Insurance Journal West 2014-11-17 by Insurance Journal

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On The Cover

Special Report:

Inside This Issue

Young Agents and the Senior Market

November 17, 2014 • Vol. 92 No. 22 • West

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WEST COVERAGE

IDEA EXCHANGE

10 Businesses Slow to Boost Cyber Insurance Coverage Despite Risks

W1 A Few Thoughts for Insurance Entrepreneurs

W6 LEGAL VIEW: New York Ruling Adds Transparency in California Workers’ Comp Market

10 Trends Support Positive Outlook for Homeowners Insurance: Aon Benfield 12 Climate Change Report Paints Portrait of Dystopian Future 16 Large Agencies More Optimistic About Future Growth: Vertafore

W2 Washington Bottle Maker Fined After Worker’s Hand Amputated W2 Los Angeles Port Sees Air Pollution Levels Dip W2 Idahoans to See Slight Reduction in Workers’ Comp Rates in 2015

26 International Insider: Insuring Infrastructure Projects in Latin America 28 Minding Your Business: Catherine Oak 30 5 Tips for Clients to Consider When Buying Cyber Liability

18 Special Report: Long-Term Care Represents Opportunity for New Specialists

31 Growing Your Property Casualty Agency: Alan Shulman

22 M&A Review: Insurance Intermediary Deal Momentum Gathers Speed

34 Closing Quote: Workers’ Comp and the Affordable Care Act

24 Special Report: Top 50 Personal Lines Leaders 25 Closer Look: 10 Things to Know About Contractors & Builders

4 | INSURANCE JOURNAL-WEST November 17, 2014

DEPARTMENTS

W4 People 11 Declarations 11 Figures 14 Business Moves 32 MyNewMarkets

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Opening Note

Publisher Mark Wells | mwells@wellsmedia.com

Lack of Education

he biggest challenge in selling cyber insurance is educating businesses about the need for coverage but agents and insurers may be falling short in their role to deliver education when it comes to cyber coverages. A new survey of insurance professionals found that among carriers offering cyber insurance, 40 percent say businesses don’t think they need cyber coverage and 29 percent believe they’re already covered under existing policies. Only 12 percent say the biggest challenge is that premiums are too high. The survey, conducted by Hanover Research and sponsored by Verisk’s ISO, comes at a time when the cyber insurance market continues to grow. Most insurers surveyed said they are expecting their cyber coverage sales to increase by 5 percent or more next year. Part of the problem could be that many agents don’t understand the coverage, says Curtis Pearsall, president of Pearsall Associates Inc., a risk management consulting firm specializing agency errors and omissions liability issues. “Cyber is an issue that I find a lot of agents not talking with customers about,” Pearsall says. “One of the issues is that a lot of agents don’t understand the coverage themselves so they have a hard time explaining it to customers.” In a report released in April, insurance broker Could agents help increase Marsh said demand for cyber insurance sales by cyber insurance rose by 21 delivering better education? percent across all industries in 2013 compared to 2012, and early indications in 2014 were that the buying trend was accelerating. “Even though data breaches are in the news every week, many companies still don’t recognize that cyber attacks are serious, and that the costs associated with responding to one can be significant and generally not covered under current commercial insurance policies,” said Shawn Dougherty, assistant vice president of Specialty Commercial Lines at ISO. “That’s why insurers and brokers are working hard to educate businesses and make it easy for them to add cyber coverage to their existing insurance portfolio.” The average cost of a corporate data breach increased 15 percent in the last year to $3.5 million, according to a study by the Ponemon Institute out of Michigan that was released in May. The study also found that the cost incurred for each lost or stolen record containing sensitive and confidential information increased more than 9 percent to a consolidated average of $145. After its massive breach last year, giant retailer Target said of the $61 million in expenses related to the breach during the fourth quarter, $44 million was covered by insurance. Could agents and insurers help increase cyber insurance sales by delivering better education? What do you think?

Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL-NATIONAL November 17, 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 Kathleen Ellis, Catherine Oak, Alan Shulman Contributing Writers David Lewison, Mark Noonan, Bob Opitz, Robert Redfearn, Jr., Meredith Reeves, Nicholas Roxborough 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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News & Markets Businesses Slow to Boost Cyber Insurance Coverage Despite Risks

hile a majority of U.S. finance executives now see high-profile cyber-breaches as a major risk, many still have inadequate cyber insurance coverage, a new survey found. That finding comes from the Association for Financial Professionals’ survey of executives in corporate treasury, finance and banking at its annual conference in Washington, D.C. Results are based on the 970 responses generated by the survey. The survey found: • About 32 percent of respondents rated cyber risks as highest risk on a five-point scale. Another 28 percent slapped a “very high” label on those risks. • A whopping 31 percent of respondents don’t carry any cyber insurance. • Approximately 6 percent of companies previously uninsured for cyber risk picked

up the coverage in the past year, and 15 percent increased existing coverage in the past 12 months. • The contradiction between acknowledging a cyber risk problem and taking steps to address it is in play even as many of these executives admitted that cyber breaches could harm financial institutions and cause loss of faith in electronic payments technology. • A solid minority of respondents also agreed that high-profile breaches of cloud services and personal devices, successful large-scale attacks by foreign entities and high-profile data breaches at retailers would greatly harm business activity.

• While respondents admitted major concerns about the economic impact cyber breaches could cause, 21 percent had not updated their crisis response or business continuity plans in the past 12 months. About 12 percent said they had no plans to update either option, AFP noted.

Trends Support Positive Outlook for Homeowners Insurance: Aon Benfield

merging trends support a positive profit outlook for homeowners insurers, a leading broker believes. Reinsurance broker Aon Benfield’s “2014 Homeowners ROE Outlook” concludes that insurers’ prospective after-tax return-on-equity (ROE) for homeowners insurance is 7.9 percent on a countrywide average, up from 4.6 percent in 2013, and 11.8 percent excluding Florida, up from 8 percent last year. The improvement is driven by continued positive activity in primary rates, a decline in the estimated catastrophe loss ratio resulting from updates to the vendor catastrophe models used in the study and 10 | INSURANCE JOURNAL-NATIONAL November 17, 2014

a reduction in the cost of reinsurance capital available to primary insurers, according to a company statement. The report reviews industry aggregate state-level statutory financial filing information along with rate filings and supporting actuarial information for the 20 top homeowners insurance groups by state. In the past 18 months, insurers maintained positive rate momentum as they received rate increase approvals averaging above 7 percent compared to the 7.7 percent for the prior period. Industry premium change from 2010

to 2013 showed strong growth for the homeowners line, according to the report. Midwest and Tornado Alley states achieved the largest premium increases, with many exceeding 20 percent, while only Hawaii experienced an overall premium decrease over the three-year interval. “Given the current market dynamics, we view the overall outlook for the U.S. homeowners line of business to be encouraging,” Parr Schoolman, Aon Benfield’s global risk and capital strategy team leader, said. “Positive rate momentum was maintained in the period under review, and when viewed alongside positive factors such as a general reduction in the cost of reinsurance for primary insurers, the expected ROE for insurers in this line of business continues to improve. While rate activity is still required in some states, the number of states at or near rate adequacy is expanding.” www.insurancejournal.com

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News & Markets A Few Thoughts for Insurance Entrepreneurs By Stephanie K. Jones

anagerial flexiblity, effective communication, selecting and placing employees wisely, customer care and reputational risk are some of the factors would-be entrepreneurs need to consider when contemplating running their own businesses, according to one insurance executive with the work history to support his conclusions. Robert James, chief operating officer at QBE North America, has spent his entire working career — spanning 30 years — in the insurance business. About half of it was in personal lines, with Allstate and MetLife. Along the way he’s also held executive positions with AIG, CNA, Bank of America and Countrywide Insurance. At Countrywide Insurance, with its specialty in lender placed insurance, James had a ring-side seat from which to watch the economic meltdown that began in 2007 with the residential mortgage crisis. With those experiences in mind, at the Entrepreneurial Insurance Symposium held in September in Dallas and hosted by MarketScout, James shared some of his views on what it takes to thrive in the insurance business whether one is starting a company or taking an established firm to the next level. Private or Public “It’s easier to do what you want to do if you’re privately held,” James said, emphasizing that his opinions are his own and not those of his current or former employers. It may seem obvious, but when looking at very successful companies and why they are successful, many times “it’s because www.insurancejournal.com

they are privately held and not beholden to quarterly analysts’ results,” he said. While access to capital may open up opportunities for the entrepreneur, it also brings with it the risk of losing control of the entity one creates. “I guess if there’s a message for you as you contemplate your own business, should you decide to bring in other owners and/ or dilute your ownership, where you’re no longer a majority owner, or go public, you should be cognizant of how much of a sea change that is,” James said. A privately held company, as opposed to one that is publicly traded, has more flexibility. James cited San Antonio, Texasbased insurance and financial services com-

pany, SWBC, as an example of a successful enterprise that exemplifies his point. SWBC was founded in 1976 by Gary Dudley and Charlie Amato with $1,500 of starting capital, according to information provided on its website. Its initial focus was on the needs of financial institutions. SWBC now has offices throughout the country that provide insurance, mortgage and investment services not only to financial institutions, but to other businesses and individuals, as well. James said he connected with the company through its lender placed insurance business. “They have 2,000 employees,” James said, “and they win the best employer in San Antonio, best employer in Texas awards year after year.” On a tour of SWBC’s headquarters, James said he asked several employees “what makes the company so great?” One replied that when a co-worker’s daughter died in a car accident Dudley and Amato paid for her funeral. Another answered that the owners personally hand out bonuses to their employees every Thanksgiving. “There are … other stories like that,” James said. “I talked to Charlie and Gary about it and they said ‘you know, that stuff doesn’t cost us that much money in the grand scheme of things and the [reputational] mileage is just priceless.’” That kind of flexibility would be difficult in a publicly held company, James said. However, “a lot of private equity firms will give you that kind of latitude and in fact encourage it because they understand the importance of employee engagement [in order] to grow.” ‘Mission Statement’ “We must all efficiently / Operationalize our strategies / Invest in world-class technology / And leverage our core competencies / In order to holistically administrate / Exceptional synergy / We’ll set a brand trajectory” continued on page W8 November 17, 2014 INSURANCE JOURNAL-WEST | W1

