Insurance Journal West 2014-09-22

WEST States’ Risk From Natural Hazards Barley Losses in Montana, Idaho Calif. Workers’ Comp Kaleidoscope

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Accident & Health I Aviation I Casualty E&S I Energy Liability I Environmental I Equine I Healthcare Liability I Marine I Multiline E&S I Professional Liability

WEST

Inside This Issue

On The Cover

Special Report: Insuring Products of the Mind

September 22, 2014 • Vol. 92 No. 18 • West

W4

W6

NATIONAL COVERAGE

16

24

IDEA EXCHANGE

8

Demand for Liability Insurance to Rise Again

17 Special Report: 10 Things to Know

About Intellectual Property

26 Growing Your Property Casualty

Agency: Alan Shulman

8

OSHA Revises Severe Injury Reporting Rule

18 Closer Look: The Ever Evolving

Nature of Cyber Coverage

28 Minding Your Business: Catherine

Oak & Bill Schoeffler

20

30 The Problem with Domestic Excess

and Surplus Lines Insurers

11 Top 10 Causes of Business

Insurance Losses 14 Special Report: Insuring Products

of the Mind 16 Special Report: Top 5 Insurance

Industry Misconceptions About

Copyright

Closer Look: Contractors and the CGL Policy’s ‘Your Product’ and ‘Your Work’ Exclusions

22 Spotlight: Top 25 Workers’

Compensation Insurers 24 E&O Insights: How Well Do You

Know Your Workers’

Compensation Risk?

WEST COVERAGE W2 States Ranked by Risk of Damage

From Natural Hazards W4 Barley Crops in Montana, Idaho

Rain Damaged

4 | INSURANCE JOURNAL-WEST September 22, 2014

32 Tech Talk: Customer Experience

Makes Bigger Impact Than Policy,

Claims 38 Closing Quote: Helping Clients

Through Home Renovations

DEPARTMENTS W6 California Workers’ Comp

Kaleidoscope Through

Conference-goers Eyes

10 Declarations 10 Figures W10 People 12 Business Moves 36 MyNewMarkets

W8 Agent Steals More Than $100K

From California Businesses

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NATIONAL COVERAGE

Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

Fighting Cybercrime

H

SB, a specialty insurer that is part of Munich Re, along with Trail of Bits, a New York cybersecurity firm, recently presented a “Hacker Lab” to provide risk mitigation resources for small business owners. The event showed that cybercriminals view small business both as a target and as a conduit to attack their clients and that most cyber attackers enter a company through email and browsers. HSB and Trail of Bits provided risk management tips that make sense for insurance agencies and their small business customers: 1. Outsource payment processing. Avoid handling card data on your own.

Reputable vendors can protect that data better than you can.

2. Separate social media from financial activity. Use a dedicated device for online banking. Use a different device for email and social media.

3. Think beyond passwords. Never reuse them and don’t trust any website to store them securely. Set up a two-factor authentication; this sends a secret code to your phone verifying your identity.

4. Educate and train employees. Establish a written policy about data security. Educate employees about what types of information are sensitive or confidential and what their responsibilities are to protect that data. Also, most scams and malicious attacks arrive through email so be sure your team is prepared and alerts others when they are received.

5. Stay informed. Evaluate the entire chain of events in a potential attack.

From assessing your email infrastructure to your users’ responsiveness to your browser’s vulnerability, identify where your organization is most at risk. Then, question the security of your business lines, vendors, suppliers or partners.

6. Stop transmission of data that is not encrypted. Mandate encryption of all data. This includes data at “rest” and “in motion.” Also consider encrypting email within your company if personal information is transmitted. Avoid using Wi-Fi networks.

7. Secure your browser. With the growing popularity of watering holes — malicious code installed on trusted websites — how do you know which websites to trust? Forget individual patches. Keep updating the latest version of your browser.

8. Secure your operating system. It’s far easier to break into older operating systems like Windows XP or OS X 10.6.

Take advantage of major security improvements in newer operating systems.

9. Secure your router. Make sure someone can’t intercept all the data sent through it. It’s important to set a strong admin password on your router and a WPA2 password on your Wi-Fi. 10. Secure your data. Always have a backup. Ideally, your backups should be encrypted and off-site in case there’s a fire or burglary.

Try these and other protective measures for the sake of your employees, customers and your own business.

Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL-NATIONAL September 22, 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 Catherine Oak, Curtis Pearsall, Bill Schoeffler, Alan Shulman Contributing Writers Regina Anderson, Brian D. Brown, Elisabeth R. Curzan, Jack Elliott Jr., Steven J. Groeschen, Dwight Kealy, Miles McNamee, Scott Spencer, David Surles, Tom Wetzel 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

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NATIONAL COVERAGE

News & Markets Demand for Liability Insurance to Rise Again

C

laims severity and demand for liability insurance will increase as economic growth accelerates and because of technological, social and regulatory changes, according to a new report from Swiss Re. Cyber risk, hydrofracking and autonomous cars will likely be among the drivers of liability claims in years ahead.

Liability claims have been below trend in the weak economic growth environment of recent years, boosting insurers’ profitability despite declining prices.

But their capital strength and underwriting expertise are competitive advantages for casualty insurers, says the insurer’s latest sigma study, “Liability claims trends: emerging risks and rebounding drivers.”

New Risks Emerging A number of technological, social, and regulatory changes will drive liability claims in the near future. Cyber risk and the liability from emerging technologies, such as hydrofracking and autonomous cars, may become more prominent in claims.

Tort reform has dampened claims severity in some markets, but the effects were a one-off benefit and will no longer suppress claims growth to the same degree, according to the report. Insurers are also concerned about the potential for risk accumulation, in which the insured losses from one event affect multiple companies, countries, industries or lines of business.

“With global ever-increasing interconnectivity — via cyber links and supply chains — the risk of casualty catastrophes is rising,” says Jayne Plunkett, Swiss Re’s head of Casualty.

Claims Growth Due to economic and social factors such as low inflation, low wage growth, tort reform, and improvements in medical care costs, liability claims have been lower-than-expected since 2008. Over the long term, claims growth typically outpaces economic growth and the expectation is for a return to this more normal growth path, which in turn will push up demand for lia-

bility insurance.

Redundant claims reserves from prior-year claims have been another factor supporting insurers’ profitability in recent years. However, a pick-up in liability claims growth will drain reserves, and an accelerated depletion of reserves in the case of severe claims could erode the profitability of existing books of business.

Liability risks are challenging to underwrite and price due to their long-tail nature. Insurers need to take advantage of their underwriting expertise to improve pricing, the report says.

Likewise, they must maintain capital strength to manage the long-tail nature of the business and rising claims costs, such as those from the growing litigation funding industry, according to the report.

OSHA Revises Severe Injury Reporting Rule

T

he U.S. Occupational Safety and Health Administration (OSHA) has issued a final rule requiring employers to notify OSHA when an employee is killed on the job or suffers a work-related hospitalization, amputation or loss of an eye.

Under the revised severe injury rule, employers will be required to notify OSHA of work-related fatalities within eight hours, and work-related in-patient hospitalizations, amputations or losses of an eye within 24 hours.

Previously, OSHA’s regulations required an employer to report only work-related fatalities and in-patient hospitalizations of three or more employees. Reporting single hospitalizations, amputations or loss of an eye wasn’t required under the previous rule.

The rule, which also updates the list of employers partially exempt from OSHA record-keeping requirements, will go into 8 | INSURANCE JOURNAL-NATIONAL September 22, 2014

effect on Jan. 1, 2015, for workplaces under federal OSHA jurisdiction. The new rule maintains the exemption for any employer with 10 or fewer employees, regardless of their industry classification, from the requirement to routinely keep records of worker injuries and illnesses.

“Workplace injuries and fatalities are absolutely preventable, and these new requirements will help OSHA focus its resources and hold employers accountable

for preventing them,” said U.S. Secretary of Labor Thomas E. Perez, citing Bureau of Labor Statistics that 4,405 workers were killed on the job in 2013.

All employers covered by the Occupational Safety and Health Act, even those exempt from maintaining injury and illness records, are required to comply with OSHA’s new severe injury and illness reporting requirements. To assist employers, OSHA is developing a web portal for employers to report incidents electronically, in addition to the phone reporting options.

“Hospitalizations and amputations are sentinel events, indicating that serious hazards are likely to be present at a workplace and that an intervention is warranted to protect the other workers at the establishment,” said Dr. David Michaels, assistant secretary of labor for occupational safety and health. www.insurancejournal.com

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Business Insurance Employee Benefits Auto Home

NATIONAL COVERAGE

FIGURES

$1.4 Billion

How much California regulatory judges recommended for the penalty against Pacific Gas & Electric Co. for a fiery 2010 gas pipeline explosion that killed eight people in a suburban San Francisco neighborhood.

DECLARATIONS

20 The number of years in prison to which Joel Steinger, 64, was sentenced in Florida for his part in an $800 million insurance scam that fleeced tens of thousands of investors in one of Florida’s all-time largest fraud schemes.

In the Ponzi-type fraud scheme, life insurance policies were purchased from people with AIDS, cancer and other chronic illnesses and sold to investors who were promised a large payout when the person died.

Stormy Relations

“Storm surge and wind-driven waves flooded homes and moved them off their foundations in Kapoho, Hawaii County.”

— Hawaii Gov. Neil Abercrombie describing the damaging force of the tropical storm Iselle.

His petition for disaster assistance for the storm was denied by FEMA.

The Worst

“This is the worst storm I’ve seen in 40 years here.”

— Mayor Pro Tem Ron Hanson of Sergeant Bluff City, Iowa, comments on the storm system that that wreaked havoc in Northwest Iowa on Labor Day. Winds of at least 70 miles an hour knocked down numerous trees and left limbs and other debris strewn about in Denison and Sergeant Bluff.

$30,000 The value of three metal sculptures that were stolen from a Little Rock, Ark., park on Aug. 28 and returned three days later.

The bronze statues were sawed off at their bases and taken from the Riverfront Park sculpture garden. They were found on Aug. 31 inside black garbage bags by a couple visiting the park.

More Cold, Fewer Tornadoes

$108 Million The amount of outstanding debt Stockton, Calif., and Assured Guaranty have agreed on to restructure and help the city exit from bankruptcy.

“One factor that played into lower tornado totals were the cooler temperatures during winter … But that flips around in the summer. Higher temperatures usually correlate with fewer tornadoes.”

— Greg Carbin, warning coordination meteorologist with the Storm Prediction Center.

Oklahoma experienced the least number of tornadoes this past spring since the same period in 1988. There were 13 tornadoes in Oklahoma through June 2014; in 1988 10 were documented during the same time frame.

Regulation Welcome

“We welcome regulation. We just hope that the regulation actually acknowledges this unique model: personal drivers, personal cars,”

67%

The percentage by which workers in Ohio increased their productivity between 1979 and 2013. Median hourly wages, however, decreased by 1.1 percent during that time when adjusted for inflation, according to analysis of jobs data from Policy Matters Ohio, a Cleveland-based economic think tank. Ohio’s median wage was $15.81 last year, slightly above 2012 but well below the highs of $17.11 in 1999 and $17.12 in 1979.

10 | INSURANCE JOURNAL-NATIONAL September 22, 2014

— Annabel Chang, a national public policy manager for ridesharing firm Lyft, comments on emergency regulations that will take effect in Kentucky in October and govern ridesharing companies. The companies are operating in Louisville and Lexington, Ky., and Cincinnati.

Mass. Data Breaches

“Last year was an unprecedented year for high-volume and high-profile data breaches.”

— Massachusetts Consumer Affairs Undersecretary Barbara Anthony on last year’s data breach incidents. www.insurancejournal.com

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News & Markets States Ranked by Risk of Damage From Natural Hazards

F

lorida, Rhode Island, Louisiana, California and Massachusetts are the top five states for exposure to multiple natural hazards, according to an analysis by CoreLogic, a property data and analytics firm.

Michigan, West Virginia, New York, North Dakota and Vermont have the lowest score for exposure to multiple hazards, the report said.

The analysis was derived from the CoreLogic Hazard Risk Score (HRS), a new tool that gathers data on multiple natural hazard risks and combines them into a single score ranging from 0 to 100. The overall score indicates risk exposure at the individual property and location level.

For every geo-coded location across the United States, the proprietary CoreLogic HRS is compiled using data representing nine natural hazards: flood, wildfire, tornado, storm surge, earthquake, straight-line wind, hurricane wind, hail and sinkhole.

Alaska and Hawaii were not included due to limited natural hazard risk data, CoreLogic said.

