are leaving a lot of exactly the same. the table by not writing small commercial so once an agency money on the table.

This means producers correctly. Moreover, if the companies’ analhas adequate scale shan’t be allowed to ysis is correct and small commercial buyers and is managing it bugger things up. are less price-sensitive, if the account is well, no one wants to lose this book.

The second key is to staff with high qualwritten well and the servicing is efficient, If the agency has to move the small comity people and do not cut corners. Quite then an agency with 200 small commercial mercial books to keep it, profit is lost, too. a few small commercial units have been accounts at $250 commission each is now Additionally, E&O exposures increase developed using lower quality staff and/ generating $50,000 commission. Increase because any loss of coverage should be disor cutting corners. This is cutting off one’s this to an average of $500 with a 10 percent closed to the insured upon moving the polnose to spite their face. What is the differrate increase and no loss of retention, and icy to another carrier. Moving an account is ence in dollars between a small commercial that book increases to $110,000. expensive. account’s E&O claim and a large account’s Why let the companies get your profit?

However, if the agency controls the busiE&O claim? ness, they have options. If they are not in Third, accounts that are commonly concontact with the client because the client Burand is the founder and owner of Burand & sidered small commercial are often small is in a company service center, they likely Associates LLC based in Pueblo, Colo. Phone: 719because the agency has not sold or written will not get the chance to be proactive.

485-3868. E-mail: chris@burand-associates.com.

Moreover, if an agency is in contact with the client, it may have voided the E&O provisions of the service center contract (read ® these provisions carefully!). Even if the E&O provisions have not been voided, being in contact with the insured when the agency is being paid one or two percentage points SALES & MARKETING IDEAS FOR P&C PROFESSIONALS less for the privilege of using a service center eliminates most if not all the profit.

The results are really ugly if a company changes their appetite or they prove incompetent at underwriting and/or servicing Prepare for growth by exploring and selecting from hundreds small commercial in this suddenly desirable of Agency Ideas® personal and commercial lines sales and market. marketing tools—all authored by Alan Shulman, CPCU. For example, what happens if a company determines it must raise rates 20 percent?

Shopping for the right insurance selling tools for your agency The agency has to move the book out of is simple and fun. Explore agencyideas.com/instant on your a service center or risk losing a material phone, tablet or PC. You’ll be amazed at the breadth and portion of revenue. If the service center has originality of the resources in our Instant Download Store. been used well, the agency has reduced Growth is all about action and execution. Explore today. service staff because the service center is doing the servicing, not the agency. Now the agency has to find service staff quickly.

• 1-800-724-1435 That’s easier said than done.

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4/23/14 3:15 PM

August 4, 2014 INSURANCE JOURNAL-NATIONAL | 31

NATIONAL COVERAGE

MyNewMarkets Firearm Distributors Market Detail: Firearms Insurance Agent (ASI) (www.firearms insuranceagent.com) represents multiple insurance carriers in the firearms and ammunition indusrty.

Available limits: Minimum $1 million, maximum $10 million Carrier: Multiple, admitted and non-admitted available States: All states Contact: Trent Yager at 816-229-4450 or email: trent@asisaves.com

States: All states except Alaska, La., and W.Va. Contact: Lisa Gabel at 216-797-9700 or email: lgabel@intlxs.com

Auto Dealers Market Detail: Williams & Stazzone Insurance (www.wsins.com)

Personal Umbrellas Farm and Ranch Owners Market Detail: International Excess (www.internationalexcess. com) has limits to $10 million available for family farms with revenues up to $1 million and can include leased farm locations.

Coverage can go over a homeowner’ or farm owner’s underlying policy. No limitations on acreage, livestock grazing or number of farm locations. Limited family partnerships as an additional insured are eligible. True umbrella form that includes personal injury and worldwide coverage offered. Coverage for farm vehicles available.

Minimum underlying $500,000 liability and $500,000 auto.

Available limits: Minimum $1 million, maximum $10 million Carrier: U.S. Liability Insurance Co.