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News & Markets Washington Bottle Maker Fined After Worker’s Hand Amputated

he Washington Department of Labor & Industries has fined a plastic bottle manufacturer in Battle Ground $86,800 for safety violations after a worker’s hand was caught in machinery and had to be amputated. Andersen Plastics was cited for one willful violation and six serious violations. The investigation found several problems with the company’s lockout/tagout safety program, a term that refers to the deliberate process of shutting down machinery to prevent accidental startup. Failure to do so puts workers at risk of serious injuries, according to the department. The department cited the employer for a “willful” violation after the investigation allegedly found that workers were trained to use unsafe work practices, including bypassing safety guards and not ensuring the machinery was locked out so that it couldn’t start up accidentally. A willful violation can be issued when the department has evidence of plain indif-

Los Angeles Port Sees Air Pollution Levels Dip

fficials say efforts to reduce air pollution at the Port of Los Angeles are working. Authorities said diesel particulate levels dropped 7 percent last year compared to 2012 — an 80 percent reduction since 2005. Nitrogen oxide levels also dipped 7 percent — a 57-percent reduction from 2005 — and sulfur oxides fell 8 percent — down 90 percent in eight years. Harbor officials credit the use of cleaner-burning trucks at the port and speed restrictions on cargo ships to reduce smog from their engines. Copyright 2014 Associated Press. All rights reserved. W2 | INSURANCE JOURNAL-WEST November 17, 2014

ference, a substitution of judgment or an intentional disregard to a hazard or rule. The penalty for the one willful violation is $58,500. Additionally, the investigation showed the company did not have specific procedures or a safety program to prevent accidental startup. The employees lacked training and did not understand the purpose or procedures for locking out equipment before making adjustments, performing maintenance or clearing a jam, according to the investigation. Andersen Plastics has filed an appeal. Penalty money paid as a result of a cita-

Family of Driver Killed in California Bus and FedEx Crash Sues

he family of the bus driver killed with nine others in a fiery collision with a FedEx truck in Northern California has filed a wrongful death lawsuit against the company. The lawsuit seeks damages, claiming the FedEx tractor-trailer was operated negligently. The suit was filed by the family of 53-year-old Talalelei Lealao-Taiao, who was driving a Silverado Stages tour coach that was struck head-on by the FedEx truck April 10 near Orland. The bus was carrying Los Angeles-area high school students on a tour of Humboldt State University. Lealao-Taiao and nine others were killed. FedEx officials said the freight carrier continues to cooperate with the ongoing investigation. Copyright 2014 Associated Press. All rights reserved.

tion is placed in the workers’ compensation supplemental pension fund, helping injured workers and families of those who have died on the job.

Idahoans to See Slight Reduction in Workers’ Comp Rates in 2015

he Idaho Department of Insurance in late October announced Idaho’s overall workers’ compensation premium rates will be reduced by an average of 0.2 percent for 2015. “This slight rate decrease is an indicator of the stability of workers’ compensation coverage in Idaho,” Department Director Bill Deal said in a statement. The new rates were recommended by the National Council on Compensation Insurance, a rating and advisory organization that collects annual data on workers’ compensation claims for the insurance industry. The new rates will become effective Jan. 1, 2015. Rates differ for each worker classification, so while the overall impact is a decrease, some classifications may increase. Rates are affected by such factors as frequency of claims and medical costs. www.insurancejournal.com

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People Karman Chan

Deb Neville

Edgewood Partners Insurance Center has named Karman Chan chief financial officer in the firm’s San Francisco, Calif., headquarters. EPIC’s current CFO, Michael Gonthier, will transition to a new position as chief administrative officer, assuming corporate responsibility nationally for agency operations, human resources, information technology, and project management. As CFO, Chan will be responsible for all finance and accounting functions across the organization. Chan has more than 20 years of experience in operations, finance and accounting and administration. Prior to EPIC, Chan was most recently chief financial officer and turnaround officer at Pacific Pulmonary Services in Novato, Calif. Chan was chief financial officer of the large groups business unit at Blue Shield of California. She also spent six years with Charles Schwab and Co. Inc. in positions including vice president of corporate planning and analysis. EPIC’s strategic partners include private equity firms The Carlyle Group and Stone Point Capital. Monarch E&S has named Deb Neville a senior commercial lines underwriter in its San Diego, Calif., branch office. Neville has extensive commercial lines experience and has been working in the excess and surplus lines industry for 35 years. Most recently Neville had her own shop, Neville - St. Clair Ins. Services. Monarch E&S is a wholesale brokerage firm with offices in La Crescenta, Rancho Mirage, Simi Valley, Novato, Fresno, Arizona and Hawaii. Woodruff-Sawyer & Co. has named Jacob Decker vice president and director of financial institutions. Decker will focus on shaping the firm’s financial institutions strategy across all offices. He is based out of Seattle, Wash. Decker has more than 12 years of experience in the insurance industry both in underwriting and brokering. His expertise includes director and officer liability, errors and omissions, employment practices liability and fiduciary liability. He specializes in the financial services and technology industries. His prior posts include vice president at Wells Fargo Insurance, vice president in financial services and practice leader at Lockton Cos. and underwriter for financial institutions at Chubb. San Francisco-based Woodruff-Sawyer has offices

W4 | INSURANCE JOURNAL-WEST November 17, 2014

throughout California, in Portland, Ore. and in Denver, Colo. Steve George has been named administrator of Nevada’s Division of Industrial Relations. George was appointed to fill the vacancy in October after previous administrator Don Soderberg was named director of the Nevada Department of Employment, Training and Rehabilitation. George has 16 years’ experience in state government working for four constitutional officers: Attorney General; Governor; Secretary of State; and State Treasurer. Most recently, he served five years as the chief of staff at the treasurer’s office. The division is a department of Business and Industry agency. The division promotes and enforces safety in the workplace and encompasses five units to address worker safety: Workers’ Compensation; Nevada OSHA; Mechanical Section; Mine Safety and Training; and Safety Consultation and Training. Insurance brokerage and risk management firm Integro has named Kate Bauer as vice president in its casualty practice. Bauer will be based in Portland, Ore., and she will work with Integro clients to develop and deliver customized risk strategies and execute risk management solutions. Bauer has 17 years of experience in global risk management working with clients in industries, including manufacturing, steel, power and utilities, forestry/wood products and higher education. She previously worked for Marsh USA, where she served as a vice president and associate client executive. New York, N.Y.-based Integro and its family of specialty insurance and reinsurance companies operate from offices in the U.S., Canada, Bermuda and the United Kingdom. Gerry Kosko has joined Suhr Risk Services in San Jose, Calif., as an account executive in employee benefits. Kosko is a health insurance funding strategist. He specializes in working with business owners and human resources managers to streamline the delivery and administration of their group health benefits, payroll services, and retirement plans. Kosko has seven years of benefits consulting and service experience, having previously worked at Archway Insurance and ExpertQuote Insurance. Prior to that Kosko served as business development manager for REMAX. Suhr Risk Services is a full service risk management and insurance broker. www.insurancejournal.com

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Legal View New York Ruling Adds Transparency in California Workers’ Comp Market By Nicholas P. Roxborough

or years, California policyholders have been battling workers’ compensation carriers over whether carriers can enforce arbitration clauses buried in unfiled side