Locations with higher risk levels are exposed to multiple hazard risks and will, therefore, receive higher scores when the risk analysis is aggregated. Subsequently, locations with minimal risk levels have lower exposure and receive lower scores. Geo-coded locations are generated at the property-address level using latitude and longitude coordinates and include both residential and commercial properties.

“Florida’s high level of risk is driven by the potential for hurricane winds and storm surge damage along its extensive Atlantic and Gulf coastline, as well as the added potential for sinkholes, flooding and wildfires. Michigan alternatively ranks low for most natural hazard risks, other than flooding,” said Dr. Howard Botts, vice president and chief scientist for CoreLogic Spatial Solutions.

In calculating the overall score, both the probability of an event and the frequency of past events are significant contributing factors used to determine W2 | INSURANCE JOURNAL-WEST September 22, 2014

risk levels associated with individual hazards, as well as each distinct hazard’s risk contribution to total loss. The data is combined into an aggregated, consistent and normalized value that allows statistically valid combinations to be derived.

“In the past, natural hazards have been difficult to compare and combine in a meaningful way,” said Dr. Botts. He said the new Hazard Risk Score is a “single solution” that measures risk concentration consistently and pinpoints the riskiest places in the U.S. with accuracy.

“This insight is critical in conducting comparative risk management nationwide and fully understanding exposure to potential natural hazard damage,” he said.

CoreLogic says the score can be used to improve decision-making in a variety of business operations, including: • Business continuity and disaster recovery planning • Analyzing risk associated with a residential property or portfolios of properties • Measuring mitigation savings vs. total hazard potential damage • Evaluating and determining natural hazard risk levels of distribution and supplier networks • Recognizing which underinsured or uninsured properties may become at risk of default • Adverse selection avoidance and identification of “good risk” properties.

U.S. Natural Hazard Risk by State* (Ranked by CoreLogic Hazard Risk Score)

Rank State HRS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

FL RI LA CA MA KS CT OK SC DE OR NJ IA TX NC MO DC MS AR NH ID MD CO NE IL IN GA NV AL KY TN UT NM AZ VA WA WI SD MT MN OH ME WY PA VT ND NY WV MI

94.51 79.67 79.23 75.56 72.12 69.51 69.04 66.82 66.38 65.38 64.89 61.54 61.02 60.89 59.72 57.81 57.33 57.05 56.7 55.3 52.75 52.28 51.88 51.86 51.8 50.74 50.58 50.12 49.42 47.34 46.48 45.22 43.76 42.81 42.35 42.3 38.52 38.24 37.91 36.42 34.61 31.64 30.24 28.79 28.31 27.5 24.97 20.67 20.22

Source: CoreLogic 2014 * AK and HI were excluded in the ranking due to limited natural hazard risk data. www.insurancejournal.com

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Matt is intent on showing you that at Monarch, honor is a way of life.

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News & Markets Barley Crops in Montana, Idaho Rain Damaged

By Tom Lutey Associated Press

T

hat rain on the plain that saturated Montana’s malt barley crop in late August could be tears in the beer of American brewers in 2015.

Heavy late-August rains have damaged crops in the nation’s largest malt-barley producing states, Montana and Idaho. The rains caused much of the states’ barley to sprout in the field, rendering much of it useless for beer making.

Maltsters are warning brewers that barley will be available but pricey in 2015 when this year’s crop becomes next year’s beer.

“We’ve been told to expect major price increases for malt,” said Tim Mohr of Angry Hank’s Brewery in Billings. “There is no panic yet. Everybody has been telling us not to panic. There is carry-over from last year’s malt supply. Our prices are stable until January, but beer prices are going up.”

Roughly half of Montana’s malt barley crop was harvested or close to harvest and in excellent condition when heavy rains

clobbered north-central Montana the weekend of Aug. 24. Malt barley growers in the Yellowstone River drainage were finishing up an exceptional growing season.

But north-central Montana farmers, particularly those in the area known as the Fairfield Bench, the self-proclaimed malt barley capital of the world, weren’t as far along as those in the south. The region received several inches of rain at the wrong time, causing the malt barley to germinate. That’s bad news for brewing companies like Anheuser-Busch InBev and MillerCoors, which typically tolerate only a percentage or two of germination in the malt barley they buy.

Germination in the worst-hit areas exceeded 50 percent, according to people in the industry. The damage came just weeks

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W4 | INSURANCE JOURNAL-WEST September 22, 2014

9/4/14 10:10 AM

after wet weather in Idaho devastated the malt barley there.

Early August rains in eastern Idaho dumped several inches on malt barley country and caused more than 50 percent germination in regions there. Barley that doesn’t pass muster for malt has been marketed as animal feed. This year’s malt barley prices were more than $12 per hundredweight.

In addition to Montana and Idaho, North Dakota’s malt barley crop has also been clobbered by weather. The three states produce most of the nation’s malt barley. The crop losses in all three states are a triple whammy for the industry.

“We had big problems back in 2002 in Montana and North Dakota, but I don’t think Idaho had such big problems that year,” said Scott Heisel of the American Malt Barley Association. “This seems geographically widespread, and because the harvest is still going on it’s hard to tell how bad it is.”

Poor weather is also threatening the Canadian crop, Heisel said.

Still, it’s hard to tell how badly the unharvested malt barley will fare.

Experts say the 2013 Canadian crop, which was a record size, will probably fill the void from this year’s failure, at least early on.

Brewers like Angry Hank’s and Canyon Creek in Billings receive much of their malt from Malteurop, which has a state-of-the-art malting facility in Great Falls.

As he made beer at Canyon Creek, brewer Ron Kalvig said he’s been told the malt he pays 41 cents a pound for is going to shoot up in price.

There was a bumper sticker on a malt pallet beside Kalvig.

The sticker read “No barley. No beer.” www.insurancejournal.com

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News & Markets California Workers’ Comp Kaleidoscope Through Conference-Goers’ Eyes

By Don Jergler

“You find information that they might be careful about, but their spouse isn’t,” Hudson said. ick Hudson was sitting at his booth at Often people announce their the California Workers’ Compensation pending activities to friends on & Risk Conference held earlier this month Facebook or Twitter, such as scanning emails on his smartphone during “Can’t wait to get to the river,” a slow period when he was asked what the or “Saturday’s moving day,” and most significant change to his job has been that’s a clue for Hudson to be over the last year or two. on the lookout for pictures and Hudson, president and CEO of Irvine, videos.

Calif.-based Hudson Investigations Inc., gave That’s what Hudson did his answer in a fraction of a second. recently while following “Social media.” the trail of a firefighter with Hudson spends a lot of his time tracking an alleged back injury who down and ferreting out workers’ comp fraud announced his family’s big move suspects, and nowadays he starts his search on Facebook. Hudson sent an associate out right at his desk by combing through postwith a video camera to the locale where a ings on Facebook, Twitter or Instagram. moving van was parked and he recorded “They’ll post pictures of themselves skithe man lifting several pieces of furniture, ing, or snowboarding or running a race,” he including a large couch. said.

The three-day annual workers’ comp con A few booths down Michael Kowalski, ference was held at the St. Regis Hotel in Southwest manager of investigations at Dana Point from Sept. 10-12.

Bonnamy & Associates LLC, a national The conference included a motivational claims investigation, audit and risk managespeech by former Lakers NBA star James ment firm, offered an example of just how Worthy, as well as several informational sesmuch easier social media has made life for sions. investigators.

Sessions included: Employer & He was recently investigating a woman Stakeholder Panel: who was out of work ‘They’ll post pictures of The Current State of and on workers’ comp themselves skiing, or snow- California Workers for a back injury.

While trolling the boarding or running a race.’ Compensation and what’s on the horiInternet he found video zon for 2015; Cyber Security: Implementing of the woman competing in a rigorous a Strategic Risk Management Strategy; Tough Mudder obstacle course race shot by WCAB UPDATE: 2014 Decisions & Latest her friend, who had posted it on a social Trends in Workers’ Comp Litigation; Opiate media site.

Prescribing in Workers Compensation: We “We got 30 minutes from her friend who know the problem, what are the solutions?; was doing video of her with a GoPro camand Connecting the Dots….Tying in the era,” Kowalski said. “I couldn’t have got video foundational pieces with your Best Practice like that if I tried.”

Future State.

Hudson said that in roughly 30 percent In the later session speakers spent time of cases he finds incriminating evidence of outlining the fundamental best practices of workers’ comp fraud on social media, and their organizations’ workers’ comp and risk often it’s someone’s friend or a family memdepartments. ber who posts a video or picture of a pur Joe Carresi, manager of project/product portedly injured worker doing something and Southern California Edison, talked they aren’t supposed to able to do.

R

W6 | INSURANCE JOURNAL-WEST September 22, 2014

about the utility giant’s position on drug compounding and physician dispensing and how that position has helped the company keep claims costs under control by weeding out medical providers they don’t want to be doing business with.

“It they want to do dispensing, that’s a deal breaker,” Carresi said.

Others at the conference offered their thoughts on the workers’ comp space in California, including a less than lukewarm review of how SB 863, the state’s new worker’s comp reform law, is doing.

“SB 863 has made workers’ comp the new unemployment in California,” said Frank Cannizzaro, an employers’ attorney in the Los Angeles office of Lewis Brisbois Bisgaard & Smith LLP. Cannizzaro blamed the increased permanent disability benefits created by the reforms for making workers’ comp an attractive, though potentially illegal, option for workers who are about to get laid off.

“Workers’ comp has been abused a lot as a consequence of the bad economy,” he added.

Jillanna Pomelow and Debbie Hubble, partners in QuestPro Insurance Recruiting Specialists, said firms that offer workers’ comp have been recruiting more adjusters as claims have risen.

“A few years ago it was rare that we got a workers’ comp adjuster search,” Pomelow said. www.insurancejournal.com

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News & Markets Agent Steals More Than $100K From California Businesses

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sidro Santillan, 53, of Pacoima, Calif., has been arrested and charged with 13 counts of grand theft and three counts of commercial burglary.

Santillan is alleged to have stolen more than $100,000 by selling insurance policies and bonds to licensed contractors and not forwarding the premium to insurance companies.

Investigators allege Santillan, who also went by Art Sanchez, issued premium checks that did not require the payer’s signature, and then instead of sending these premiums to his clients’ insurers he cashed the checks for his own personal use.

It’s alleged that Santillan did not forward premium payments to purchase policies for his clients, which left his victims at risk for uninsured losses.

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According to investigators, Santillan attempted to cover up his theft by providing both falsified and legitimate certificates of insurance and premium finance agreements. In some instances, he allegedly made partial premium payments but the policies were later cancelled by insurers due to lack of full payment.

The California Department of Insurance launched an investigation in late 2012 after receiving complaints about Santillan’s business practices regarding the sale of commercial auto, general liability and workers’ compensation insurance and bonds. Some of his victims discovered cancelled checks that exceeded the cost of the insurance policy they had agreed to purchase.

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insurance premium money, he exposed business owners to great financial risk by leaving them without insurance coverage,” Insurance Commissioner Dave Jones said in a statement.

If convicted Santillan faces up to 12 years in state prison.

CDI is looking for additional victims in this case and is asking anyone that may have done business with Sid Santillan, Art Sanchez, Insurance Service Center or Isidro Santillan Insurance Services, to contact the investigation division (661) 2537500.

8/4/14 11:27 AM

W

ildfires this summer in Washington have burned about 567 square miles.

Last year wildfires burned about 156 square miles in the state.

State Forester Aaron Everett said this year’s scorched acreage is about six times the five-year average of 95 square miles.

He also said the state has spent more than $100 million on wildfires through August.

The Department of Natural Resources’ fire suppression budget is about $25 million.

Everett gave his account of the fire season at a meeting in early September on the results of Washington Gov. Jay Inslee’s program to improve government efficiency.

Copyright 2014 Associated Press. www.insurancejournal.com

WEST COVERAGE

People Nate Call

William Gordon

Southwest Insurance Agents Alliance has expanded its team with the addition of Nate Call and William R. Gordon as regional vice presidents for Arizona.

Both Call and Gordon will be responsible for membership service, development and insurance company relations for Alliance member agencies in Arizona.

Call most recently was vice president of sales for Diversified Insurance Group. Call was also a sales producer and business insurance broker with Leavitt Group and a client advisor for Marsh USA Inc. Gordon has an extensive independent and captive agent experience within both personal and commercial lines.

Before Southwest, Gordon was the principal at Gordon Insurance Associates Inc. Southwest is part of the Strategic Insurance Agency Alliance.

Patriot Underwriters Inc. named Shadi Lang vice president of marketing and underwriting of its California region.

Lang will be based in Woodland Hills. In her new role, Lang will build and manage agency relationships across California, focusing on the southern portion of the state.