32 |COH16726.indd INSURANCE JOURNAL-NATIONAL August 4, 2014 1

covers dealers open lot; garage liability; interim car liability/physical damage; lessor only excess liability; lessors contingent liability; and lessors contingent physical damage.

Available limits: As needed Carrier: Unable to disclose, admitted States: All states Contact: Vincent Stazzone at 800-868-1235 or vstazzone@wsins.com continued on page 36

www.insurancejournal.com 7/21/14 12:26 PM

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IDEA EXCHANGE

Agency Management Why risk it?

Effective Non-Piracy Agreements Protect Your Business

O

wning an insurance agency does not equate to “owning” the customers it services. If the agents who have the relationships with those customers leave, the business will be at risk.

It is the difference between owning and renting a business, and it’s not something

By Gary W. Miller savvy insurance agency owners want to face without protection.

How do you fairly protect the business and attract and retain good agents? What happens to the business when and if its better producers depart for another agency?

What is fair to both the agency and the agent producer?

Insurance agency owners operating without non-piracy agreements in place are putting their business at risk and likely diminishing the value of their agency in a potential sale transaction.

Building an insurance agency is about building a book of business. The value of the agency depends not only on the size of the book of business but on its stability as well. The best time to think about protecting the agency’s most valuable asset is when a new producer is hired. It makes better business sense to negotiate sensible non-piracy arrangements at the front end of the relationship. It is far more difficult to impose protective measures once a producer becomes disgruntled or has decided to leave the agency.

Additionally, if an agency is to be sold, the buyer will expect to see enforceable non-piracy agreements in place to protect the goodwill that justifies the purchase price.

A non-piracy agreement is a limited form of non-competition agreement. A typical non-competition agreement prevents an employee from competing in the same business in a specific geographical area for a 34 | INSURANCE JOURNAL-NATIONAL August 4, 2014

limited period of time after the employee’s employment is terminated. However, an insurance agency is generally not concerned about keeping its former producers from selling insurance altogether. Instead, it simply wants to keep the former producer from taking the customers of the agency when the producer moves to a new job.

In these cases, non-piracy agreements are the solution. They are less onerous to employees and are usually viewed more favorably by courts than traditional non-competition agreements.

Who Owns the Relationship?

It is expensive to build and to run an insurance agency and its owner has a legitimate motivation to protect the book of business produced by its agents. If a key producer can leave with his or her business, not only will the annual income of the agency be affected, but the price a potential purchaser will pay for the agency will be dramatically reduced as well.

Many agency owners think about their book of business in terms of the agency’s ownership of the client accounts and expirations — something the agency “owns” in perpetuity.

While the agency may own its books, records and trade secrets, the law technically does not recognize ownership of a customer relationship. Instead, the law in most states merely protects against competition for those relationships in appropriate circumstances.

The proper method for protecting the agency’s customer relationships in these circumstances is to create an enforceable non-competition or non-piracy agreement.

Even in the context of a sale of an agency or its assets, there is no actual transfer of “ownership” of customer relationships.

Without enforceable non-piracy agreements in place, the seller has the right to compete for the same business the very next day after selling the agency.

What’s Enforceable?

While many employees have been told that non-competition agreements are not enforceable, in truth, carefully prepared and constructed non-competition agreements are enforceable in many types of employment relationships in most jurisdictions.

Creating an effective and enforceable non-piracy agreement is a matter of state law. In some states, a bare non-piracy agreement will not be enforceable because it must be related to a larger agreement.

For employee non-piracy agreements, the larger agreement may involve a guarantee of employment for a fixed term in which the employee will build personal relationships with customers as well as an agreement by the agency to provide its confidential information to the employee. In the context of a non-piracy agreement between agency owners or one related to the sale of an agency, the larger agreement involves either a buysell between the owners or an agreement to sell the agency’s goodwill for a negotiated purchase price.

The agreement typically must also be reasonable as to duration, territory and scope, so thought needs to be given to the

Effective non-piracy agreements are a key component of the value of an agency. minimum restraints necessary to provide protection. There is no magic formula for creating an enforceable non-piracy agreement, and it will differ depending on the unique circumstances of the agency and producer as well as the state in which the agent is located.