W6 | INSURANCE JOURNAL-WEST November 17, 2014

agreements and force coverage disputes to be resolved in other states such as Illinois, New York and Delaware. These side agreements, typically sent to insureds well after policies have taken effect, allow carriers to introduce terms and conditions with little or no resistance. As a result, policyholders and their witnesses are required to travel to other states where California workers’ comp policies are subject to local laws and regulations, often making litigation prohibitively expensive. However, the New York Appellate Court has changed the rules of the game. In a recent 5-2 decision, the court ruled these agreements — used by many large national carriers — are unenforceable. In Monarch Consulting Inc. v. National Union Fire Insurance Co., a subsidiary of AIG, the New York court denied AIG’s petition to force Monarch to settle its dispute through arbitration in the carrier’s home state of New York, as stated in its side agreement. Attempts by AIG and its subsidiaries to compel California businesses into arbitration in New York and under New York law, will not be allowed. And, for other national carriers, all similar side agreements with foreign jurisdiction may also not be enforceable. Beyond mandatory arbitration, the decision also potentially renders financial terms in these side agreements unenforceable — terms covering add-on fees for

medical bill review, nurse case managers and other cost containment services provided by the carrier as well as collateral requirement conditions and how claims are handled. The consolidated appeal involved National Union’s workers’ comp agreements with California-based Monarch Consulting, Source One Staffing and Priority Business Services from 2003 to 2010. The ruling upheld a previous finding that the arbitration clause was unenforceable in a case filed by Source One and reversed two lower court rulings that would have enforced the arbitration provisions against Monarch and Priority Business. In its decision, the New York court noted an unpublished California appellate ruling in Ceradyne v. Argonaut and a published California ruling in DMS Services, Inc. v. Superior Court (Zurich Services Corp.) It also noted the 2013 settlement between the California Department of Insurance and Zurich over out-of-state arbitration clauses, where Zurich agreed not to enforce contractual provisions requiring policyholders to arbitrate disputes in Illinois using New York law. The carrier said it would allow existing policyholders to arbitrate in California using California law and agreed to file all side agreements with the CDI and Workers’ Compensation Insurance Rating Bureau in the future. What Happens in California, Stays in California The New York Appellate Court ruling has a profound impact on the California employer community and the workers’ comp marketplace as a whole. First, it levels the playing field for California businesses, which are no longer required to litigate disputes under another state’s statutes and regulations. Second, it eliminates the need for poliwww.insurancejournal.com

‘These side agreements, typically sent to cyholders and carriers to dispute terms in insureds well after policies have taken agreements that, as effect, allow carriers to introduce terms a matter of law, are and conditions with little or no resistance.’ now unenforceable. This will most likely reduce the volume of litigation with governmental authorities if they are to respect to this issue. be enforceable. This not only increases It also helps restore regulatory and transparency in the marketplace, but more enforcement powers to California. The importantly, protects everyone involved, appellate court cited the McCarranincluding carriers who know the terms in Ferguson Act, which gives states the their workers’ comp side agreements have authority to regulate insurance within been vetted and approved by state regulatheir borders. Compelling other state tors. courts to interpret California law or using other state’s laws for matters that take Roxborough is co-managing partner of Los Angeplace in California would only multiply les-based Roxborough, Pomerance, Nye & Adreani, the number of inconsistent court decisions LLP, which specializes in representing employers in and create conflicts in the application of workers’ compensation premium disputes. Phone: workers’ comp policies. (818) 992-9999. Email: npr@rpnalaw.com. Nick Roxborough Lastly, the decision makes New York law consistent with California law by upholding CDI’s mandate that side agreements be filed with the appropriate regulatory agencies at the time policies are issued. In fact, the decision correctly concluded that enforcing agreements that were not filed with the CDI and WCIRB would “violate the strong policy under California law of regulating insurance carriers and their agreements with their insureds.” California Insurance Commissioner Dave Jones, who has fought national carriers on this issue for years, applauded the New York appellate decision, stating: “Unfiled side agreements improperly alter the terms of a policy, and this decision reaffirms workers’ compensation insurers’ P OL IC Y CR A F T ED W I T H A SSU R A NCE duty to comply with this essential filing WSS is ma ering the cra of insurance. Visit us at wssib.com to learn more. requirement.” Jones emphasized the importance of CDI’s oversight in ensuring policy provisions are “fair and legally sound.” california (800) 733-5844 From a public policy standpoint, it texas (888) 977-3255 could not be clearer: national carriers that want to do business in California must file their policies and any modification CA Lic. #0622580 TX Lic. #15210 to those policies with the appropriate www.insurancejournal.com

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News & Markets continued from page W1 Do those words sound familiar? These lyrics from the Weird Al Yankovic song, “Mission Statement,” were composed of words from actual corporate mission statements. Mentioning the song in his presentation, James said while it is hilarious, “unfortunately it hits too close to home.” Strategy documents at most companies

‘It’s easier to do what you want to do if you’re privately held.’ “are absolutely awful. … They’ve got way too many words on a page. They don’t really describe often times what’s the core reason for your being in business.” If you are a business owner or team leader, “your understanding of where you are trying to go is obviously clear to you and most always not clear to those who work with you, even in smaller organizations,” James said. It’s important for the people who work for you to understand where it is they are going. They are looking for leadership, for hope. So, describe what success looks

like — create the story and tell it to them, whether it’s a journey to grow a business or to get through a crisis. “If you’re a victim of a corporate strategy that you can’t change, your job is to translate it into something that’s understandable to your team. If you’re the architect of corporate strategy … [think about] what is the social reason … that we are in business? What’s the value we bring to the customer? It’s really important to be able to articulate it.” Right People, Right Role The insurance business is a relationship business, and people with a high quotient for relationships — James included himself in that category — sometimes have an undue level of empathy for the people who work for them. “If you have that high quotient relationship, and you want to grow your business, put the right people in the right role,” he said. As an example James related a story about a man who once worked for him. He was “a wonderful guy but he had a problem. His problem was that he did not

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W8 | INSURANCE JOURNAL-WEST November 17, 2014

10/29/14 9:53 AM

know how to delegate his team … so he ended up doing his team’s job and his job,” James said. At quarterly business reviews it was obvious that the man had not slept, that he was unprepared, and he would come in with a stack of papers and try to make sense of them. “I had talked to him about this issue, but rather than recognizing that he was not going to change, I proceeded to beat him like a drum,” James said. Fortunately the HR person did recognize the problem. “‘He’s incapable of doing his job,’ she said. ‘You need to fire him, because … he’s not going to quit. He’s going to keep trying to please you and he’s in the wrong role.’”

‘I had talked to him about this issue, but rather than recognizing that he was not going to change, I proceeded to beat him like a drum.’ Customer Care Plain and simple, customers don’t care about your problems. “They don’t care,” James said. “I view many of you here in the room as my customer. If I sit down and explain to you how tough my job is and how much stuff needs to change. … You don’t want to know that. You want to know if it’s affecting you and you want to know if I can fix it.” As a team leader or an entrepreneur, it’s important to “put yourself in front of your people when you’re in a period of crisis or stress. It is very difficult because oftentimes you don’t know what to say to them or you don’t have the answers or you don’t know what the future holds.” Reputational risk matters, and getting in front of your team or your customers and admitting your mistakes is very important. “Just as important as celebrating wins,” James said. www.insurancejournal.com

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FIGURES

The number of lawsuits filed in Indiana against three northwestern Indiana cardiologists and a hospital, alleging that open-heart surgeries and other procedures were performed unnecessarily. The complaints against Drs. Arvind Gandhi, S. Makam and Wail Asfour of Munster-based Cardiology Associates of Northwest Indiana, as well as Munster Community Hospital, also allege unnecessary implantations of pacemakers and defibrillators, death caused by unnecessary pacemaker installation, and unnecessary angiograms and stenting.

DECLARATIONS

10 The number of families of 14 Oso, Wash., mudslide victims that are suing the state, county and a forest owner alleging the March 22 disaster was not natural, but the result of a series of actions and inactions.

— Jeff Harris, an Atlanta attorney for the parents of Sarah Jones, a camera assistant who was killed by a train while working on a film about musician Greg Allman. Jones died during the filming of “Midnight Rider” when a freight train slammed into the movie crew on a railroad bridge in Georgia. Allman was among 10 individuals and eight corporations sued by Jones’ parents.

Cooperative Liabilities

192

The number of citations that federal inspectors issued during special impact inspections conducted at nine coal and four metal and nonmetal mines in September, according to the U.S. Department of Labor’s Mine Safety and Health Administration. The citations included accumulations of combustible materials and unguarded belt conveyors.

“No school district is being asked to cover the liabilities of another, but rather these liabilities were incurred by the cooperative while the cooperative was actively providing coverage for its members.”

— Blake Lawrence, attorney for the now-defunct Oklahoma Schools Property/Casualty Cooperative, which is trying to assess former members for about $720,000 to pay current and expected claims and debts. The failed insurance cooperative sent notices to 56 former member schools for amounts ranging from $890.71 to $67,680.32. Some districts have questioned whether they are being asked to pay debts of other districts.

California Rice

The number of blazes that have been set in East Tennessee, near Parrotsville, since August. Most of the fires have been set at vacant homes and abandoned barns. No injuries have been reported, but the local sheriff has requested help with the investigation from the Tennessee State Bomb and Arson division and the Tennessee Department of Agriculture.

“I hear the rumors there’s a cheaper rice, but you want to eat high-quality California rice.”

— Taro Arai, who runs eight Japanese restaurants in the Sacramento area, said he paid 8 percent more for rice this year and expects to pay even more next year thanks to the state’s ongoing drought.

$262,500 The amount that the federal Occupational Safety and Health Administration has fined the national discount chain, Dollar Tree Stores Inc., for willfully and repeatedly exposing workers to serious hazards at its store in Watauga, Texas. Across the nation, Dollar Tree Stores have been cited for more than 200 safety and health violations since 2009.

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No Involvement

“It is clear that Mr. Allman … had no involvement in any of the decisions that resulted in Sarah’s death.”