Lang comes to Patriot from American International Group, where she was an underwriting specialist. Prior to AIG, positions Lang held include senior underwriter and assistant vice president at Zenith Insurance Co. from 2003 to 2013.

Patriot Underwriters is a program administrator for regional and national insurance carriers.

The Insurance Industry Charitable Foundation named Steve Marohn chairman of its Western division board of directors.

Marohn is western zone officer for CNA. As chairman of IICF, Marohn will help guide the philanthropic endeavors of the its Western division.

Marohn has more than 25 years of industry experience.

As CNA’s Western zone officer, Marohn is responsible for aligning eight branch offices throughout the Western U.S. to drive growth. From his base in the Bay Area, he also manages CNA’s San Francisco branch.

IICF is directed and funded by the insurance industry.

The foundation provides grants, volunteer services and leadership.

IFG Cos. named Vickie L. Potts a regional director in its Scottsdale, Ariz., offices.

Potts will be responsible for leading initiatives for the expansion of IFG’s bind operations in the Western and Midwestern states.

W10 | INSURANCE JOURNAL-WEST September 22, 2014

Potts worked for nearly 17 years for W.R. Berkley and its affiliates, where most recently she was vice president of agency relations and business development. Prior to that she was vice president of marketing at Nautilus Insurance Group.

IFG has five principal business units with coverages underwritten by IFG’s affiliated insurers: The Burlington Insurance Co.; First Financial Insurance Co.; Alamance Insurance Co.; and Guilford Insurance Co. Bolton & Co. named Greg Doherty an executive vice president and managing director of the dietary supplement practice group.

Doherty has experience in the dietary supplement and nutraceutical industry, as well as experience working for brokerage and consulting firms. Prior to Bolton he was with Marsh, Alexander & Alexander, Johnson & Higgins and more recently Poms & Associates.

Pasadena, Calif.-based Bolton is a partner of Assurex Global. Bolton provides insurance and risk management services, employee benefits and financial products.

Beecher Carlson Insurance Services LLC named Paula Robertson-Miller senior vice president of its West Coast executive liability brokerage.

Robertson-Miller will report Jeffrey Lattmann, the national executive liability practice leader.

Robertson-Miller has more than 15 years of experience in executive liability lines. Prior to Beecher Carlson, she served as senior vice president at a brokerage firm where she provided risk management analysis to private equity firm clients.

Atlanta, Ga.-based Beecher Carlson Insurance Services LLC is a wholly-owned subsidiary of Brown & Brown Inc. San Diego, Calif.-based Champion Risk & Insurance Services L.P. announced that Marc Crawford has joined the firm as a producer.

Prior to Champion Risk, Crawford worked for the Leavitt Group, where he handled complex risk solutions and worked with a team of professionals that specialize in risk management and individual insurance.

Crawford has more than 10 years of experience as a commercial broker. His focus is on transportation and energy. He also has experience with unique property coverage, excess, professional lines and program specific businesses.

Champion Risk & Insurance is a regional insurance brokerage that provides a range of insurance products and services, focusing on business and personal insurance and financial solutions. www.insurancejournal.com

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NATIONAL COVERAGE

News & Markets Top 10 Causes of Business Insurance Losses

N

early 70 percent of business financial losses arise from 10 causes of loss, with the largest single identified cause being ship groundings, reflecting the high values of modern shipping risks, followed by fires and aviation crashes, according to a report from business insurer Allianz Global Corporate & Specialty (AGCS).

In its Global Claims Review 2014, AGCS identifies the top causes of loss and emerging trends from more than 11,000 major business claims, with which it has been involved between 2009 and 2013. AGCS analyzed 11,427 claims from 148 countries with a total value of more than $29.3 billion.

These claims were for the accident years 2009-2013, each with a total value after deductible of $136,455 or more, and include

all its traditional lines of business (excluding Allianz Risk Transfer).

In 2013, using industrywide data, the 20 largest losses reported across the insurance industry totaled roughly $8.1 billion, excluding those caused by natural catastrophes.

Top 10 causes of loss by total value: 1. Grounding 2. Fire 3. Aviation crash 4. Earthquake 5. Storm 6. Bodily injury (including fatalities) 7. Flood 8. Professional indemnity 9. Product defects 10. Machinery breakdown

Incidents from the oil and gas industry dominated the 2013 major losses, at 40 percent of the total, while fire and/or explosion was responsible for eight of the top 20 losses or, at about $4 billion, nearly half of the total loss bill.

So far in 2014, 80 percent of major reported losses come from aviation incidents or from fires, particularly in the energy sector with the largest loss — a fire at a Siberian refinery in June — reported to be around $800 million.

Allianz’s analysis also confirms high losses in the oil and gas sector, which is responsible for largest insured losses on average at $28.4 million, more than 10 times the average loss of $2.6 million reported in this analysis.

Losses by Business Sector Aviation Improvements in airline safety are leading to far fewer catastrophic losses overall, despite 2014’s extraordinary loss activity.

However, the cost of aviation claims is rising, driven by the widespread use of new materials and rising aircraft complexity, as well as more demanding regulation and the growth of liability-based litigation.

While aviation crashes are the top causes of loss in the analyzed data in terms of number of claims and value (23 percent/37 percent), on-the-ground incidents also account for a large portion of claims in number and value (18 percent/15 percent).

Bird strikes are a notable cause of loss, averaging $22.8 million every year (2009-13) with a total of 34 incidents (27 to airlines).

Energy (Oil & Gas) Higher asset values combined with increasingly complex and interrelated risks mean that the cost of energy claims is increasing. The rising cost of business interruption and emerging risks will also make for a more challenging future environment. www.insurancejournal.com

Fire is the number one cause of energy losses in the surveyed claims, both by number and value (45 percent/65 percent) followed by blow-out (18 percent/19 percent).

Machinery breakdown, explosion, natural hazards (storm) and contingent business interruption (CBI) are the other main causes of loss identified in the AGCS data.

Liability Liability claims are becoming more international, complex and costly as awareness of compensation and U.S.-style litigation continues to spread. Although not large in number, personal injury and wrongful death claims resulted in more than 40 percent of the claims costs analyzed. Claims from product defects are already high in volume, while automotive recall cases are also becoming more frequent.

Marine Rising claims inflation, the growing problem of crew negligence and the high cost of wreck removal have all been contributing to a worrying rise in the cost of marine claims, although frequency of

claims (especially from cargo losses) appears to be declining. The Costa Concordia loss in 2012 drives grounding to the top of the causes of loss list by value in the analyzed claims.

Property and Engineering The cost of large commercial property and engineering claims is rising with the trend towards ever-higher values and risks that are concentrated on areas with exposure to natural hazards. The cost of natural catastrophe claims is likely to rise as the value of assets in hazard zones increases.

Fire is the major cause of property losses in the AGCS data, both by number and value (26 percent/28 percent), with machinery breakdown a large driver of claims in terms of the number generated. Earthquake is the top cause of engineering losses by value (65 percent) while human/operating error number is the most common, generating 30 percent of losses by number.

Source: Allianz Global Corporate & Specialty (AGCS)

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 11

NATIONAL COVERAGE

Business Moves bility, umbrella and auto coverage for “land-based” oil and gas exploration, production and servicing accounts.

The commercial underwriting division writes property, liability and related lines of insurance for a variety of commercial risks.

The Fort Worth office is located at 801 Cherry Street, Suite 2365, Fort Worth, TX, 76102.

Arthur J. Gallagher Risk Management, Dezelan Insurance Agency Arthur J. Gallagher Risk Management Services Inc. has acquired Dezelan Insurance Agency located in Indianapolis.

Founded in 1927, Dezelan Insurance Agency is a retail insurance broker providing property/casualty and risk management consulting services. The firm offers coverage for commercial and personal lines clients throughout Indiana. The company specializes in the nonprofit, governmental, charter school and real estate industries.

Both Joe Dezelan and Marty Dezelan, as well as their colleagues, will operate under the direction of Michael Pesch, head of Gallagher’s Midwest retail property/ casualty brokerage operations.

U.S. Risk Insurance Group Dallas-based managing general agency and surplus lines wholesaler, U.S. Risk Insurance Group Inc., has opened a new office in Fort Worth, Texas. The new office is staffed with underwriters from the energy and commercial underwriting divisions of U.S. Risk.

Cason Burdett, program manager for the energy division, is branch manager for this new location and is looking forward to growing Fort Worth agency relationships.

The energy division writes general lia-

HGGC, MGA Pearl Holding HGGC, a middle market private equity firm, has completed a majority investment in Pearl Holding Group, a managing general agent focused on the nonstandard auto insurance market in Florida. Terms of the private transaction were not disclosed.

Pearl’s owners, Jared Perlin and Stacey Perlin Labell, will maintain a significant ownership stake and will continue running the business.

Headquartered in Sunrise in southern Florida, the family owned Pearl offers underwriting, policy management, claims processing and management as the managing general agent for Ocean Harbor Casualty Insurance Co., which is focused on personal injury protection and physical damage insurance.

Pearl manages more than $100 million in net premiums working with 400 independent insurance agencies to insure 70,000 policyholders.

HGGC is a Palo Alto, Calif.-based middle market private equity firm with $1.1 billion in committed capital under management.

Pearl is HGGC’s first investment in the insurance sector. However, the company says two managing partners at HGGC, Greg Benson and Gary Crittenden, have insurance experience.

Propel, Assurety Northwest Pacific Northwest-based agency Propel Insurance has acquired Assurety Northwest.

Assurety principals Jeff Bieker and Bryan

12 | INSURANCE JOURNAL-NATIONAL September 22, 2014

Ludwick will join Propel as partners in the company’s newly expanded space in downtown Portland, Ore. Propel is a privately owned agency that provides property/casualty, risk management, workers’ compensation, employee benefits, personal insurance and other products.

Arthur J. Gallagher, Everett James Arthur J. Gallagher & Co. has acquired Everett James Inc. located in Ridgefield, Conn. Terms of the deal were not disclosed.

Everett James Inc.’s Robert McDonald, Steve Rinaldi and their associates will continue to operate in their current location under the direction of David Ziegler, head of Gallagher’s Eastern employee benefit consulting and brokerage operations.

Everett James offers employee benefits consulting and brokerage services primarily for its large and middle-market clients in the Northeast. The company specializes in group health and welfare consulting for private and public entity organizations, with an emphasis on planning, design, implementation, cost containment and plan administration services.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Ill., and has operations in 30 countries.

Ion, Drescher Insurance Ion Insurance Corp., an insurance agency based in Naugatuck, Conn., has signed a definitive agreement to acquire Drescher Insurance Agency in Chester, Conn. Terms of the transaction were not disclosed.

Drescher Insurance Agency was founded in 2003. All seven of the firm’s employees will join Ion Insurance, increasing the size of Ion’s staff to about 20, according to the announcement.

Ion Insurance, an affiliate of Ion Bank in Naugatuck, is a full-service independent insurance agency. Both Ion Insurance and Ion Bank are part of a mutual holding company, Ion Financial. Ion Insurance has been providing insurance services to business and personal customers since 1915. www.insurancejournal.com

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SPECIAL REPORT

Intellectual Property

Web Resource: To view a video of CFC Underwriting’s Graeme Newman addressing IP exposures visit: http://www.insurancejournal.tv/videos/11400/

By Andrea Wells

T

he rapid growth in patent infringement litigation in 2013 — almost 6,500 cases, or an increase of 25 percent over 2012, according to PricewaterhouseCoopers — might appear to be a strong motivator for at-risk businesses to buy intellectual property insurance. But the complicated world of IP and the insurance market that covers this unique class has yet to overcome long-standing barriers to buying, the experts say. That’s not to say opportunity doesn’t exist in this niche.

“One of these days this market is going to break,” says Richard Betterley, president of Betterley Risk Consultants, an independent consulting firm specializing in risk management that publishes The Betterley Report.

The question is when — not if, he says.

Betterley is not alone in that assessment.

“This market has been really tough [but] it should be huge,” says Graeme Newman, director, CFC Underwriting. Intellectual

property insurance should be a mainstream product, he says.

There have been energetic attempts to grow the intellectual property insurance market. But so far, those attempts have not created much market expansion. Only a handful of IP coverage sources exist today. According to The Betterley Report’s “Intellectual Property and Media Liability Insurance Market Survey 2014,” only four carriers play in the IP space, some more than others: AIG, Liberty Mutual, Lloyd’s (via Intellectual Property Insurance Services and SAMIAN) and ThinkRisk (Aspen).

But Betterley, and other IP market experts believe it’s only a matter of time.

Everybody’s at risk when it comes to intellectual property exposures, says CFC’s Newman. CFC Underwriting, based in London, is a Lloyd’s managing general agency specializing in insurance products for specific niche markets.