In any event, when it comes to enforcing a non-piracy agreement, the agency must be prepared to establish that its scope is reasonable and necessary to protect the agency’s legitimate business interests. Also, www.insurancejournal.com

it must include a strong confidentiality agreement. While most states have common law rights with respect to an employee’s obligation to maintain in confidence the proprietary information of the employer, a confidentiality agreement can be of significant help when a key employee departs.

What About Seasoned Agents?

It may not be difficult to convince other owners in a multi-owner agency to sign non-piracy agreements because the owners expect to receive compensation for their stock if they retire or the agency is sold.

Likewise, new agents just starting out often will sign a non-piracy agreement because they recognize the investment that the agency is making to help them get started.

The challenge is in getting a seasoned agent making a lateral move to a new agency to sign the agreement. Often resistance is met when asking these agents to agree not to take any business with them if and when they move on.

Depending on the potential of the new hire, there is a solution. Consider an arrangement in which the business brought by the producer to the new agency will be protected from pirating by the agency after www.insurancejournal.com

the relationship terminates, but the agency and producer will treat the producer’s new business differently. In this type of arrangement, producers have the option to take the business with them if they leave so long as they pay the agency a portion of the commissions earned for a fixed period.

Another scenario: if the producer does not elect to purchase the business, the agency typically would pay the producer a similar portion of the commission for the same period. In both cases, the purchasing party only pays for the business as long as it continues to write the business, and the non-purchasing party agrees not to pirate the business during the period that payments are being made plus a term of several years after the payments have stopped. With insurance being a relationship-based business, this approach maximizes the probability that the agency or the producer will retain the business, and that the party not keeping the business will be compensated.

Of course, non-piracy agreements can also impact the agency a producer is joining, not only the agency a producer is leaving.

Usually, the first thing that happens when agents seek to make a lateral move is that they dust off the old non-piracy agreement

that they hardly remember signing years ago. Before an agency takes on a new lateral transfer, it is important to have any existing agreement reviewed by an attorney experienced in these matters. The attorney will be able to explain the scope of the agreement and even give the new agency a good idea as to its enforceability.

In many cases, the old agency’s agreement will have overstepped the bounds of enforceability. In such cases, the new agency can employ the experienced producer without being burdened by the old agreement – although there is no guarantee the old agency will not seek to enforce even an obviously unenforceable agreement.

Often, a well-written letter from the new agency’s attorney to the old agency, explaining why the existing agreement is unenforceable or why its enforceability is limited, will result in a negotiated settlement or a realization on the part of the old agency that it will be a waste of time and money to attempt to enforce the agreement.

On the other hand, if the non-competition or non-piracy agreement is well written, it may be time to either rethink hiring that lateral hire producer or make the hiring decision contingent upon striking a deal with the former agency. If making a deal with the former agency includes the new agency agreeing to pay a sum of money (whether up front or as the business is written), that will impact the negotiations relating to ownership of the purchased business between the agency and its new producer.

In order to maximize the value of an agency, both in terms of annual income and future salability, effective non-piracy agreements are a must. Non-piracy agreements must be carefully constructed by an attorney who keeps up with the ever-changing status of the law and who understands effective and enforceable agreements.

Effective non-piracy agreements are a key component of the value of an agency.

Miller is a business transaction attorney and founding shareholder of BoyarMiller, a business and litigation law firm based in Houston.