Goals v. Quotas

“It’s important to root out fraud to ensure continued care for Ohio’s injured workers.”

— The Ohio Bureau of Workers’ Compensation, in a statement responding to allegations that goals set for its fraud investigators amount to quotas. The BWC says investigator goals are not quotas and that it cannot force prosecutions. The agency says since 1993 investigations have produced nearly 25,000 cases of wrongdoing that allowed the collection of more than $1.5 billion and sent nearly 4,500 cases to prosecutors, netting 2,379 criminal convictions. November 17, 2014 INSURANCE JOURNAL-NATIONAL | 11

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News & Markets Climate Change Report Paints Portrait of Dystopian Future

By Don Jergler

major climate change report issued this month offers dire predictions, a call to action to government and industry and it assesses the blame for a rapidly changing and more volatile world on mankind. The United Nations’ Intergovernmental Panel on Climate Change released its Synthesis Report on Nov. 2 in Copenhagen, a 100-plus page compilation of the materials and findings on climate change the IPCC has issued over the past year. The term “insurance” is mentioned in the report a dozen times, and while there are no direct calls to action issued to the industry, there are allusions to a future in which insurance will be costlier and in more cases will be government-backed. Among its findings the report is unambiguous about the cause of climate change, stating that “human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history.” The report asserts that the period from 1983 to 2012 was likely the warmest 30-year period of the last 1,400 years in the Northern Hemisphere. References to “insurance” in the report varied. More severe and/or frequent weather haz12 | INSURANCE JOURNAL-NATIONAL November 17, 2014

(such as in the context of insurance systems) and economic diversification are examples of adaptation action enabling and relying on private sector participation. Among the mentions of insurance are within suggested economic options — including financial incentives, insurance, catastrophe bonds, and disaster contingency funds — and laws and regulations, like zoning laws and building standards, laws to support disaster risk reduction and laws to encourage insurance purchasing. The report focuses on the cause of climate change as being manmade, and the consequences of staying on a world-wide course of producing global warming emissions. “Continued emission of greenhouse gases ards are projected to increase disaster-relatwill cause further warming and long-lasting ed losses and loss variability, posing chalchanges in all components of the climate lenges for affordable insurance, particularly system, increasing the likelihood of severe, in developing countries. pervasive and irreversible impacts for Examples of adaptation mechanisms people and ecosystems. Limiting climate include large-scale public-private risk change would require substantial and reduction initiatives and economic diversisustained reductions in greenhouse gas fication, and government insurance for the emissions which, together with adaptation, non-diversifiable portion of risk. can limit climate change risks,” the report Insurance programs, social protection states. measures, and disaster risk management Perhaps the starkest part of the report may enhance long-term livelihood and is prediction that surface temperature will resilience among the poor and marginalized continue to rise throughout people, if policies address multi-dimensional poverty. ‘Human influence the 21st century, causing heatwaves to occur more Risk financing mechanisms on the climate often and last longer and in the public and private system is clear.’ more frequent and intense sector, such as insurance and extreme precipitation. risk pools, can contribute to It predicts a .3 to .7 degrees Celsius globincreasing resilience, but without attention al mean surface temperature change for the to major design challenges, they can also period from 2016 to 2035 compared to 1986provide disincentives, cause market failure, 2005. and decrease equity. Governments often “It is virtually certain that there will be play key roles as regulators, providers, or more frequent hot and fewer cold temperainsurers of last resort. ture extremes over most land areas on daily Dedicated policy instruments and finanand seasonal timescales, as global mean cial arrangements, for example, credit insursurface temperature increases,” the report ance, feed-in tariffs, concessional finance or states. rebates provide an incentive for mitigation “Climate change will amplify existing investment by improving the return adjustrisks and create new risks for natural and ed for the risk for private actors. human systems,” the report states. Public-private risk reduction initiatives www.insurancejournal.com

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Business Moves

Confie Seguros Confie Seguros, a national provider of personal lines insurance, has acquired three insurance brokerages. Confie Seguros acquired The Insurance Market Agency Inc. in Tonawanda, N.Y., and Action Auto Insurance Agency Inc. in Cheektowaga, N.Y. Both Agencies have been part of the Buffalo, N.Y., community for many years and offer auto, homeowners and small commercial insurance. Additionally, Confie said it has added Fast Quote Insurance in Ontario, Calif., which specializes in auto insurance from five Southern California offices. Confie has acquired more than 70 businesses since its inception in 2008 and has grown to revenue of $350 million and 560 offices. Last month the company announced five acquisitions in New York, Washington and Texas. The California-based national insurance distribution company primarily focuses on the insurance needs of Hispanic consumers. Confie Seguros is a portfolio company of ABRY Partners. Starkweather & Shepley, Universal Insurance Agency Starkweather & Shepley Insurance Brokerage Inc. in East Providence, R.I., has acquired Universal Insurance Agency 14 | INSURANCE JOURNAL-NATIONAL November 17, 2014

of Smithfield, R.I. Terms of the transaction were not disclosed. Universal Insurance Agency will merge its operation into Starkweather & Shepley’s East Providence office. Larry Signore, president of Universal Insurance Agency who founded the agency in 1981, will bring all of his clients to the new location. Universal Insurance Agency provides personal and commercial insurance to a range of classes such as environmental, manufacturing, commercial real estate and development, construction and construction management and high-tech firms. Starkweather & Shepley’s Chairman and Chief Financial Officer William McGillivray said the transaction further expands the firm’s Rhode Island footprint. Founded in 1879, Starkweather & Shepley provides commercial and personal insurance, health and employee benefits, surety bonding and risk management services. Headquartered in East Providence, R.I., the firm has additional branch offices in Westerly, R.I.; Martha’s Vineyard, Sturbridge and Westwood, Mass.; Bristol and Shelton, Conn.; and Fort Myers, Fla. Hub International, Laurus Strategies Insurance brokerage Hub International Ltd. (Hub) announced its Chicago-area affiliate Hub International Midwest (Hub Midwest) plans to acquire Laurus Strategies from CSIG Holding Co. Laurus is an employee benefits, human resources, and human resource information system (HRIS) global benefits consulting business. Terms of the acquisition were not disclosed. Closing of the acquisition is conditioned upon customary closing conditions and is expected to occur in November 2014. As part of the transaction, Hub will acquire Laurus’ employee benefits and HR technology consulting practices. This HR technology consulting practice will continue to operate under the “ihouse” brand.

Laurus offers global health and benefits consulting, including expertise in such areas as: private exchange, human capital development, international total rewards, property and casualty, nonprofit and public affairs, and human resource information system (HRIS) consulting, which helps clients assess current systems and identify the best alternatives, enabling benefit solutions to integrate with existing HR systems, such as payroll. Founded in 2003, Laurus focuses on midsized and large, complex Fortune 2000 companies. The firm’s more than 130 employees serve more than 450 clients throughout the United States, Canada and Latin America from its Chicago headquarters and three regional offices. Chris Cordes, Laurus’ managing partner, will join Hub as the president and market leader of Hub Midwest, responsible for employee benefits and consulting services and reporting to Neil Hughes. Hub’s National Employee Benefits Practice is headed by its President Mike Barone. EXL, Overland Solutions Business process solutions company EXL has acquired Overland Solutions Inc., an Overland Park, Kan.-based provider of underwriting support services including premium audit, commercial and residential underwriting surveys and outsourced loss control services for the insurance industry. Overland’s audit segment provides critical information on risk and exposures for carriers and their regulators. The survey segment works with residential and commercial underwriters and managing general agents to understand underwriting risks, identify loss prevention opportunities and survey individual properties for replacement cost valuations. The merger consideration of $53 million in cash was funded from existing cash resources on EXL’s balance sheet, the company said. The transaction is expected to be immediately accretive to adjusted EPS and contribute approximately $10 million of revenue in the fourth quarter. In business since 1999, EXL is headquartered in New York. www.insurancejournal.com

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News & Markets Large Agencies More Optimistic About Future Growth: Study

ptimism over the future growth potential of independent agencies ties closely to the size of the independent agency, with larger agencies feeling more optimistic about future growth than their smaller counterparts, according to a new industry study. Some 70 percent of large agencies — those with more than $10 million in revenue — said they felt “very optimistic” about future growth, while just 25 percent of small agencies — those with less than $1 million in revenue — felt “very optimistic,” according to a Vertafore’s first annual survey, “How Independent P&C Insurance Agencies Are Thriving in Today’s Competitive Marketplace” conducted in partnership with analyst firm, Aite Group. The survey found that 59 percent of midsize agencies — those between $1 million and $10 million in revenue — felt “very optimistic” and 46 percent of small agencies said “somewhat optimistic” about future growth. The study revealed that increasing commoditization and reliance on personal lines, such as auto insurance, and limited technology adoption among smaller agencies were primary contributors to agencies’ optimism on future growth. In the past 15 years, major carriers such as Geico, Esurance and Progressive have

significantly commoditized the personal auto insurance line of business and trained consumers to shop for the lowest price and purchase these products in a self-directed way through multiple channels, the report said. Although personal auto insurance sales represent a majority of small agency revenues, 39 percent of the survey’s respondents said their businesses have not made or do not expect to make any changes to combat the direct-to-carrier shift. The 2013 McKinsey & Company Study “Agents of the Future: The Evolution of Property & Casualty Insurance Distribution” analyzed the extent to which the personal auto insurance product line has become commoditized. According to that study, only 13 percent of consumers now rely solely on insurance agents during their information gathering, quoting, and purchasing journey for auto insurance. Even so, only 28 percent of shoppers avoid insurance agents altogether. Even for personal auto insurance, consumers still mostly rely on insurance agents for guidance in high-value areas like coverage selection. In other product areas that are more complex and more emotional, like homeowners insurance for insuring people’s homes and commercial lines insurance for insuring