Everybody has some form of intellectual property and everybody risks infringing on

14 | INSURANCE JOURNAL-NATIONAL September 22, 2014

others’ intellectual property, Newman says.

“This should be a huge global market.”

Small Market Still The lack of market growth can be traced in part to challenges insurers have with underwriting IP risks profitably, the experts say.

The complexity of defining intellectual property is a challenge to insurers, according to Robert Fletcher, president of Intellectual Property Insurance Services Corp. (IPISC), and the originator of the first-ever intellectual property infringement abatement policy.

“If you go back and you look at history, we have been insuring products of the hands — homeowner’s, and fire, automobile, even perhaps health insurance — all of that is not difficult to define,” Fletcher says. “But when you get into ‘products of the mind’ — patent, copyright, trademark, trade dress and trade secret coverages — you are talking about something that’s more difficult to define.”

That ambiguity causes people to ask, www.insurancejournal.com

“Well, what is it you really want to have insured?”

And that’s a big challenge, he says.

That challenge isn’t helped by the lack of industry expertise in the field of insuring intellectual property, according to CFC’s Newman.

“The insurance market has been battling for decades with how to write this coverage effectively,” he says. The market hasn’t grown because there are so few people with the right level of experience to underwrite the class. “That’s been a real inhibitor.”

Betterley says that few agents and brokers have invested time needed to learn about IP exposures and how to cover them.

“Brokers don’t really understand the topic or coverage; therefore it’s very difficult for the prospective buyer to feel confident that, yes, this is something I should buy,” Betterley says.

Patent Trolls There is another reason insureds choose not to buy: it’s often easier for defendants to simply pay-off “patent trolls” than it is to fight them.

“Patent trolls,” or Patent Assertion Entities (PAEs) and Non Practicing Entities (NPEs), are firms that own patents but do not make products from them. While there are differences between the two, both are sometimes referred to as “patent trolls” because they are seen as exploiting technological advances that make it difficult to establish boundaries for patents and they use aggressive litigation tactics against target companies, such as threatening to sue for patent infringement without specific evidence.

In June 2013, the Obama Administration reported that suits brought by PAEs had tripled in the previous two years and the costs from litigation grew to almost $13 billion.

More than 100,000 companies were sued by PAEs in 2012 alone, according to the “Patent Assertion and U.S. Innovation” report, published by the Office of the President.

“It’s an odd combination where the insureds think on the one hand, ‘I’m never going to have a problem so why do I need the insurance,’” Betterley says. “On the other hand it happens so frequently, ‘I’ll just write a check and make the non-practicing entity www.insurancejournal.com

claims go away; it’s cheaper than having the insurance company involved,’ which doesn’t make sense.”

IP Products Despite the IP market’s current small scale, there is continued interest from underwriters.

One new patent insurance product, offered by Corona Underwriting, which represents the west coast offices of CRC, insures against the costs of NPE litigation.

RPX Patent Infringement Liability Insurance reimburses legal costs and some settlement costs incurred by operating companies in litigations initiated by most NPEs. The base policy provides limits of up to $5 million annually to cover litigation costs incurred to defend against patent infringement suits brought by NPEs in U.S. federal district court (International Trade Commission actions are excluded from the coverage, as are intellectual property indemnification obligations). The policy also can cover costs associated with re-examinations and declaratory judgments. Each policy carries a self-insured retention between $50,000 and $500,000. Policyholders must be members of the RPX client network.

According to Garrett Koehn, president of the northwest offices of CRC, the purpose of the coverage is to make patent risk a “reasonable and predictable line item” in a company’s budget, whereas today, the risk is “highly” unpredictable.

“The thought here is that through the combined efforts of Corona Underwriting and RPX, this new patent risk service now available to the mainstream insurance market may become as widely accepted as D&O or cyber liability insurance,” Koehn said.

Historically, only a few markets have focused on patent insurance, Koehn says, but so far none have focused on the NPE exposure. Most look more at the transactional patent exposure. That cover offered protection if an insured is sued by a competitor for infringement, or if the insured needs to buy patent insurance due to a contract requirement. “That was more typically what they were looking to target,” Koehn said. “They would often even specifically exclude NPE

litigation because of the high frequency of those types of lawsuits.”

According to Koehn, RPX is the only market that’s focused on the NPE issue.

RPX’s core business is not insurance; rather it serves as a publicly traded patent-risk-mitigation firm offering a subscription service where companies pay money to participate in RPX’s buying of patents and RPX’s collaborative defense work. Clients served by RPX include eBay, Google, Apple, Cisco, DirecTV, eHarmony and other big names.

“They’ve become almost a $300 million company off their subscription service and they’ve acquired close to a billion dollars in intellectual property assets,” Koehn says.

They’re like the opposite of a patent troll, he says.

“What RPX will do is they’ll take their members and pool them together and cut a deal on behalf of RPX membership and buy the intellectual property, or license it, and get rid of that intellectual property issue forever for their members. Then they share defense costs in the lawsuit and the case.”

While big companies like Google and Apple don’t need insurance for NPE litigation issues, there’s a larger market for companies that range from few million in revenues

‘Interest in insuring intangible property, or products of the mind, is growing.’ up to $1.5 billion in revenues, Koehn says. “If these companies were to get sued a number of times it could actually be a problem for them financially. That’s why RPX decided to develop an insurance product.”

Corona Underwriting, owned by wholesale broker CRC, is distributing the RPX product into the insurance broker segment.

RPX will do marketing, underwriting and claims management services on behalf of a syndicate at Lloyd’s.

Fletcher’s company, IPISC, a Lloyd’s coverholder, also offers a patent troll policy, called Troll Defense Insurance, as well as other IP coverages for abatement, defense insurance, continued on page 27

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 15

SPECIAL REPORT

Intellectual Property Top 5 Insurance Industry Misconceptions About Copyright

F

ew industries understand the concept of risk better than the insurance sector.

But what about infringement risk?

Sharing published information is essential to a company’s ability to thrive.

Whether developing new insurance products, keeping abreast of state and legislative regulatory developments or gathering competitive intelligence, insurance professionals depend on copyrighted material.

The 2013 Information

By Miles McNamee Consumption and Use Survey conducted by research and advisory firm Outsell Inc., revealed that nearly half (45 percent) of the content shared within the insurance industry comes from outside sources. Contentsharing is up across industries, but copyright awareness is not. Fifty-six percent of surveyed insurance professionals either don’t know if their organizations have a copyright policy or don’t know what’s in it.

Here are five common copyright misconceptions to look out for.

1. Copyright compliance isn’t a big deal.

According to Outsell, the majority (75 percent) of surveyed insurance professionals believe that protecting their organizations’ intellectual property (IP) is critical or very important. But respect for intellectual property is a two-way street and respect for third-party IP rights is also critical. Copyright infringement penalties can hurt your organization’s bottom line and reputation.

2. Articles available online are in the public domain and free for the taking.

Online availability of articles does not mean copyright holders have given up their rights to their works. It also doesn’t mean these works are in the public domain. The term “public domain” refers to works that are no longer covered by copyright, either because the copyrights have expired or

because the works were written by the federal government. Content that is publicly accessible is not necessarily in the public domain. It’s likely to be copyright-protected, which means you need appropriate permission to copy and share it.

4. Once our company has paid for an article, we’re free to share It. When you purchase an article, you’re buying one individual copy. You’re not paying for, or receiving, the right to make additional copies and distribute them.

3. There really isn’t that much sharing going on at our organization.

Sharing is pervasive in the insurance workplace. Business analysts and attorneys in insurance companies are heavy consumers of published information. But it doesn’t stop there. Plenty of content sharing happens throughout your organization, from human resources and account management to public relations and marketing.

According to the Outsell survey, insurance companies reported forwarding content an average of nearly seven times per week, with an average of 11 people each time.

5. The subscriptions our company purchases allow us to use material freely.

All institutional subscriptions are not created equal. Although some include attendant rights, such as the right to save, store, print and copy content, others include only some of those rights. It’s not always safe to assume that every activity is covered under the scope of your subscription.

16 | INSURANCE JOURNAL-NATIONAL September 22, 2014

McNamee is vice president, Licensing and Business Development, at Copyright Clearance Center. He can be reached at mmcnamee@copyright.com or 978-646-2459

www.insurancejournal.com

SPECIAL REPORT

10 Things to Know About Intellectual Property

Total global intellectual property applications worldwide in 2012: Patent - 2.35 million; Utility Model - 827,500; Trademark - 6.58 million; Industrial Design - 1.22 million. — World Intellectual Property Organization (WIPO)

Patent applications for the top 10 offices in 2012: China - 652,777; USA 542,815; Japan - 342,796; Republic of Korea - 188,915; European Patent Office - 148,560; Germany - 61,340; Russian Federation 44,211; India - 43,955; Canada - 35,242; Brazil - 30,435. — WIPO

Entities seeking international patents can file through the Patent Cooperation Treaty (PCT) system to reduce the need to file a separate application in each jurisdiction in which protection is sought. In 2012, the largest number of PCT applications published belonged to ZTE Corporation of China, which specializes in telecommunications equipment and network solutions. — WIPO www.insurancejournal.com

In the United States in 2012, the total number of direct trademark applications was 297,295 and the total number of direct industrial design applications was 32,799. — WIPO

The total number of patents granted in the United States in 2013 was 147,652. That number includes patent counts for utility, design, plant and reissue patents but excludes statutory invention registrations (SIRs). — U.S. Patent and Trademark Office (USPTO)

Patent Assertion Entities (PAEs) and Non Practicing Entities (NPEs) are firms that own patents but do not make products from them. While there are differences between the two, both are sometimes referred to as “patent trolls,” which exploit technological advances that make it difficult to establish boundaries for patents.

They use aggressive litigation tactics against target companies, such as threatening to sue for patent infringement without specific evidence. In June 2013, the White House reported that suits brought by PAEs had tripled in the previous two years. It was estimated that more than 100,000 companies had been sued by PAEs in 2012 alone. — Patent Assertion and U.S. Innovation Report (Office of the President)

The top 10 targets of patent trolls in 2013 were: AT&T; Google; Verizon; Apple; Samsung; Amazon; Dell; Sony; Huawei; and Blackberry. — Fortune Magazine, February 2014

The median damage award in patent infringement litigation during the most recent four-year period is $4.3 million. Median jury awards are significantly higher than median awards handed down by judges. The largest median awards from 1995 - 2013 occurred in the telecommunications industry. — 2014 Patent Litigation Study, PriceWaterhouseCoopers (PwC)

The average time to trial in patent infringement cases in the United States has been at about 2.5 years since 2005. — 2014 Patent Litigation Study, PriceWaterhouseCoopers (PwC) The top 10 industries vulnerable to patent infringement litigation in the United States are (in descending order): Consumer products; biotechnology/pharma; industrial construction; computer hardware/electronics; medical devices; software; business/consumer services; telecommunications; automotive/transportation; and chemicals/ synthetic materials. — 2014 Patent Litigation Study, PriceWaterhouseCoopers (PwC)

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 17

CLOSER LOOK

Cyber Liability The Ever-Evolving Nature of Cyber Coverage

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o understand the current state of network security and privacy (cyber) coverage, it is helpful to have an understanding of the development and some of the major milestones which helped shape the coverage.

The first cyber policy was written in 1997 through AIG by Steve Haase, an agent who was recently awarded the “Advisen Cyber Legend Award.”

Though groundbreaking as the first to

By Brian D. Brown address cyber security, it was a third party liability policy only and was basically a “hacker policy.”

Other very early entrants in writing cyber policies include Safeonline, CIGNA, Marsh and others. In the subsequent 17 years, internet use has grown from 1.7 percent of the global population in 1997 to an amazing 40 percent of the global population in 2014 resulting in dramatic changes since the first cyber insurance policy was written.

Currently, the total premium for cyber

liability at year-end 2014 is projected to be nearly $2 billion. More than 60 carriers now offer stand-alone cyber policies and more are entering the market all the time. Many experts in this new field have appeared at the carrier, broker and wholesale levels.

Experts are needed as each market/carrier has its own form with its own nuances and idiosyncrasies. Definitions for the same words differ on each policy form as do exclusions, terms and conditions.

Early Developments In 1997, the original policies covered only third party suits arising from breaches originating from outside the company. However, studies at the time showed that over half of all data breaches originated from inside the company from rogue and disgruntled employees. The markets offering coverage at that time responded by broadening coverage to cover loss to the entity, but coverage for loss from the malicious employee was excluded.

This distinction is typically addressed in the definition of employee, which includes wording such as: “Employee means any individual whose labor or service is engaged by and directed by the insured.” Because it

is unlikely that an insured would direct an employee to engage in breaching their own system, the employee acting outside the scope of their employment would not be an insured under the policy.