August 4, 2014 INSURANCE JOURNAL-NATIONAL | 35

Advertisers Index

Readers, browse, contact, or do product searches on any of our full page advertisers at: www.insurancejournal.com/adshowcase/ Abram Interstate www.abraminterstate.com W8 Access Home Insurance www.accesshomeinsurance.com SC13; SE5 Agency Ideas www.agencyideas.com 31 Applied Underwriters www.applieduw.com 4, 5, 40 Atlas General Insurance Services www.atlas.us.com W6; SE2; E2 California Earthquake Authority www.earthquakeauthority.com/mvp 3 Century National www.cnico.com W7 City of Hope www.cityofhope.org 32 CSUF Center for Insurance Studies www.centerforinsurancestudies.com W13 Delta General Agency www.deltains.com SC4 EMC Insurance www.emcins.com 18, 20 First American Specialty Insurance Company www.firstam.com W5 GeoVera Insurance Company www.geovera.com SC6; SE3 Golden Bear Insurance Company www.goldenbear.com W15 Hagerty Insurance www.hagertyagent.com 29 IICF www.iicf.org 19 Independent Insurance Agents of Texas www.iiat.org SC9 Leavitt Group Enterprises, Inc www.leavitt.com 2 Lighthouse Holdings, LLC www.lighthousepropertyins.com SE5 M.J. Hall & Company, Inc. www.mjhallandcompany.com W15 McClelland & Hine www.mhi-tx.com SC11; SE4 Monarch E & S Insurance Services www.monarchexcess.com W3 National Alliance for Insurance Education & Research www.scic.com 39 Oak & Associates www.oakandassociates.com 22 Patriot Underwriters www.pnigroup.com 12, 13 PersonalUmbrella.Com www.personalumbrella.com 7 Philadelphia Insurance Companies www.phly.com 9 Preferred Property Program www.umbrellaprogram.com 30 PSIC - Pacific Specialty Insurance Company www.psic-onespot.com 33 Scottish American www.scottishamerican.com 21 SIAA www.siaa.net 3; W11; SC3 South & Western www.southandwestern.com SC7 St. Johns Insurance Company www.stjohnsinsurance.com SE7 Tejas American General Agency www.taga1.com 3 Texas Mutual Insurance Company www.texasmutual.com SC5 The Hartford www.privatecompanyinsurance.com 16, 17 United Valley Insurance Services www.unitedvalleyins.com W9 Western Security Surplus www.wssib.com W14; SC10 36 | INSURANCE JOURNAL-NATIONAL August 4, 2014

MyNewMarkets continued from page 32

Commercial Auto Market Detail: Regency Insurance Brokerage Services (RIBS NY, LLC) (www.ribsnyllc.com) can write multiple classes of business as part of its newest admitted commercial auto program. For risks not shown, contact company. Commercial auto classes: auto transporter; cement mixers- ready mix & concrete pumpers contractors; cranes & boom; trucks; dumping operations; fire departments – volunteers; food delivery; funeral operations; garbage operations; household goods movers; mobile business; non-trucking; petroleum transport; specialized delivery; trucking (zero to 300 miles); wholesale & retail delivery. Public auto classes: airport transportation; athlete and entertainer bus; bus - NOC; contracted child transport; daycare; inter-city; limousines; sightseeing & guided tours; special needs & non-emergency medical; urban bus; and van pools.

Available limits: As needed Carrier: Unable to disclose, admitted States: Fla., N.J., and N.Y. Contact: Customer service at 800-982-1895

Auto, RV, Motorhome, Motorcycles Market Detail: 4 All Insurance (www.4allinsurance.net) offers all available markets with coverage for properties, buildings, home, business, BOP, all kinds of stores, retail, wholesale, service, contractors, engineers, commercial, residential, fire, flood, landslide, earthquake, liability, E&O professional liability, bonds, umbrella, auto, RV, motorcycle, mobile home, motorhome, boats, marine, Mexican auto insurance, and more.

Available Limits: Minimum $100, maximum $1 million Carriers: Various, admitted and non-admitted available States: Ariz., Calif., Fla., Nev., Ore., Mich., Utah, Texas and Wash.

Contact: Nader Kayvantar at 818-346-4555 or e-mail: nader@4aliins.com

Golf and Country Clubs Market Detail: Zurich Program’s (zprogramsmatch.com) golf and country club program has an appetite for: private clubs, semi-private clubs, high end daily-fee courses, golf management companies, golf destination resorts, and homeowner’s associations with golf courses. Coverages offered include: blanket building/personal property that features business income with unlimited period of restoration and replacement cost valuation on carts and equipment; GL that includes liquor liability, garage keepers legal liability, and herbicide/pesticide liability; $1 million and $2.5 million tee-to-green coverage for all playing surfaces with no per hole limitations that includes tree replacement and debris removal, and broad form outdoor property extension; commercial auto for fleets that can include valet parking; excess and umbrella liability with limits to $25 million and higher; pollution liability; D&O liability that can be included in the umbrella; EPL with separate aggregate that can be included in the umbrella; workers’ comp with a broad form all states endorsement; and accidental death and dismemberment.