Q. How do you feel about the future success of your agency? 23%

7% 30%

46% 59%

19%

Very pessimistic Somewhat pessimistic

70%

An even blend of optimism and pessimism Somewhat optimistic

25%

Very optimistic Less than US $1 million in revenue (n=56)

Between US $1 million and US $10 million in revenue (n=111)

More than US $10 million in revenue (n=27)

Source: Aite Group survey of 194 independent U.S. P&C insurance agencies, August to September 2014

16 | INSURANCE JOURNAL-NATIONAL November 17, 2014

people’s businesses, the overall reliance on agents is significantly higher. Despite these challenges, the Vertafore survey says agencies still find multiple growth opportunities as nearly 50 percent of fast-growing agencies invest in advanced technologies, and are diversifying into other product areas, and are expanding strategic partnerships with carriers. Diversification of Product Lines According to recent McKinsey research, 28 percent of consumers purchase auto insurance directly from carriers, compared to 13 percent who purchase directly from agents. This increase in commoditization of personal auto insurance has placed a heavy burden on agencies (particularly smaller ones with less than $1 million in revenue), where personal lines often account for 80 percent or more of their sales. To help offset the decrease in sales of personal insurance, 44 percent of all agencies have diversified into new coverage and product types including, homeowners insurance, commercial lines, and emerging markets such as, cyber liability, identity theft protection, and worksite insurance products. The survey said these product lines are providing agents with more opportunity to deliver value in poorly understood coverage areas. Findings supporting the trend of diversification include: Large agencies often utilize a higher perwww.insurancejournal.com

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centage of commercial package and property insurance than small agencies. Large and mid-sized agencies often comprise at least 41 percent of total annual sales. Small agencies utilized less, according to the report. Homeowners insurance is helping drive growth in agencies of all sizes. 58 percent of agencies of all sizes have experienced growth in homeowner’s insurance sales over the last 24 months. Among the new product lines, cyber liability insurance is emerging as a fast growth offering, with 50 percent of large agencies reporting an increase in sales for this type of coverage over the last 24 months. Technology Despite the slowdown in commoditized product lines, fast-growing agencies that invested in customer service initiatives are experiencing positive results. Agencies of all sizes cited better customer service (50 percent) and improved cross selling (49 percent) as important drivers of growth in personal lines insurance. Similarly, nearly half of all agencies reporting fast growth (47 percent) have deployed advanced customer self-service capabilities on their websites including, chat, video conferencing, and mobile. Strategic Partnerships In addition to product line diversification and customer self-service capabilities, the survey found an increasing number of large agencies forging partnerships with carriers as a means of gaining access to their marketing and technology capabilities. Nearly two-thirds (63 percent) of large agencies have partnered with insurance companies to access their full range of marketing management tools, while 56 percent are partnering to leverage their predictive analytics capabilities and build more targeted prospect lists. “Our primary goal for conducting this survey was to delve deeper into the current state of the independent agency market and get a better understanding of what factors are driving or inhibiting growth,” said Todd Eyler, research director at Aite

Group. “What we found is that the agencies who are thriving are those who recognize the profitability, scalability and agility that technology can bring to the table.” Aite conducted the survey among 194 U.S.-based P/C independent insurance agen-

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cies between August and September 2014. The research was conducted independently. Vertafore is a provider of cloud-based insurance software and services with more than 20,000 agencies and carriers using Vertafore’s insurance solutions.

9/22/14 2:32 PM

November 17, 2014 INSURANCE JOURNAL-NATIONAL | 17

SPECIAL REPORT

Long-Term Care

18 | INSURANCE JOURNAL-NATIONAL November 17, 2014

www.insurancejournal.com

By Andrea Wells

he graying of America could be a great opportunity for young entrepreneurs, including young insurance producers. As the nation’s population continues to gray, the people who work in the

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many businesses and organizations that serve seniors are themselves getting older and retiring. This is true among the insurance producers who sell property, liability and other insurance packages to the owners and managers of senior and long-term care (LTC) facilities. Many of the insurance producers who have carved out a specialty in the LTC market are getting to the age where they will soon be utilizing the services more than counseling the providers. At the same time, the LTC industry is big and is getting bigger. According to those with experience in this market, there is a need for young producers who want to specialize in the insurance market for the LTC industry. “It’s a big universe and there’s a lot of potential demand out there for new, young, aggressive producers to go after,” according to Shawn Yingling, president of Glatfelter Healthcare Practice, which operates a national senior living program for skilled nursing care for- and non-profit facilities, assisted living and personal care homes, continuing care retirement communities and retirement apartments. He says the senior living insurance market is experiencing its own “gray wave” as insurance professionals serving this market are aging out themselves. “Over the next five to eight years I know of many producers who will be aging out; so there’s a lot of need for new producers

to come along and write this segment,” he said. However, Yingling and others stress, the field is not for every producer — it is best served by those willing to specialize. Specialization Needed Specialization matters a great deal in the senior living industry. According Matt Mitchell, president of healthcare for The Hanover Insurance Group, specialization is needed due to the increase in demand for long-term care services, insurance product complexities and the severe nature of claims in the space. In addition, the regulatory environment for senior living operators is changing rapidly. Edward (Ed) McConnell, vice president at Assurance, an independent insurance brokerage based in Schaumburg, Ill., says the senior living insurance market has become more niche than ever before. While senior living insurance has always been a niche market when it comes to property/ casualty coverages, the employee benefits side has grown to become more niched as well. “The products can be a little bit complicated because you are often dealing with surplus lines and claims made forms,” Mitchell said. “The types of services, and really knowing what the client needs, and working with carriers to insure those needs becomes complicated, too.” Unlike traditional business risks, senior living facilities must work with carriers and brokers that understand “clinical risk management,” Mitchell said. “If you think of the big types of claims that these facilities get … decubitus ulcers, otherwise known as bed sores, falls, or elopements, which are big issues that drive severity, you have to have a lot of real undercontinued on page 20

November 17, 2014 INSURANCE JOURNAL-NATIONAL | 19

SPECIAL REPORT

Long-Term Care

continued from page 19 “It works much like a hotel in that they standing of what’s going on in the facility,” offer services that you might not ordinarily Mitchell said. “You have to make sure you find in a traditional long-term care facility,” are matching the facility with the approButler said. priate product selections. But equally, if not Many of today’s more progressive facilimore important, you have to match them ties look similar to a campus and offer the with a carrier that can handle the claims entire continuum of care for aging individuand risk management services around those als starting with the lowest level of care all unique exposures.” While success in this market depends on expertise, agents and ‘It’s a big universe and there’s a lot brokers with little experience can of potential demand out there for find specialist partners to target this new, young, aggressive producers growing segment. to go after.’ “Certainly we want to partner with agents who have history in the the way to the highest level, she says. class of business and whose principals are “Continuing care retirement communities involved in actively securing the new busiare retirement communities with a higher ness,” said Glatfelter’s Yingling. “But we are a spectrum of care,” she said. “They’ll have also happy to talk to agents that are maybe apartments that are for independent living, just starting in the class who have a lot of where the residents need little or no assisenergy and passion to go out and chase it. tance. Then they’ll have assisted living care, With these new people we are able to back where the residents may need some sort them up with our resources to make them of help with daily activities. Then there is look like an expert early on.” intermediate or skilled nursing care, which Senior living P/C accounts can be sizable, is a highest level of care.” which is attractive to producers looking for It’s a self-contained community, she a specialty niche. “They can easily be six says. “What’s nice about this model is that figures, even just for the small facilities,” he as people age, there are options available said. to them; whereas if you are just in a standalone assisted Hospitality Care living facility it’s hard to get One of the biggest trends shaping the residents to move to that long-term care industry today is how it next step to go into a full caters to its residential clientele, said Marty assisted living.” Butler, senior vice president at Assurance, who has specialized in the area of longIndustry in term and senior care for more than 25 years Transition working in many different capacities includ While the senior living ing claim handling, underwriting, accountindustry is experiencing ing, marketing, client service and sales. tremendous demand for ser Over the past few years, many of the vices, it is also facing signifmore “progressive facilities” have moved icant challenges from laws toward a hospitality business model as and regulations that are opposed to a more traditional nursing home impacting the bottom line setting, Butler said. This differs tremenfor some LTC operators, the dously from the past. experts say. “Baby boomers want quality and services,” Higher level LTC faciliaccording to Butler. Baby boomers want the ties — otherwise known benefits of living in a green building facilas skilled care or skilled ity with quality services and green living nursing facilities — are options, such as gardens, solar power and primarily financed the like, she said.

through Medicare. Many states and the federal government are under financial pressure due to the “gray wave,” says Lee Sommars, senior vice president at Lockton Insurance Brokers, who has specialized in the LTC segment for more than 25 years. As a result, the LTC operators are dealing with changes in Medicare reimbursement, which are adding to their financial pressures. While LTC operators are adapting to the new Medicare guidelines, the reimbursement is slower and will remain a challenge for some operators, says Glatfelter’s Yingling. “Assisted living facilities are oftentimes private-pay so it’s less of an issue for those operators, but for skilled care facilities slower reimbursement leads to margin erosion,” he said. Yingling predicts that the need for staff as the demand for services continues to grow could have a negative impact on senior living providers.