Early malicious individuals were not only attacking networks but many were also gathering information in paper form.

The common term for this practice was

Cyber Evolution Internet Jan. 1, 1995

Dec. 31, 1997

Sept. 31, 2002

Dec. 31, 2006

National Science Foundation NET decommissioned, removing the last restrictions on the use of the internet to carry commercial traffic.

70 million users = 1.7% of the world population

587 million users = 9.4% of the world population

1.1 billion users = 16.7% of the world population

Jan. 20, 2009

Dec. 13, 2013

Jan. 10, 2014

Dec. 31, 2007

Heartland Payment System; 130 million records compromised

Target; 40 million records compromised

Nieman Marcus; 1.1 million records compromised

232 million reported records compromised since 2005

Growth of Breaches

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“dumpster diving.”

It became evident that if insurance policies were to cover sensitive information, they needed to be expanded to include exposures beyond the virtual world of electronic information and cover “real” world losses of information in paper form as well.

The change in policies from only electronic to include paper resulted in network securi-

many consumers will just wait until it is ty and privacy policies. This small change is functional again or use an alternate form of a large expansion in the scope of coverage. communication such as calling in an order.

The inclusion of complete electronic and Early in the cyber product development paper files make cyber policies true security cycle data restoration coverage could be and privacy liability policies. included in the poli Another early development of the The enactment of notifica- cy. This coverage has new cyber product tion laws prompted a surge seen little loss activity nearly all syswas coverage for of buying and remains the because tems are backed up business interrupdaily and restoration tion. Recent research major driver to the purconstitutes reinstallshows that due to chase of cyber coverage. ing the data from the the waiting periods day before and recapturing the data lost required — eight hours in most cases — for just a day. Typically, this is not a large these coverages have not had much loss expense. activity. In many cases during a network The one instance where data restoration outage due to a breach event, the company coverage could become critical is where an quickly reverts to manual systems as a stop employee responsible for the back-up tapes gap measure to continue operating. corrupts them for an extended period of Therefore, the actual business interruptime. tion loss is primarily a delay in revenues as opposed to a true loss of income. For Network Extortion, Breach instance, just because a hospital system Notification is down, someone with a broken leg or a In the years around 2004, there were gunshot wound does not have to wait for a number of network extortion events. treatment until the system is back up.

Network extortion can take different forms Typically, all the procedures are manually but is essentially using the threat of harm recorded and then input later. In the case of online retailers, if their site is inoperative, continued on page 29

History of Breaches Dec. 31, 2010

March 31, 2014

Feb. 15, 2005

March 8, 2005

2 billion users = 28.9% of the world population

3 billion users = 40.7% of the world population

ChoicePoint breach; 163,000 records compromised; $10 million penalty paid by ChoicePoint; $5 million fund also established by ChoicePoint

DSW hacked via wireless; 1.4 million records compromised

Dec. 31, 2010

Dec. 31, 2013

April 30, 2014

513 million reported records compromised since 2005 (note this is more than 25% of the number of users of the internet)

865 million reported records compromised since 2005

867,217,832 documented records compromised since 2005

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September 22, 2014 INSURANCE JOURNAL-NATIONAL | 19

CLOSER LOOK

Contractors Contractors and the CGL Policy’s ‘Your Product’ and ‘Your Work’ Exclusions

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ear Contractors: The wall you just built may not be covered by your insurance the way you think it is. This is because although the commercial general liability (CGL) policy may cover bodily injury or property damage to others resulting from your product or work, the policy specifically excludes damage to your property, product or work.

By Dwight Kealy It is important for agents working with contractors to understand that the products and completed operations limit does not change what is covered under the policy. This limit is simply the bucket of money available to pay for occurrences arising out of the contractor’s products and completed operations. The CGL policy pays for certain damages caused by an occurrence that occur during the policy period. Coverage comes from the policy in force when the occurrence takes place; not necessarily from the policy in force when the work was done.

If the contractor’s property, product and work are excluded, what does the CGL policy cover for contractors?

Broadly speaking, the CGL policy is designed to cover bodily injury, property damage, or personal and advertising injury to others. If a contractor builds a wall and it falls on someone else’s car that would be property damage to others. Similarly, if the wall falls and injures a stranger walking down the street, that would be bodily injury to others. Both of these should be covered under the CGL policy. However, if the wall simply falls and the only damage is to the wall itself, then there is no property damage or bodily injury to others. The CGL policy specifically excludes: “J) that particular part of real property on which you or your subcontractor was performing operations, K) your product, and L) your work.”

What the CGL policy is intending to cover is not the defective product or work, but the damage resulting from the defective work. Courts call this damage “resulting damage.” Courts have held that the CGL policy coverage applies only to resulting damage caused by the defective work of the insured. Coverage does not apply to the cost incurred to repair and replace the contractor’s defective work. The risk of replacing or repairing defective materials or poor workmanship has been considered a commercial risk that is not passed onto a liability insurer. F&H Construction v. ITT Hartford Ins.Co. (2004) 188 Cal.App.4th 364, 372.

Imagine that a particularly bad painter is hired to paint all of the walls in a hotel.

All of the walls need to be repainted at a cost of $100,000. The painter also regularly spilled paint, causing $100,000 in damage to the carpets. The hotel feels like it is owed $200,000 for its damages and files a claim against the painter’s CGL policy. Assuming that the contractor was not intentionally painting the carpet, there should be coverage for the $100,000 in damage to the carpets because this damage resulted from the contractor’s work on the walls. However, the $100,000 in damage to the walls will be excluded as the contractor’s product, work, or that particular part of property on which the contractor was performing operations.

be coverage for the contractor’s product and completed operations because the policy has a specific occurrence and aggregate limit for products and completed operations. Limits show how much money is available to pay certain kinds of occurrences. These limits are subject to the policy’s insuring agreement and exclusions. Limits do not change the provisions on who, or what, is insured or excluded in the policy.

Future Coverage Too often I hear people in the contractors’ insurance industry talk about how the CGL policy will cover contractors for 10 years or that the CGL policy they are selling is a 10-year statute of limitations policy.

To this, I suggest the following: If an insurance agent tells you that you are covered in the future with your current occurrence policy, ask for this in writing along with a copy of the agent’s own profes-

Occurrence and Aggregate Limit for Products and Completed Operations Some contractors (and insurance professionals) will argue that there must

20 | INSURANCE JOURNAL-NATIONAL September 22, 2014

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sional liability insurance policy, because the cy year that arises out of work that the conagent’s professional liability policy may be tractor has completed, then this year’s CGL the only policy that will provide you with policy will pay out of the products and comfuture coverage. pleted operations limit. This is true even if The above statement is intended to make the work was completed prior to this year’s insurance agents feel uncomfortable and policy period. Coverage is triggered and paid think about how they are out of the products and presenting policies to their Broadly speaking, the completed operations clients. Does the CGL CGL policy is designed limit if there was an policy say that it covers to cover bodily injury, occurrence that occurs occurrences 10 years in the during the policy period property damage, or future? Of course not. Does arising out of products or personal and advertis- completed operations. the CGL policy say that it will cover contractors Imagine that a coning injury to others. for any work that they do tractor has an occurduring the policy period up until the applicarence policy for the year 2014. If there is an ble state’s statute of limitations? No. occurrence after 2014 arising out of work The CGL policy states that it will pay that the contractor completed in 2014, the those sums that the insured becomes legalfirst question that the 2014 insurance comly obligated to pay as damages because of pany will ask is whether the occurrence “bodily injury” or “property damage” that is took place during 2014. The insurer is not caused by an occurrence that occurs during asking when the contractor did the work. the policy period.

The insurance company is asking when the If there is an occurrence during this polioccurrence that caused the bodily injury

Wildfires damage property.

or property damage took place. If there is no occurrence during the policy period in which the work was completed, then the policy in place when the work was completed has no duty to pay or defend.

The CGL policy provides coverage for bodily injury or property damage to others resulting from the contractor’s completed operations. It even has a designated limit for these kinds of occurrences. The contractor — and insurance professionals — just need to understand that 1) the limit does not remove the exclusions for the insured’s product or work, and 2) the limit does not change that the policy responds to occurrences that occur during a policy period; not work that takes place during a policy period.

Kealy is an attorney and licensed insurance broker.

He is a Certified Insurance Counselor and faculty member with the National Alliance for Insurance Education & Research. He is principal of his own law firm in Murrieta, Calif.

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SPOTLIGHT

Top 25 Workers’ Comp Insurers Workers’ Compensation Premiums Increased By 5.1% in First Half of 2014

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emotech’s review of second quarter 2014 data, as recently reported by insurers to the National Association of Insurance Commissioners, shows that workers’ compensation insurers reported a 5.1 percent increase in direct written premiums during the first six months of 2014 from the same period in 2013.

Workers’ compenBy Steven J. Groeschen sation direct written premiums have now grown for four straight years. This growth has been driven mainly by rate increases and other insurer pricing actions, in addition to moderate payroll growth from the economic recovery. Written premiums at mid-year 2014 of $25.4 billion have recovered from the 2010 low of $18.8 billion, and have finally surpassed the 2006 prior high of $25.0 billion.

The top 25 workers’ compensation insurers, ranked by the highest dollar amount of direct written premium growth, reported

ing, customer service and its strong track a 27.2 percent increase during the first six record of paying policyholder dividends as months of 2014 versus the same period in factors for its continued premium growth.

2013. This increase is impressive because Three of the top 25 wrote more than 80 11 of the insurers in this year’s top 25 percent of their total workers’ compengroup were also in last year’s top 25 group. sation premium in California: Security All other insurers combined reported a National Insurance Co., Insurance Co. of decrease of 1.1 percent. the West and California Insurance Co. The AmTrust Financial Services continues its recent pure premium rate filing by the pattern of growth, with four of its insurers Workers Compensation Insurance Rating among the top 25. In a recent conference Bureau of California notes that underlycall, AmTrust attributed its growth to sucing costs continue to increase faster than cessfully targeting low-hazard, small-busipayroll growth, even ness accounts in key states after the enactment and to renewing selected Workers’ comp direct business formerly written written premiums have of reforms in 2012.

Insurers are expected

by Tower Group companies. now grown for four to closely monitor The top 25 includes two straight years. their rate adequacy State Specialists. as they discover the New Jersey actual impact of the reforms.

Manufacturers Insurance Co., in its 2013 Most of the other top 25 are National or management’s discussion and analysis filing, Near National insurers that are members anticipated premium growth in 2014 from a of large insurance groups. The growth rate increase and the deployment of a new reported by these insurers may have benepolicy administration system that accelerfited from the rate increases filed in various ates written premium recognition. states in the past year.

Texas Mutual Insurance Co., in its filing, Medical costs continue to represent a noted growth in payrolls, competitive pricmajority of workers’ compensation losses.

The impact of the Affordable Care Act on future health care system costs remains uncertain. Escalating prescription drug costs, aging of the workforce and obesity-related comorbidities could result in new or increased medical claim costs.

Interest rates continue to be at historically low levels, which results in less investment income to offset some of the cost increases. In addition, interest rates are expected to rise in 2015, which would reduce the value of the long-term fixed income investments traditionally used for workers’ compensation reserves.

Premium is often described as the trading of a small, certain loss for a large, uncertain loss. The top 25 insurers will not know for many decades whether this

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Top 25 Workers’ Compensation Direct Written Premium Growth - Second Quarter Update

Company Name Group Name 1. Technology Insurance Co. AmTrust Financial Services Group 2. New Jersey Manufacturers Insurance Co. New Jersey Manufacturers Group 3. Security National Insurance Co. AmTrust Financial Services Group 4. Granite State Insurance Co. American International Group 5. Old Republic Insurance Co. Old Republic Group 6. Wesco Insurance Co. AmTrust Financial Services Group 7. Insurance Co of the West ICW Group 8. ACE American Insurance Co. ACE Ltd. Group 9. California Insurance Co. Berkshire Hathaway Group 10. Continental Indemnity Co. Berkshire Hathaway Group 11. Arch Insurance Co. Arch Insurance Group 12. American Zurich Insurance Co. Zurich Insurance Group 13. Rochdale Insurance Co. AmTrust Financial Services Group 14. Texas Mutual Insurance Co. N/A 15. Travelers Property Casualty Co. of America Travelers Group 16. PA Manufacturers’ Association Insurance Co. Old Republic Group 17. Starr Indemnity & Liability Co. Starr Group 18. Charter Oak Fire Insurance Co. Travelers Group 19. Liberty Mutual Fire Insurance Co. Liberty Mutual Group 20. Phoenix Insurance Co. Travelers Group 21. LM Insurance Corp.