Available limits: As needed Carrier: Zurich States: All states except Fla., Hawaii and Md. Contact: Customer service at 866-873-0782 www.insurancejournal.com

Now Available in Paperback at

IDEA EXCHANGE

Closing Quote

Observations on TRIA

By Lloyd Dixon, Michael Dworsky, Tom LaTourette & Henry Willis

U

.S. insurance markets, like the rest of the nation, were caught off guard by the Sept.11, 2001 terrorist attacks. Loss of life and property led to an estimated $32.5 billion dollars in insured losses — $43 billion in 2013 dollars — the largest amount ever to that point. Following that, terrorism risk insurance became either extremely expensive or unavailable.

Congress responded by passing the Terrorism Risk Insurance Act in 2002. The act provides government support for the commercial terrorism insurance market through mechanisms for spreading losses across the nation’s policyholders and using government funds to cover the most extreme losses. This has helped keep terrorism risk insurance affordable for businesses.

Congress extended the act in 2005 and again in 2007. However, with the program set to expire this year, Congress had to revisit a crucial question: What is the appropriate government role in terrorism insurance markets? The Rand Corp., a nonpartisan, nonprofit research organization, recently identified three emerging themes.

1) The act’s expiration could increase federal spending following terror attacks. Many experts predict that the act’s expiration would increase the price and reduce the availability of terrorism coverage, resulting in a reduction in the number of businesses with terrorism coverage. If this occurred, more attack losses would go uninsured. This would increase demand for disaster assistance in the event of an attack, thus causing 38 | INSURANCE JOURNAL-NATIONAL August 4, 2014

federal spending to rise.

Simulated attacks ranging from $14 billion to $26 billion in losses could necessitate an estimated $1.5 billion to $7.2 billion more in federal spending should the act expire.

In the absence of an attack, the act costs taxpayers little.

In the event of an attack comparable to 9/11, it is expected to save taxpayers money.

2) Expiration could be costly for workers’ compensation markets, businesses and states. Compared with other insurance lines covered by the act, workers’ comp provides insurers less flexibility to control terrorism exposure. Thus, insurers faced with an expired act could choose to limit their risk exposure by refusing workers’ comp coverage to employers that face high terrorism risk. Because workers’ comp coverage is mandatory for nearly all U.S. employers, high-risk employers might be forced to obtain coverage in markets of last resort, which often cost more.

This higher cost of coverage would tend to reduce labor income and economic growth even if there never were another attack, though these effects are likely to be small.

Because of the mechanism for financing claims paid through markets of last resort, the expiration of the act and growth in these markets could also mean that workers’ comp losses from a catastrophic attack could be financed largely by businesses and taxpayers of the state in which the attack occurred. This would make rebuilding in that state more challenging than if the act remains in place, because the act spreads losses across the country.

3) A robust terrorism insurance market makes communities more resilient to terrorism. With high take-up rates for terrorism insurance, recovery efforts following an attack may be swifter and more effective with the act than without.

With the act in place, property damage payWhat is the appropriate ments could be made government role in quickly without the need to decide how gov- terrorism insurance ernment compensation markets? should be awarded and how it should be distributed. Moreover, when losses are covered by insurance, people and companies can focus on recovery instead of disputing fiscal responsibility in the courts.

What is more, terrorism insurance would likely be difficult to find and expensive following a future attack without TRIA. This could thwart economic activity and recovery from an attack.

Dixon is director of the Center for Catastrophic Risk Management and Compensation, Dworsky is an associate economist, LaTourette is a senior physical scientist, and Willis is director of the Homeland Security and Defense Center at the Rand Corp.

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