Each level of facility — independent living, assisted living, skilled care — requires a special skill set. However, it is a challenge finding qualified and properly trained staff to fill those positions, leaving some to rely upon independent contractors who may lack the necessary skills. As a result, there are important liability implications, Yingling says. “Nationally, there’s a movement afoot to increase the federal minimum wage and states and municipalities are already acting on that,” he said. “Any kind of wage pressure erodes the margins” and the majority of frontline staff in LTC facilities would be affected by a change in minimum wage standards, he added. Another staffing challenge is a national shortage of nursing professionals. “There’s always concerns about staffing, but it’s not a question of finding enough people; it’s just the operators want the right people,” Sommars said. “From my perspective I’m not hearing that we are having significant gaps in staffing.” He admits that a LTC provider can’t compete with wages offered by others, such as acute care hospitals. But that’s not why LTC employees stay in the field. “Eighty percent of the employees in the LTC profession are there for a reason. They like the LTC profession. They like getting to know their residents. They like the positive outcomes that they see in delivering long-term care to their residents.”

The Long-Term Care Market

dults 65 years and older now number 40 million in the United States and that population will grow to 70 million, or nearly 20 percent, of the country’s total population, over the next 25 years. Two factors are contributing to this senior population explosion — longer life spans and the aging of baby boomers. “Ten thousand new people turn 55 every day,” said Edward (Ed) McConnell, vice president at Assurance, an independent insurance brokerage based in Schaumburg, Ill. Assurance launched its Senior Living Practice 22 years ago and it remains a valued niche. “It’s one of our top two growth markets,” he said. In 2012, there were 58,500 paid, regulated long-term care services providers serving about eight million people in the United States, according to the National Study of Long-Term Care Providers, which was conducted by the Center for Disease Control’s National Center for Health Statistics. Long-term care service providers include adult day services centers (4,800), home health agencies (12,200), hospices (3,700), nursing homes (15,700), and assisted living and similar residential care communities (22,200). The numbers of people being served by this market are substantial: for each day in 2012, there were 273,200 participants enrolled in adult day services centers; 1,383,700 residents in nursing homes; and 713,300 residents in residential care communities. In 2011, about 4,742,500 patients received services from home health agencies, and 1,244,500 patients received services from hospices, the study said.

driving that trend. The biggest challenge the LTC industry “Right now is the time for providers to faces is the shortage of facilities, Yingling grow and diversify, or sell. A lot of times said. “The hardest part is finding facilities these deals come with little notice so as out there to accept the people given the brokers we have to be nimble and able to large demand. They can’t be built quick react quickly. From an insurance standpoint enough.” it’s important to be mindful of the profes “We are seeing a lot of consolidation as a sional liability coverage that result of the governmental changes to reimbursement ‘Right now is the the seller has. … Any known incident needs to be reported rates for skilled nursing; it’s time for provid- and an extended reporting causing a lot of these folks period needs to be given to the to reduce economies of scale ers to grow and by consolidation,” Yingling diversify, or sell.’ insured to make sure there is a time frame to report claims said. “So while you are seeing after the sale.” growth, you are also seeing consolidation to Despite the changing conditions in LTC, overcome margin erosion.” Butler says it’s a great market for insurance Assurance’s Butler agrees that consolidaspecialists. There’s tremendous growth tion within the LTC market is probably the across the board in the senior living sector, number one trend right now. she says. “The industry as a whole, includ “There’s just an extraordinary amount of ing home health and hospice, is growing by sales and acquisitions right now,” she said. leaps and bounds.” Low interest rates, lots of available capital “And with a lot of capacity and incentive in the healthcare area and the unprecedentto write more business,” Sommers adds. ed increased demand in occupancy rates is November 17, 2014 INSURANCE JOURNAL-NATIONAL | 21

NATIONAL COVERAGE

M&A Review Insurance Intermediary Deal Momentum Gathers Speed

ergers and acquisitions (M&A) activNumber of Announced Deals ity for the third quarter of 2014 was strong with 69 deals, helping propel the total deal count to a record 220 through September. We have not seen the deal count in the 200s at this point in the year since 2008, before the financial crisis. In 2013, there were 224 announced By Meredith Reeves transactions for the full year. July, while the slowest month of this year, posted a respectable 18 deals, August Note: Past performance is not necessarily indicative of future results. followed with 24, and September knocked Source: SNL Financial, Insurance Journal, and other publicly available sources it out of the park with 27. In the third quarter, 42 percent of all Top Buyers deals were of property/casualty firms, 32 amounts of competition. In our opinion, The top five buyers for the year accountpercent were multi-line and 26 percent there is no shortage of demand, as buyers ed for more than 30 percent of all activity. were employee benefits agencies. The continue to supplement their weak organic Arthur J. Gallagher leads the year with wholesale segment, with 49 announced growth with acquisitions. 21 domestic deals announced, nearly half deals this year, comprised 22 percent of the The top five buyers this year completed of them (10) coming in the third quarter. deal count and has already surpassed prior three times as many deals during the first After completing five wholesale acquisitions annual totals. nine months of 2014 as they did for the in the second quarter, Gallagher bolstered On the buyer side, private-equity backed comparable period last year. its retail portfolio with nine of its 10 deals and independent agencies accounted There are also new buyers in the pool. in the third quarter. With the acquisition for nearly 70 percent of all deal activity Of the 104 different buyers this year, 46 got of seven benefits firms in 2014, Gallagher through the third quarter. Public brokers on the scoreboard for the first time with continues to expand its employee benefits increased their activity for the first nine one deal, five of them completing multiple business, too. months to 17 percent of transactions. AssuredPartners all activity, an increase With 220 announced transactions The deal count through followed with 16 for the of nearly 10 percent from the third quarter 2014 through the third quarter, the deal count is year, outpacing nine for the comparable prior year greater than any comparable period in more is greater than any the comparable period period. Insurance comthan a decade. As we begin to surf past last comparable period in last year. AssuredPartners yearâ&#x20AC;&#x2122;s total, it will be interesting to see how panies, banks and other completed four of its buyers slightly declined high we ride the tide. more than a decade. deals in the third quarter, from the prior year, Securities offered through MarshBerry targeting retail/wholesale firms with P/C, rounding out the year-to-date activity with Capital, Inc., Member FINRA and SIPC, and benefits or multi-lines of business. 14 percent of the pie. an affiliate of Marsh, Berry & Company, Inc. Hub International and Acrisure both We see the employee benefits space con28601 Chagrin Blvd., Suite 400, Woodmere, completed 12 deals during the year. tinuing to drive activity as large, national Ohio 44122 (440.354.3230). Except where othWhile Marsh & McLennan did not have players recognize the opportunity in the erwise indicated, the information provided is third-quarter deal activity, it rounded out benefits distribution platform. In addition, based on matters as they exist as of the date of the top five with eight transactions. in the wake of healthcare reform, agencies preparation. Past performance is not necessarily with less than $3 million in revenue are indicative of future results. Buyer Demand High finding that becoming part of a larger orga The market is saturated with capanization can provide the necessary tools to Reeves is a senior consultant with Marsh, Berry & ble buyers and we are seeing increasing hopefully be successful going forward. Co. Inc. Website: www.marshberry.com. 22 | INSURANCE JOURNAL-NATIONAL November 17, 2014

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Merger and Acquisition Activity July to September 2014 Announced Date Buyer