Liberty Mutual Group 22. Indemnity Insurance Co. of North America ACE Ltd. Group 23. Hartford Accident and Indemnity Co. Hartford Fire & Casualty Group 24. Accident Fund General Insurance Co. BCBS of MI Group 25. StarNet Insurance Co. WR Berkley Corp. Group

Top 25

All others

Total

Year to Date 6/30/2013 $453,074,171 $308,269,164 $251,561,312 $162,736,801 $242,317,133 $258,529,368 $310,552,786 $365,652,464 $175,069,888 $136,204,906 $220,464,508 $507,721,051 $136,039,572 $556,713,562 $784,855,031 $173,269,896 $89,743,465 $230,220,325 $260,992,065 $221,068,672 $326,030,696 $154,773,585 $182,333,195 $150,545,837 $98,173,083 $6,756,912,536 $18,678,677,537 $25,435,590,073

Year to Date 6/30/2014 $314,403,904 $199,092,646 $155,661,360 $67,028,225 $146,778,970 $163,187,509 $238,021,205 $297,573,368 $119,350,721 $84,610,979 $169,653,610 $457,292,027 $85,812,884 $510,490,984 $739,122,103 $132,245,490 $51,133,827 $194,263,577 $225,571,996 $190,588,590 $295,613,865 $124,873,041 $154,318,914 $122,929,520 $72,214,364 $5,311,833,679 $18,878,319,883 $24,190,153,562

Growth % Change $138,670,267 44.1% $109,176,518 54.8% $95,899,952 61.6% $95,708,576 142.8% $95,538,163 65.1% $95,341,859 58.4% $72,531,581 30.5% $68,079,096 22.9% $55,719,167 46.7% $51,593,927 61.0% $50,810,898 29.9% $50,429,024 11.0% $50,226,688 58.5% $46,222,578 9.1% $45,732,928 6.2% $41,024,406 31.0% $38,609,638 75.5% $35,956,748 18.5% $35,420,069 15.7% $30,480,082 16.0% $30,416,831 10.3% $29,900,544 23.9% $28,014,281 18.2% $27,616,317 22.5% $25,958,719 35.9% $1,445,078,857 27.2% ($199,642,346) -1.1% $1,245,436,511 5.1%

Data Source: The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., by permission. Information derived from an SNL Financial product. The NAIC and SNL Financial do not endorse any analysis or conclusion based upon the use of this data. This exhibit is based upon the initial reporting of second quarter 2014 data, estimated to be more than 94 percent of the companies that report quarterly.

growth has been profitable or costly.

Groeschen is the chief consulting actuary and risk analyst of Demotech Inc., a Columbus, Ohio-based financial analysis firm specializing in the evaluation of the financial stability of regional and specialty insurers. He can be contacted at sgroeschen@ demotech.com. Website: www.demotech.com.

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Industry Historical Workers’ Compensation Direct Premium Written (DPW) Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

DPW Through 6/30 $23,694,481,664 $24,986,468,843 $24,421,550,017 $22,186,300,691 $19,713,244,855 $18,773,429,368 $20,570,825,190 $22,438,816,933 $24,190,153,562 $25,435,590,073

Growth (Loss) % Change $1,563,051,344 7.1% $1,291,987,179 5.5% ($564,918,826) -2.3% ($2,235,249,326) -9.2% ($2,473,055,836) -11.1% ($939,815,487) -4.8% $1,797,395,822 9.6% $1,867,991,743 9.1% $1,751,336,629 7.8% $1,245,436,511 5.1%

DPW Through 12/31 $45,386,694,252 $46,601,695,269 $45,587,628,651 $41,063,825,449 $36,859,734,282 $36,054,747,483 $39,520,325,542 $43,467,788,730 $46,573,078,812 —

Growth (Loss) % Change $3,360,416,566 8.0% $1,215,001,017 2.7% ($1,014,066,618) -2.2% ($4,523,803,202) -9.9% ($4,204,091,167) -10.2% ($804,986,799) -2.2% $3,465,578,059 9.6% $3,947,463,188 10.0% $3,105,290,082 7.1% — —

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 23

SPOTLIGHT

Workers’ Compensation E&O Insights: How Well Do You Know Your Workers’ Compensation Risk?

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he workers’ compensation class of business results in upwards of 10 percent of all errors and omissions (E&O) claims every year. While this may not seem like a lot, it is a class agents must be sensitive to for a variety of reasons.

Different Standard Because of Compulsory Coverage?

In most, if not

By Curtis M. Pearsall all, states, the legal standard of an agent is to provide the coverage the client specifically requests. When dealing with the issue of workers’ compensation, consider

a Massachusetts court case in the 1980s — Rae vs. Air Speed — that seemed to put a slightly different spin on this.

The case involved the death of an agency customer’s employee and a resultant claim for workers’ compensation benefits. The problem was that there was no workers’ compensation coverage in effect. The deceased’s estate made a claim against the agent for failing to procure the workers’ compensation coverage for the agency’s customer. There were some significant legal questions in the 1980s regarding whether an estate could bring this type of legal action because it was believed that the agency technically owed no legal duty to the estate.

The agency’s legal duty was only to the agency business customer.

24 | INSURANCE JOURNAL-NATIONAL September 22, 2014

When the estate attempted to make a claim directly against the agency, pursuing claims in negligence and breach of contract, the trial court dismissed the claim on the grounds of “lack of legal duty.” The case was then appealed to the Massachusetts Supreme Judicial Court, which reversed the decision, setting forth two critical rulings: • The estate could bring a direct action in contract against the agency as a third-party beneficiary of the agreement between the agency and its customer to procure workers’ compensation coverage; and • The estate could also bring an action in tort, because of the mandatory nature of workers’ compensation.

While this case was in Massachusetts, it has been referenced in court decisions in

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other states. Thus, the essence of this case is that if the coverage at issue is compulsory, an injured third party can assert a negligence claim against the tortfeasor’s agent.

What does this mean for insurance agents? Agents should know the customers they are dealing with (or looking to deal with) and whether there is a workers’ compensation exposure that needs to be addressed.

Potential Fraud Issues As agents are aware, when it comes to workers’ compensation there are a variety of factors that go into the calculation and determination of the appropriate premium.

These involve job classification codes, experience modifications, payroll, SIC codes, etc.

Insurance carriers expect that the application will reflect the correct information.

This is where the agent must perform the appropriate due diligence. The determination of these factors (or the intentional misclassification of these factors) has been a central issue for fraud. Agents must be aware of this to avoid becoming an unknowingly participant in any fraud scenarios.

When applying for workers’ compensation coverage, businesses are required to provide the necessary information. This involves business class information as well as payroll, job class/employee classification information, experience modification details, etc. This will be the basis of the application that will go to the carrier to determine acceptability, coverage specifics and the quoted premium. It is generally believed that when business owners seek to secure a lower premium through the misrepresentation of the nature or class of the business, employees’ specific duties, or under-reporting payroll, they are committing premium fraud.

Perhaps the most widespread fraudulent activity involves the misclassification of workers. Since the purpose of Job Classification Codes is to identify the type of employee working for a particular business, a misclassification can have a significant impact on the rates used in the premium calculation. Common techniques www.insurancejournal.com

businesses could use that agents must be on the lookout for include: • Misclassifying an employee’s position with the company. This would involve taking employees that are assigned a higher rate and reclassifying them to a classification with a lower rate. Needless to say, the premium impact can be significant.

• Classifying the employee as an independent contractor. Essentially, a business is stating that the individuals are not employees and that there is no employment relationship. This is an area where the federal government is strongly focused. If one of these “independent contractors” is subsequently injured on the job, there is no workers’ compensation coverage that will respond. This has the potential to result in criminal charges against the employer.

Various “right to control” standards have been established to help determine whether an individual is “an employee” or “an inde-

pendent contractor.”

If these actions are taken knowingly and with intent to defraud, a premium fraud is being committed. Agents obviously need to be sensitive to these and ensure they do not actively engage in this endeavor. The last thing an agent/broker wants is to be viewed as part of the “scheme.”

Understand the Issues Workers’ compensation is a class of business that has the potential to cause some issues of concern. It is important that agents understand these issues to avoid any part of E&O litigation.

Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. Blog: www.agentseotips.com.

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IDEA EXCHANGE

Growing Your Property Casualty Agency How a ‘Middle-Aged’ Marketer Can Help Your Agency Grow

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accumulated knowlt is common knowledge that if an agency edge, that makes wants to employ a dedicated marketer, middle-agers, with hire a young person. They, and only they, solid communication know what is happening in social media. By skills, worthy of your virtue of their youth, hiring consideration. and their presumed Here are just some of familiarity with all the reasons why. things digital, they automatically know Joy. Many are underbest how to commuemployed (or unemnicate any insurance ployed) as a result agency’s commercial

By Alan Shulman of the economy and messages. But like all are excited to work accepted knowledge, you shouldn’t accept in a pleasant, profesit at face value. There is another, more sional office environmature, path you can follow and it can lead ment. Once hired, you in an interesting direction. odds are they’ll con But before you start taking applications, sistently show up on define the function and scope of the job. time, ready to work.

Typically, this type of marketer generates salable leads from both inside and outside Stability. They don’t chase upward career of your agency — through research, by mobility whereas job-hopping is common promoting your brand, and by serving as among many young professionals. As such, your social voice. If this is the job you want middle-agers are likely to to fill, look beyond the Consider expanding stay with you for years, media used to dissemiyour applicant pool to evolving their craft. nate your message and focus on the individual include an under-apprecommunicator. ciated often overlooked Media. These folks are usually familiar with the age group — the midcore social media tools, Age Matters including Facebook, In general, people pre- dle-aged individual.

Instagram, LinkedIn, fer to do business with Pinterest, Twitter, etc. They are all easy to individuals who approximate their own use, as they must appeal to the lowest comage, plus or minus 10 years. As such, you are mon denominator to attract and retain so missing out on a world of possibilities if you many millions of users. Besides, many have are intent upon hiring a low-cost college children and grandkids who can keep them intern or the freshly graduated as your agenabreast of the latest online trends. cy’s marketing guru. Consider expanding your applicant pool beyond the near-adolesPeers. By virtue of the calendar, midcent to include an under-appreciated often dle-agers can peer-connect with prospects overlooked age group — the middle-aged and insureds who range from 10 years individual. younger to 10 years older than they are, whereas millennials can only go in one The Middle Ages direction.

Middle age (about 40-to-60 years old) can be viewed either as the gateway to obsolesHours. Many middle-agers are willing to cence or as a repository of life experiences. accept a part-time work schedule. This And it’s this worldliness, along with their 26 | INSURANCE JOURNAL-NATIONAL September 22, 2014

serves their needs and yours, especially if they have younger children or aged parents at home. You enjoy the financial relief of not having to provide full-time pay and benefits.

Sagacity. With age comes wisdom. For you, this might mean a more mature marketer/communicator who avoids careless faux pas, especially when posting to and dealing with people online (and off) who are hostile to your agency or insurance in general.

Explore Your Options None of this is to say that hiring a younger marketer is a mistake. Every business likes to hire millennials to extend their reach and commercial life span. The mistake is to automatically lean towards youthful marketers without even considering more mature individuals. Age discrimination issues aside, it doesn’t make good business sense.

Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter.

He is also the author of the many tools posted on the Agency Ideas Instant Download Store. Phone: 800-724-1435. Email: alan@agencyideas.com. Website: www.agencyideas.com.

www.insurancejournal.com

SPECIAL REPORT

continued from page 15 multi-peril IP, and unauthorized disclosure of confidential information.

The Troll Defense product provides the funds to help defend against charges of infringement, whether frivolous or not.

Policy terms range from one to three years with limits ranging from $250,000 to $2 million. Co-pay is 20 percent with minimum self-insured retention at 2 percent of claim limits or 2 percent of revenue.

To Fletcher, it’s a market with opportunity. “The activity in patent litigation is continuing to increase, and as a result interest in insuring that asset, intangible property, or products of the mind, is growing,” he says.

While insurance buyers have not yet flooded the market, Fletcher, Newman and Koehn are betting on it.

“There’s huge latent demand, but what people have been told is there just isn’t a product available,” Newman says. “I think brokers have been looking around the market, but there’s three or four markets, glob-

Intellectual Property ally, that write this cover. They’re very, very selective. Brokers are being forced to tell their clients that there isn’t a commercially viable option. I think a lot of clients have accepted that ... they can’t insure it. We’re trying to change that perception.”

‘One of these days this market is going to break.’

CFC recently launched a new IP coverage for small and medium sized companies. The new product covers the costs and potential damages in the defense or enforcement of an infringement action, as well as the potential loss of a right or a loss of profit. Where a right is lost through a dispute, the costs incurred in obtaining and maintaining the right can be recovered by the insurance. In the event that a company is unable to continue selling its product, the policy can also cover the loss of profit.

“We’ve been wanting to get into the stand-

alone intellectual property market for a long time … It’s a huge issue for all of our clients,” Newman says. “We’ve got a lot of clients in the technology arena, in the life sciences arena, and they’ve been crying out for a product. It’s been so difficult to underwrite.

We’ve been looking for the right people, the right team, to come across with the right experience, and a way of doing this where we can provide a good quality product, but also, make underwriting profit. We think we’ve found that solution.”

The CFC product doesn’t distinguish coverage based on who’s bringing the action.

“We write the cover on the basis that you’re covered in the event that you have an infringement claim brought against you,” he explains.

“I think it’s a really important area of cover, and it’s one where the markets are different.

There are some markets, at the moment that will just cover patent trolls. There’s some markets that exclude it. There are very, very few that will cover you for everything.”

Being in the insurance industry feels great.

But helping to cure cancer feels even better.

Tony Markel To learn more about the National Insurance Industry Council, contact Ken Birkett at kenbirkett@coh.org or 866-905-HOPE or visit our group site at www.cityofhope.org/niic

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September 22, 2014 INSURANCE JOURNAL-NATIONAL | 27

IDEA EXCHANGE

Minding Your Business Finding and Selling to Ideal Clients

W

The next step is to understand the environment that the business operates in. Is the agency located in an urban area or a rural area? What are the local demographics? Is the area growing or contracting?

hen an agency is started, most new owners will be happy to sell their products or services to anyone that is willing to buy. After all, one needs to have paying clients to stay in business!

However, this approach is not effective once the business is established. It is important to define an “ideal client” in

By Bill Schoeffler order to focus sales, marketing and service resources. If the agency does not define an “ideal client,” then it will waste precious time and money.

The first step to defining an ideal cli& Catherine Oak ent is to understand the resources and capabilities of one’s business. There is no sense considering Bill Gates or Exxon Mobil to be ideal clients and not have anything to offer to them.

An agency selling personal lines insurance needs to take an inventory of the markets they have and the products they can sell. Also, it is important to understand the technical and sales skills of the staff.

Some agencies might be better off focusing on selling auto, whereas others have the resources to cross sell accounts with auto, homeowners, umbrella, as well as life.

Define the Ideal Client The basic definition of an ideal client will be based on the following: • A person or business that needs what the agency offers; • A person or business that has the resources to pay for what the agency offers; • A person or business that sees the value in what the agency offers.

The agency can then review the demographics of the region to create a criterion on defining the groups of people or businesses that fall under the ideal client. This might be types of businesses, like auto dealers or lifestyles such as married couples with kids or income levels.

An ideal client is not an automatic sale.

The agency still needs to differentiate itself from its competitors. There are lots of agencies that sell insurance. A sale happens when one agency meets the needs and expectations of that ideal client. However, by defining the ideal client, the agency is able to create an effective sales and marketing campaign that will attract likely prospects and convert them into clients.

How to Sell to an Ideal Client In order to guarantee a sale, it is best for producers to make sure the ideal client they

are trying to insure has pain. This means determining what that pain is. If they don’t have pain then it is probably best to move onto another prospect.

If they don’t have pain, it can be a big waste of time to gather information, market the account and try to sell the quote. Often prospects also tell the incumbent agent what was recommended by the new producer and just have them make the changes, being loyal to the incumbent.

It is best to determine what is important to the prospect, if they are happy with their agent, and if not, why. Also, it is good to also know the price the ideal client needs to move their business to your agency (i.e., what is their budget?). It is also good to know which carrier they are insured with for the various lines of coverage, if they will disclose it. The agency’s program may not be competitive and knowing that helps both parties save time.

Summary Defining the firm’s ideal client and knowing how to sell to them, is the key to assisting the agency in attaining organic growth while focusing on what’s best for the firm.

Oak is the founder and Schoeffler is a consultant for Oak & Associates, an international consulting firm specializing in valuations, financial management, mergers and acquisitions for the insurance brokerage industry. Email: catoak@gmail.com.

Phone: 707-935-6565. Website: www. oakandassociaties.com.

28 | INSURANCE JOURNAL-NATIONAL September 22, 2014

www.insurancejournal.com

CLOSER LOOK

Cyber Liability continued from page 19 some years off. to extort money by using stolen data to The enactment of notification laws threaten the company’s reputation or by prompted a surge of buying and remains corrupting data on the network. the major driver to the purchase of cyber Consequently, extortion resulting from coverage. Most of the losses that have been a network attack became and remains a paid under cyber policies have been for separate insuring agreement on policies. costs surrounding these state notification Profiting by criminals in this manner was laws. The loss is to the insured, not from a curtailed when the criminals doing the liability suit. It is the cost to investigate and extorting were being caught by officials respond to a breach or potential breach. when money physically changed hands. It Typically included are the costs for comwas much more profitable and less risky for puter forensics, legal and public relations the criminals to simply sell stolen informaexpenses, which typically have separate tion. Extortion activity has again begun to sub-limits, in addition to notification costs. gain some popularity as anonymous digital Estimates range from more than $200 to a currency like BitCoin makes the money few dollars per record. Anecdotally, most exchange opaque to law enforcement agenunderwriters and brokers tend to use an cies. approximate cost for notification of $15 to The next stage of development in the his$30 per record. This cost, coupled with tory of cyber insurance was the enactment forensic, legal and public relations expensof state breach notification laws making it es, can quickly translate into large amounts mandatory to notify people if their individof money in a breach ual personal identisituation. fiable information is Insurers continue to grapple with the dynamic Within the last compromised. few years most car California was nature of cyber risks. riers have included the first state to fines and penalties coverage either by enact such a law, which became effective endorsement or as an additional insuring July 1, 2003. Known as the Security Breach agreement.

Information Act, or Senate Bill 1386 (SB1386), The typical exposure arises from the the statute requires any agency or business payment card industry (PCI) or from a that conducts business in California, and federal law such as HIPAA for healthcare “that owns or licenses computerized data or Graham Leach Bliley (GLB) for financial that includes personal information” to notiinstitutions. Originally coverage was for fy affected residents of California of any defense only but carriers have expanded security breach if “personal information coverage to include the penalties assessed. was, or is reasonably believed to have been Most carriers include a sub-limit for this accessed by an unauthorized person.” coverage.

Note that “personal information” in the law means an individual’s first name or A Flawed Approach first initial and last name in combination The rating of cyber coverage has historwith any one or more of the following: a ically been based on revenues. This is an Social Security number; driver’s license or inherently flawed approach since revenue California Identification Card number; or has little direct relationship to the actual account, credit or debit card number in exposures, which are the cost to identify combination with any security or access and notify individuals with actual or potencode or password. tially compromised records. For instance, a Since the inception of the California law, healthcare organization that has $50 million all but three states have adopted similar in revenues would have vast amounts of perlaws. Slow progress toward a federal law sonal identifiable information. On the other to eliminate the current patchwork of state hand, a contractor or manufacturer with law requirements is being made but may be www.insurancejournal.com

the same $50 million in revenues would have very little personal identifiable information.

Recently, more carrier applications are requesting the number of records kept by the insureds and prospects to more accurately determine the actual exposure. Also, there is a trend for carriers’ forms to use the number of records as a limit for notification in lieu of a dollar amount. Beazley, AIG, Axis and AWAC are pioneering forms based on the number of records.

Unique Forms Coverage for bodily injury and property damage is a recent development in cyber policies. Current general liability contracts are fairly clear that there is coverage for “bodily injury” arising out of the inability to access electronic data. Coverage is less clear with regard to property damage, such as system damage coverage. So far very few carriers are offering this coverage, but others may soon follow. Some carriers have forms that include additional Side A coverage for directors and officers.

All carriers are looking to differentiate their forms from other markets, which make all the forms unique. This uniqueness of each carrier’s forms is one of the most fascinating yet frustrating elements of cyber coverage. There is little standardization making direct comparisons difficult. Also, as is evidenced by the most recent changes, forms are still in flux. The analysis of proper cyber coverage is further exacerbated by the ever-changing threat profile due to attack methods constantly changing and rapid technology changes such as smart phones and tablets.

Cyber forms have been evolving for the last 17 years and will continue to do so into the future as the insurance industry continues to grapple with the dynamic nature of cyber risks.

Brown, president of CyberSpecialists Consulting Group in Atlanta, Ga., has been working with Myron Steves and other insurance organizations on cyber insurance issues. Contact: 404-849-3004; briandykerbrown@gmail.com.

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 29

IDEA EXCHANGE

Surplus Lines The Problem with Domestic Excess and Surplus Lines Insurers

I

t has been more than five years since states, beginning with Illinois, began to enact laws permitting the formation and licensing of domestic excess and surplus lines insurers. To date, these initiatives have gotten very little traction in the insurance industry and, at first blush, it is difficult to understand why this is. The traditional

By Elisabeth R. Curzan regulatory scheme for excess and surplus lines was a model of inefficiency.

Under the prior scheme, in order to operate as an excess and surplus lines carrier, an insurer was required to be admitted as a licensed carrier in one state. Although the carrier could operate on a nonadmitted basis in the remaining states, it could not operate as an excess or surplus lines carrier in the state in which it was admitted (State A). To write business in State A, the carrier’s group would be forced to form a second company and license it in another jurisdiction (State B). The carrier licensed in State B would then write on a nonadmitted business in State A. The group was therefore

subject to multiple regulatory regimes and the internal costs of maintaining two carriers.

In an attempt to address the inefficiencies of the traditional regulatory system, states including Arkansas, New Jersey, Illinois, Oklahoma, North Dakota and Delaware have adopted domestic surplus lines laws. In a state with a domestic surplus lines law, a company domiciled in the state can be designated a domestic surplus lines insurer and write surplus lines business in both its state of domicile and every other jurisdiction, all on a nonadmitted basis.

Domestic Surplus Lines Licensing Many have questioned why the insurance industry has been so reluctant to avail itself of the new domestic surplus lines licensing category.

For example, the most recent white list of surplus lines insurers in New Jersey is comprised of 129 eligible surplus lines insurers and only two domestic surplus lines insurers. Illinois, the state with the oldest domestic surplus lines law, listed just seven premium writing domestic surplus lines companies in 2012, the last year for

which data was available. The reason likely lies in the fact that the domestic surplus lines initiatives are in conflict with existing state laws and another law that also aimed to modernize and streamline state regulation of the insurance industry — the Nonadmitted and Reinsurance Reform Act of 2010 (the NRRA), 15 U.S.C. §§ 8201 et seq.

Part of the reluctance to license an insurer as a domestic surplus lines insurer stems from a fear that becoming a domestic surplus lines insurer will cause the insurer to have an uncertain status that may preclude the company from accepting business altogether. Section 5.A(2) of the NAIC Nonadmitted Insurance Model Act (the Model Act) states that insurance business may not be placed with an excess or surplus lines insurer unless the insurer is “authorized to write the type of insurance in its domiciliary jurisdiction.” A version of the Model Act has been adopted in most states.

For example, a company cannot write excess of loss coastal flood insurance on a nonadmitted basis in most states unless it is authorized to write property insurance in its state of domicile. A domestic surplus lines insurer is not “authorized” to write any direct business in its domiciliary state — it is only eligible to write surplus lines insurance in its domiciliary state. A circular reference is therefore created at the intersection of the domestic surplus lines laws and the Model Act. The industry is concerned that domestic surplus lines insurers may be found to be ineligible to write nonadmitted business in particular jurisdictions with versions of the Model Act. NRRA Conflict The conflict between domestic surplus lines laws and the Model Act is exacerbated by the NRRA, which was enacted by Congress to address inconsistencies in state regulation of excess and surplus lines insurance and reinsurance. In the excess and surplus lines arena, the NRRA made the following welcome reforms:

30 | INSURANCE JOURNAL-NATIONAL September 22, 2014

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Prior to implementation of the NRRA, double taxation of surplus lines premium was a constant concern for surplus lines carriers. This was largely due to vagueness of, and inconsistencies among, various state laws imposing surplus do business under the Model lines premium taxes as well as lack of Act and the NRRA is unclear, status as coordination among the states with respect a domestic surplus lines insurer leaves a to surplus lines premium taxes. To cut the company in legal limbo with respect to the knot, the NRRA provides that only the NRRA. States including Illinois, Arkansas insured’s home state may impose a premiand North Dakota include in their laws the um tax on a nonadmitted insurer. provisions that a domestic surplus lines In other words, state laws that impose a insurer is considered a nonadmitted insursurplus lines premium tax based on locaer, as the term is defined in the NRRA, tion of the risk insured, with respect to risk Many have questioned insured in the state. or were interpreted that why the insurance way by regulators in the This does not provide a absence of clear statutory industry has been so solution. language, are pre-empted. reluctant to avail itself First, the problem lies The NRRA encouraged with states that require of the new domestic states to enter into an an excess or surplus surplus lines licensing lines insurer to be interstate compact as a means for divvying up licensed in its domicilcategory. surplus lines premium iary jurisdiction, not in among the states. the licensing state of the domestic surplus Under the NRRA, placement of nonadlines insurer. mitted insurance is subject to the sole regu USA12043.qxd Second, the NRRA provides2:26 that aPM statePage 1/4/08 lation of the insured’s home state. Any law may not impose eligibility requirements on to the contrary in any state is preempted.