Seller

08/01/14 A.P. Michaud Insurance Agency Inc. 08/01/14 Acrisure LLC 08/06/14 Acrisure LLC 09/08/14 Acrisure LLC 09/08/14 Acrisure LLC 09/12/14 Acrisure LLC 09/04/14 Alliant Insurance Services 09/30/14 Ames & Gough Inc. 07/01/14 AmWINS Group 07/18/14 Arthur J. Gallagher & Co. 07/30/14 Arthur J. Gallagher & Co. 08/01/14 Arthur J. Gallagher & Co. 08/06/14 Arthur J. Gallagher & Co. 08/08/14 Arthur J. Gallagher & Co. 08/11/14 Arthur J. Gallagher & Co. 09/02/14 Arthur J. Gallagher & Co. 09/08/14 Arthur J. Gallagher & Co. 09/17/14 Arthur J. Gallagher & Co. 09/22/14 Arthur J. Gallagher & Co. 07/03/14 AssuredPartners Inc. 07/30/14 AssuredPartners Inc. 09/11/14 AssuredPartners Inc. 09/15/14 AssuredPartners Inc. 07/01/14 Bigham Kliewer Chapman & Watts Insurance L.P. 09/08/14 Block Insurance 08/19/14 Bolton & Co. 08/21/14 Bryn Mawr Bank Corp. 09/01/14 CBIZ Inc. 08/06/14 Confie Seguros Insurance Services 08/06/14 Confie Seguros Insurance Services 08/06/14 Confie Seguros Insurance Services 07/21/14 Cross Insurance 08/12/14 Digital Insurance Inc. 09/16/14 Digital Insurance Inc. 09/18/14 Digital Insurance Inc. 09/18/14 Digital Insurance Inc. 09/18/14 Digital Insurance Inc. 07/17/14 Edgewood Partners Insurance Center 08/01/14 Financial Institutions Inc. 08/08/14 Health Insurance Innovations Inc. 09/21/14 HIA Insurance 07/03/14 Higginbotham & Associates Inc. 08/01/14 Hilb Group LLC 07/02/14 Hub International Ltd. 08/04/14 Hub International Ltd. 09/04/14 Hub International Ltd. 07/09/14 IMA Financial Group Inc. 09/22/14 Insure.net LLC 08/29/14 Ion Financial MHC 07/24/14 Leavitt Group Enterprises Inc. 07/02/14 LTC Financial Partners LLC 07/02/14 Mascoma Mutual Financial Services Corp. 07/31/14 National Financial Partners Corp. 08/08/14 National Financial Partners Corp. 08/14/14 National Financial Partners Corp. 09/15/14 National General Holdings Corp. 08/06/14 Norman-Spencer Agency Inc. 08/27/14 One Risk Group LLC 07/16/14 Onex Corp. 08/25/14 Patriot National Insurance Group Inc. 09/22/14 Peoples Bancorp Inc. 09/03/14 Propel Insurance 09/08/14 Protector Holdings LLC 09/10/14 R&R Insurance Services Inc. 07/31/14 Regions Financial Corp. 09/26/14 Risk Strategies Company LLC 09/09/14 Texas Wasatch Insurance Services LP 07/01/14 Univest Corp. of Pennsylvania 08/01/14 World Insurance Associates LLC

Nancy Greenwood Insurance Agency Inc. Wine Sergi & Co. LLC SMA Surety Inc. B&B Coverage LLC Signature Group LLC CLG Insurance Moloney Oâ&#x20AC;&#x2122;Neill Inc. Bixby Insurance Agency Cabrillo Pacific Insurance Services LLC and Tidewater Pacific Adjusters Foundation Strategies Inc. Insurance Point LLC Moore Insurance Services LLC Denman Consulting Services Inc. Trip Mate Inc Cowles & Connell Inc. Dezelan Insurance Agency Inc. Everett James Inc. Hagedorn & Co. Benfield Group LLC Ramsey Insurance Agency Inc. Wright Group Services Chicago location of Cygnet Underwriting Agency Inc. Crawford Advisors LLC Greater Texas Insurance Managers and Agency Inc. Child Care Business of Britton Gallagher Garner Consulting Powers Craft Parker & Beard Inc. Rognstadâ&#x20AC;&#x2122;s Inc. dba Sattler Insurance Agency Alliance Insurance Agency Inc. Bower Insurance Agency Inc. Guess Insurance Services Inc. Merchant Needham & Associates Insurance Linden Group Health Services Inc. Benefits Resource LLC Clark Benefits Inc. Drew Miller Insurance Services Inc. Shargel & Co. Insurance Services Inc. Jenkins Insurance Services Inc. Scott Danahy Naylon Co. Inc. American Service Insurance Agency LLC Employer Benefit Systems Inc. Operations of Willis of Texas Inc. Martin Agency Inc. Free Market Insurance Agencies LLC Ballard Insurance Agency Peterson Milaney Insurance Associates Inc. Corporate Insurance Group Inc. Stark Insurance Agency Drescher Insurance Agency Inc. Millennium Insurance Agency Inc. LTC Global Inc. Centurion Insurance Group Benefit Resources Inc. Altus Specialty Group LLC Poulos Insurance Inc. Tower Personal Lines Northern Star Management Inc. Integrated Employee Benefit Solutions LLC York Risk Services Group Inc. Patriot Underwriters Inc. Chrisman Insurance Agency Inc. Assurety Northwest Inc. SavePro Insurance Solutions Snyder Insurance Agency Inc. Zalowitz Frisch Employee Benefits LLC DeWitt Stern Group Inc. Goosehead Insurance Agency LLC Sterner Insurance Associates Inc. Assets of Creative Insurance Services Inc.

Sources: SNL Financial, Insurance Journal, other publicly available sources and MarshBerry proprietary databases Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. www.insurancejournal.com

November 17, 2014 INSURANCE JOURNAL-NATIONAL | 23

SPECIAL REPORT

Top 50 Personal Lines Leaders

Personal

About the Personal Lines Leaders: The 2014 Personal Lines Leaders in this special feature are taken from Insurance Journalâ&#x20AC;&#x2122;s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2013 personal lines numbers of the privately owned agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journalâ&#x20AC;&#x2122;s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Lines Leaders Top 50 Personal Lines Agencies Ranked by Total 2013 Personal Lines Revenue 2014 Rank Agency Name

2013 Personal Lines P/C Revenue

2013 Total P/C Revenue

2013 Total Other than P/C Revenue

2013 Total P/C Premiums Written

No. of Full-Time Employees

Main Office

Website

1 Confie Seguros 2 HUB International 3 USI Inc. 4 Answer Financial Inc. 5 Westwood Insurance Agency 6 BroadStreet Partners Inc. 7 AssuredPartners LLC 8 TWFG Insurance Services 9 Leavitt Group 10 Crystal & Co. 11 NFP Property & Casualty Services Inc. 12 PayneWest Insurance 13 Celedinas Insurance Group 14 TWG Insurance 15 Professional Insurance Associates Inc. 16 Marshall & Sterling Enterprises Inc. 17 J. Smith Lanier & Co. 18 Cook Maran & Associates 19 Acrisure LLC 20 Starkweather & Shepley Insurance Brokerage Inc. 21 John M. Glover Agency 22 Rogers & Gray Insurance 23 Risk Strategies Co. 24 Lawley Insurance 25 Gowrie Group 26 Higginbotham 27 Baldwin Risk Partners 28 Wortham Insurance & Risk Management 29 INSURICA Insurance Management Network 30 Otterstedt Insurance Agency 31 Lockton Cos. 32 Sihle Insurance Group Inc. 33 Robertson Ryan & Associates Inc. 34 Hays Cos. 35 Ascension Insurance Inc. 36 SouthGroup Insurance 37 Haylor, Freyer & Coon Inc. 38 Ansay & Associates 39 Insurance Office of America 40 Mesirow Insurance Services Inc. 41 Dean & Draper Insurance Agency LP 42 Eagan Insurance Agency LLC 43 Bouchard Insurance 44 The Odell Studner Group 45 Frenkel & Co. 46 Hylant Group Inc. 47 Scirocco Financial Group Inc. 48 Alliant Insurance Services Inc. 49 The Sterling Insurance Group 50 Emery & Webb Inc.

$305,000,000 $234,387,000 $74,960,313 $69,000,000 $37,308,000 $34,400,000 $31,979,196 $31,385,603 $25,418,162 $24,700,000 $20,368,460 $15,004,603 $14,214,362 $12,386,200 $12,000,000 $11,904,849 $8,867,200 $8,744,000 $8,088,686 $8,000,000 $8,000,000 $7,400,000 $7,200,000 $7,174,530 $6,995,555 $6,945,000 $6,915,028 $6,746,000 $6,634,748 $6,412,194 $5,911,000 $5,720,801 $5,529,535 $5,000,000 $4,947,000 $4,795,022 $4,728,828 $4,650,516 $4,440,132 $4,393,056 $4,387,539 $4,298,582 $4,255,425 $4,203,219 $4,175,331 $4,047,450 $4,030,683 $4,027,300 $4,000,000 $3,838,316

$305,000,000 $784,669,000 $394,791,752 $69,000,000 $37,308,000 $127,700,000 $293,737,922 $40,690,500 $116,196,328 $121,400,000 $59,043,212 $67,161,844 $16,953,017 $12,580,400 $37,000,000 $43,884,492 $77,909,199 $26,553,000 $54,610,605 $32,540,000 $17,500,000 $12,400,000 $46,902,000 $30,570,587 $31,181,703 $60,750,000 $11,254,351 $96,142,000 $58,335,010 $16,030,485 $823,073,000 $21,411,478 $31,151,936 $85,200,000 $40,626,000 $14,755,409 $32,076,271 $19,094,882 $96,562,551 $62,335,860 $12,632,551 $11,953,497 $23,524,608 $9,648,943 $47,403,011 $61,859,856 $23,804,003 $373,865,600 $7,800,000 $10,106,070

$0 $266,852,000 $387,416,075 $0 $0 $12,600,000 $60,560,078 $1,627,620 $51,679,367 $23,400,000 $4,782,415 $18,287,844 $608,295 $0 $0 $12,804,606 $32,331,610 $4,522,000 $19,231,388 $4,185,000 $500,000 $2,200,000 $11,562,850 $16,372,445 $1,600,000 $47,266,000 $4,406,766 $21,693,000 $12,579,759 $1,018,177 $302,526,000 $2,507,000 $3,147,336 $69,400,000 $45,707,000 $1,946,916 $4,167,792 $5,305,025 $9,841,192 $34,689,343 $3,718,658 $1,516,156 $7,259,677 $264,333 $20,820,602 $34,842,415 $2,628,608 $177,689,200 $1,700,000 $50,000