Further, nationwide standards for surplus lines eligibility based on the Model Act were mandated by the NRRA. The NRRA provides that no state other than an insured’s home state may require a broker to be licensed to place business with an excess or surplus lines carrier.

Additionally, it creates incentives for the state to standardize and coordinate broker licensing. Therefore, potentially contradictory and confusing laws requiring multiple licenses to place surplus lines insurance are pre-empted. These provisions also addressed an issue which had simmered for years in the brokerage community; that is, the perception among producers that many states’ licensing requirements were unfairly biased in favor of in-state brokers.

The NRRA has been generally viewed favorably by the insurance industry. This contributes to the concern that because the ability of domestic surplus lines insurers to www.insurancejournal.com

a nonadmitted insurer domiciled in a U.S. jurisdiction other than the criteria contained in the Model Act. As the provision creating an extraterritorial eligibility category for a domestic surplus lines insurer is not in the Model Act, it is likely pre-empted by the NRRA and unenforceable.

To carry out the intended effect of domestic surplus lines laws and the NRRA, and to protect those companies that have become domestic surplus lines insurers or are in the process, it is imperative that Section 5.A(2) of the Model Act be amended to provide that surplus lines insurance may be placed with an insurer that is, “authorized to write the type of insurance in its domiciliary jurisdiction or designated a domestic surplus lines insurer in its domiciliary jurisdiction.” Corresponding changes to state insurance laws would clarify the status of domestic surplus lines insurers and protect insurers, brokers and policyholders.

Curzan is of counsel in Nelson Brown & Co.’s New York office. Her practice focuses on complex insurance regulatory work, including compliance, 1reinsurance and licensing. Email: ecurzan@ nelsonbrownco.com.

September 22, 2014 INSURANCE JOURNAL-NATIONAL | 31

IDEA EXCHANGE

Tech Talk Customer Experience Makes Bigger Impact Than Policy, Claims

By Tom Wetzel

policyholder lifecycle.

“Most clients any agents understand in principle won’t have a that “customer experience” is the claim in any given sum total of an agency’s interactions with year,” he says. prospects and policyholders. In practice, “So an agent who however, customer service often ends up counts on a great focusing more on the policy transaction and claims-handling claims, and less on what today’s customers experience to are demanding from the businesses they differentiate his patronize. As a consequence, most agents or her practice is need to rethink their digital presence in leaving a bunch shaping their overall customer experience. of clients out in “Agents rightly place a high priority the cold. Equal on quickly executing a request, including emphasis needs grinding out policy pages and processing to be placed on figuring out how to engage renewals,” says Jon Picoult, founder of policyholders and how to demonstrate the Watermark Consulting, a customer experivalue you provide outside of claim time.“ ence advisory firm. “It’s easy to lose sight, Smartphone growth explosion has however, of how a client is made to feel opened up Internet access to most consumthrough the course of these interactions. ers, which has driven The agency may have ‘Right or wrong, people demand for better delivered the client’s customer expepolicy packet in record will make snap judgments via technoltime — but how did based on their reaction to a riences ogy. According to a that client feel after company’s website.’

Pew Internet report opening up a 25-page last February, 87 perpolicy document, ridcent of American adults use the internet, dled with legalese and jargon? Does that with 95 percent or more among households inspire confidence in the purchase decision? above $75,000, young adults ages 18-29 and Does it make clients feel like the agent valthose with college degrees. More than twoues them and their time? thirds (68 percent ) of adults connect to the On the claims event, Picoult calls it the internet with mobile devices such as smart“classic moment-of-truth” that agents should phones or tablet computers. obviously work hard to make as impressive Insurers are taking note. According to as possible. It’s a mistake, though, to focus an SMA survey, 62 percent of the carriers on claims to the surveyed are investing in Web self-service exclusion of projects this year, and more than 50 percent other are working on e-billing and e-delivery. parts

“The tougher it is of the for a customer to purchase, use and service your product, the less likely you are to earn their business, let alone their loyalty,” Picoult says.

“For many prospects, an agent’s website is the storefront, period,” he

M

says. “Right or wrong, people will make snap judgments based on their reaction to a company’s website.”

In evaluating a website, key questions include: • Is it visually appealing?

• Are available products/services clearly and simply described, and easily accessible with one click?

• Is it easy to contact someone for more information?

• Is it mobile-optimized so it can be read easily on a smartphone?

• Does it offer an app to give clients easy access to pay bills, review coverages and submit claims?

Picoult also says many agencies neglect the importance of collecting the email addresses of their clients for a variety of uses, including time-sensitive communications and periodically surveying them.

“Focus on the interaction, not just the transaction,” he says.

This is the fifth of a series on the technology issues facing agents. The focus is on practical solutions on many fronts.

Wetzel is owner of Thomas H. Wetzel Associates, an insurance marketing firm specializing in social media programs for agents. Phone: 708-524-4944.

Email: twetzel@wetzelandassociates.com. Website: www.wetzelandassociates.com

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NATIONAL COVERAGE

MyNewMarkets Workers’ Compensation Buffer Layer Excess Market Detail: AguTaine Underwriters LLC (www. aqunderwriters.com) offers corporate and municipal self-insureds tools to manage their retention down to a comfortable level.

Retentions start as low as $50,000. Limits of $1 million available.

Available limits: As needed Carrier: Great American States: All states except Dela., and N.Y. Contact: Marcel McLaughlin at 781-710-8027 or email: marcel@ aqunderwriters.com

SafeLaw Solutions Market Detail: BigData Insure (www.safelawsolutions.com) coverage for law firms includes data breach response coverage for loss mitigation expenses, including the cost of forensics; advice regarding firms’ ethical, regulatory and malpractice obligations; public relations; client notification; call center; ID theft assistance;, and credit monitoring arising out of unauthorized disclosure of confidential information or personally identifiable information. The law firm computer and billing system coverage includes data protection that covers reasonable and necessary expenses to recreate or restore data, software or firmware on a computer system that is corrupted or damaged by a hacker attack, virus, denial of service attack, or administrative errors. Billing system interruption covers loss of income and extra expenses because of computer system disruption caused by a hacker attack, virus, denial of service attack or administrative errors. Law firm confidentiality, privacy and media coverage includes: media liability provides coverage on a difference in conditions basis for legal liability arising out of electronic publishing activities including the web site, blogging and social media; computer attacks provides coverage on a difference in conditions basis for regulatory actions and legal liability arising out of hacker attacks, viruses, denial of service attacks and other computer attacks; confidentiality and privacy provides coverage on a difference in conditions basis for regulatory actions and legal liability arising out of administrative errors, hacker attacks, viruses, and denial of service attacks resulting in confidentiality or privacy breaches.

Available limits: Minimum $500,000; maximum $10 million Carrier: Aegis Insurance Services States: All states Contact: Michael Lamprecht at 312-363-7017 or email: mlamprecht@ gmail.com

Auto Liability & Physical Damage Market Detail: WasteGuard.net (www.wasteguard.net) offers coverage for all types of commercial vehicles. Many specialty endorsements and coverages that are required for this industry are available, such as the broad form pollution endorsement CA9948 and others.

Available Limits: As needed Carriers: Unable to disclose, admitted and nonadmitted available 36 | INSURANCE JOURNAL-NATIONAL September 22, 2014

States: Ala., Ga., Fla., La., N.C., and S.C. Contact: William Comiskey at 561-859-4444 or email: mail@ wasteguard.net

Truckers Auto Liability Market Detail: National Advantage Insurance Services Inc. (www. naisins.com) works with trucker auto liability carriers that are admitted and AM Best-rated “A.” Target risks are from one to 250 or more power units; local up to 48 states long haul radius; auto hauler, bulk commodities, dry van; flatbed; intermodal; refrigerated or tanker, with or without hazardous materials. Physical damage on owned equipment, trailer interchange and truckers general liability can be written with liability. Primary pollution liability is available.

Truckers workers’ comp is available for large fleets.

Available limits: Minimum $750,000, maximum $1 million Carrier: Unable to disclose, admitted States: Ariz., Calif., Nev., Ore., and Texas Contact: Clifford Mapes at 800-401-1015 or email: clifford@naisins. com

Mental Health Organizations Market Detail: Philadelphia Insurance Cos.’ (www.phly.com) mental health insurance program provides liability coverage to meet the needs of mental health organizations. The policy covers vicarious liability for psychiatrists and primary professional for their counselors and therapists.

Available limits: As needed Carrier: Philadelphia Insurance Cos. States: All states except D.C. and La. Contact: David Brenner at 800-873-4552 or email: david.brenner@ phly.com

Environmental Consultants E&O Market Detail: Travis-Pedersen, Brown & Riding Co.’s (www. travped.com) claims-made errors and omissions coverage for environmental consultants, is available on a nonadmitted basis across a variety of fields.

Available limits: Minimum $500,000 Carrier: Unable to disclose States: All states except Dela., N.H., and R.I. Contact: Matt Gervin at 480-281-3850 or email: mattg@travped.com www.insurancejournal.com

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September 22, 2014 INSURANCE JOURNAL-NATIONAL | 37

IDEA EXCHANGE

Closing Quote tions can cause damage to neighboring properties. Family health issues can arise from contaminants like asbestos and mold stirred up by construction activity.

While there is “no place like home,” a renovation is sure to make one run for the exits if the construction risks are not adequately understood and evaluated by an insurance agent.

Helping Clients Through Home Renovations

H

By Scott Spencer

ome renovations are in high gear these days, thanks to low interest rates on second mortgages and bank loans. But, the construction process itself is typically fraught with anxiety, given longer-than-expected timeframes to complete projects and frequent cost overruns.

Many homeowners are unaware of the breadth of financial exposures and physical dangers they invite when undertaking a home renovation, so it’s incumbent upon insurance agents to provide advice to clients before the project commences, assessing both the range of risks and any additional insurance protections that may be required.

Home renovations are a Petri dish of risks. Roughly onethird of all house fires are caused by contracting professionals working in the home.

Other hazards include bodily injury liabilities from nosy neighbors venturing onto the property and then tripping over equipment or building materials. Family members also are subject to injury, as are invited friends and guests, including people making deliveries to the house. Valuables like fine art and wine can be damaged because of construction vibration. Plumbing pipes have been known to crack and leak from the shaking, causing water damage. If the renovation is in a row home or attached dwelling, vibra-

38 | INSURANCE JOURNAL-NATIONAL September 22, 2014

Where’s Grandma’s Brooch?

Property theft can be a problem during a home renovation. Homeowners should conduct a complete background check of the contractor and the subcontractors, and may consider storing valuables in a safety deposit box or other safe place.

Theft is not confined to unscrupulous construction workers. Homes that are not properly secured each day after the construction draws to a close can be subject to burglary.

Contractors often store valuable construction equipment and building supplies at the job site. If these items are not properly secured and they are stolen, it could result in increased costs or even a lawsuit filed by the contractor against the homeowner.

Family members’ personally identifiable information also is at high risk of theft during a home renovation.

Up in Smoke As mentioned earlier, the primary risk in a home renovation is fire. Construction equipment can produce sparks that may cause a fire. Soldering work and paint-stripping with heat guns create similar risks, as do power tools that can overload an electrical socket and cause unseen “hot spots.” Other fire hazards include space heaters used to keep the job site warm, flammable liquids and rags soaked with solvents.

An agent can be a vital risk adviser and he or she also can review the coverage breadth and financial limits of contractor insurance policies. They can further ensure the family’s insurance policies are amended to address the additional property exposures and the added liabilities.

A final insurance consideration is that the value of the home is likely to increase when the project concludes.

Often it makes sense to incrementally increase the financial limits of the homeowners insurance policy during the phases of the project.

A well-informed family is the best protection against the unique financial exposures and physical dangers that even a modest renovation creates.

Spencer is senior vice president and worldwide appraisal manager, Chubb Personal Insurance, Whitehouse Station, N.J.

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