$850,000,000 $5,962,435,439 $3,638,307,736 $531,000,000 $199,600,000 $1,300,000,000 $1,912,733,505 $330,000,000 $1,287,404,459 $1,349,800,000 $458,446,046 $543,522,865 $129,979,745 $72,358,000 $275,000,000 $560,597,967 $916,578,811 $200,000,000 $497,776,561 $247,650,000 $130,343,000 $85,000,000 $575,000,000 $234,895,240 $245,600,000 $450,600,000 $103,000,000 $1,000,591,000 $402,743,878 $95,399,466 $7,301,000,000 $204,878,000 $283,525,000 $732,000,000 $296,069,000 $160,321,730 $185,000,000 $190,948,820 $976,292,058 $499,360,455 $105,234,819 $94,112,162 $221,268,741 $115,995,000 $387,602,822 $831,068,985 $147,323,571 $3,122,988,900 $50,000,000 $69,371,922

3,120 6,923 3,324 530 100 1,000 1,985 71 1,434 365 241 599 123 122 50 363 567 152 557 192 160 135 250 300 130 605 128 511 421 96 5,300 184 220 733 436 175 192 180 669 335 110 82 197 46 257 623 107 1,695 40 90

Huntington Beach , Calif. Chicago, Ill. Valhalla, N.Y. Encino, Calif. West Hills, Calif. Columbus, Ohio Lake Mary, Fla. The Woodlands, Texas Cedar City, Utah New York, N.Y. White Plains, N.Y. Missoula, Mont. Palm Beach Gardens, Fla. Irving, Texas San Carlos, Calif. Poughkeepsie, N.Y. Atlanta, Ga. East Hampton, N.Y. Caledonia, Mich. East Providence, R.I. Norwalk, Conn. Kingston, Mass. Boston, Mass. Buffalo, N.Y. Westbrook, Conn. Fort Worth, Texas Tampa, Fla. Houston, Texas Oklahoma City, Okla. Englewood Cliffs, N.J. Kansas City, Mo. Altamonte Springs, Fla. Milwaukee, Wis. Minneapolis, Minn. Walnut Creek, Calif. Ridgeland, Miss. Syracuse, N.Y. Port Washington, Wis. Longwood, Fla. Chicago, Ill. Houston, Texas Metairie, La. Clearwater, Fla. Radnor, Pa. New York, N.Y. Toledo, Ohio Hasbrouck Heights, N.J. Newport Beach, Calif. Sterling Heights, Mich. Fishkill, N.Y.

www.confieseguros.com www.hubinternational.com www.usi.biz www.answerfinancial.com www.westwoodinsurance.com www.broadstreetcorp.com www.assuredptr.com www.twfg.com www.leavitt.com www.crystalco.com www.nfppc.com www.paynewest.com www.celedinas.com www.twginsurance.com www.piainc.com www.marshallsterling.com www.jsmithlanier.com www.cookmaran.com www.acrisure.com www.starshep.com www.johnmglover.com www.rogersgray.com www.risk-strategies.com www.lawleyinsurance.com www.gowrie.com www.higginbotham.net www.bks-partners.com www.worthaminsurance.com www.insurica.com www.otterstedt.com www.lockton.com www.sihle.com www.robertsonryan.com www.hayscompanies.com www.ascensionins.com www.southgroup.net www.haylor.com www.ansay.com www.ioausa.com www.mesirowfinancial.com www.deandraper.com www.eaganins.com www.bouchardinsurance.com www.odellstudner.com www.frenkel.com www.hylant.com www.sciroccogroup.com www.alliant.com www.sterlingagency.com www.emerywebb.com

24 | INSURANCE JOURNAL-NATIONAL November 17, 2014

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CLOSER LOOK

10 Things to Know About Contractors & Builders

Permits for privately-owned housing units in September hit a seasonally adjusted annual rate of 1,018,000, a 1.5 percent increase from the revised August rate and 2.5 percent above the September 2013 rate. — U.S. Census Bureau

Some 991,000 total housing starts are forecast for 2014. That’s up 6.6 percent from 930,000 units last year. — National Association of Home Builders

Single-family housing production is expected to rise 26 percent in 2015 to 802,000 units, and reach 1.1 million units in 2016. — National Association of Home Builders

Construction employment expanded in 236 metro areas, declined in 53 and was stagnant in 50 between September 2013 and September 2014. Houston-Sugar Land-Baytown, Texas, added the largest number of construction jobs in the past year (13,500 jobs), followed by Los Angeles-Long Beach-Glendale, Calif. (10,100 jobs), Dallas-Plano-Irving, Texas (9,900 jobs) and Chicago-Joliet-Naperville, Ill. (9,100 jobs). — Federal employment data, The Associated General Contractors of America

As of September there were an estimated 3.78 million people employed in the specialty contractor industry. — Bureau of Labor Statistics

The average hourly wage for all employees working in the building construction sector in the U.S. was $27.91 as of August. That’s down slightly over the past few months, but it has risen steadily from 2006 when the average was $23.59. — Bureau of Labor Statistics Out of 3,929 worker fatalities in calendar year 2013 in the private industry 796 (20.3 percent) were in construction. — U.S. Bureau of Labor Statistics, Occupational Safety & Health Administration

Construction employers added 16,000 jobs in September, and the sector’s unemployment rate fell to 7 percent, the lowest rate for September in years. Construction employment totaled 6,079,000 in September, the highest total since May 2009, with a 12-month gain of 230,000 jobs or 3.9 percent. — The Associated General Contractors of America

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When One World Trade Center in New York opened in November it officially became the tallest building in the U.S. at 1,776 feet. The tallest building in the world is Burj Khalifa in United Arab Emirates at 2,723 feet. Saudi Arabia’s Kingdom Tower, expected to be completed in 2019, will become the tallest at 3,281 feet. — Council on Tall Buildings and Urban Habitat

Texas (15 percent), Florida (9 percent) and California (8 percent) were the top three states for housing permits issued in 2013. — U.S. Census Bureau

November 17, 2014 INSURANCE JOURNAL-NATIONAL | 25

IDEA EXCHANGE

International Insider Insuring Infrastructure Projects in Latin America By Kathleen Ellis and Bob Opitz

ith its aging infrastructure, growing population and successful bids for mega-sports events like the 2016 Summer Olympics in Brazil, Latin America is offering the construction industry billions of dollars of opportunities in infrastructure projects. Growth Brings Opportunity Savvy contractors from around the world are tapping into schemes as diverse as elevated highways in Mexico City, bridges that connect the Route of the Sun in Barranquilla, Colombia, and hydroelectric power plants in Chile’s Aysen region. These projects aim to meet the everyday needs of a population nearing 600 million and is expected to grow, according to World Bank estimates, by about 3 percent this year and next. High-profile sporting events add to Latin America’s pent-up demand for roads, bridges, airports, ports, dams and other infrastructure projects that were put on hold during the 2009 global fiscal crisis. Brazil, for example, funneled more than $3.5 billion into stadiums for the 2014 FIFA World Cup, and the Summer Olympic Games being held in Rio de Janeiro in 2016 are generating billions of dollars worth of development projects for stadiums, housing and infrastructure, as well as new transportation systems for the host city. According to a report by CG/LA Infrastructure, a consulting firm based in Washington D.C., the value of the top 100 strategic projects now under construction or expected to kickoff in the coming year throughout Latin America will tally $138.5 billion. Brazil

tops the list with $48.1 billion in projects, followed by Chile with $20.6 billion and Colombia with $16.8 billion Consider the Environment In a Latin American country, contractors should be prepared to face different business practices, including different contractual obligations and labor laws, and even the more widespread use of undocumented workers. Corruption and the theft of equipment may be more prevalent than in the United States or Europe, and the nature and scope of surety bonds can differ. In addition, protests by indigenous people and other citizens opposed to the development of dams and other endeavors that will alter the dynamics of a community or rural area can cause project delays or stoppages. Even if all environmental regulatory paperwork is approved by the proper authorities, contractors need to be prepared. Make Local, Knowledgeable Contacts Cristian Peters, editor of Construccion Latinoamerica in Santiago, Chile, notes that civil societies (i.e., any organization or group outside of the government such as environmental or community organizations, unions, etc.) are gaining more power throughout the region, and contractors in Latin America need to work closely with the community to avoid problems. “Explain what you want, what impact the project will have, how [the community] will benefit. Try to hire a local workforce, etc.,” Peters says. “Involve the community and work along with them.” Contractors should work with a sophisti-

26 | INSURANCE JOURNAL-NATIONAL November 17, 2014

cated insurance advisor well-versed in the intricacies of insuring an infrastructure venture — an entity whose scope can be constantly shifting. Unlike securing property insurance for a building that is already standing or liability insurance for a company with a fairly static number of employees, the parameters of a building site and the participants involved may frequently change. Program Options To meet these intricacies, insurers can issue a “wrap up” or controlled insurance program (CIP). The CIP hands the responsibility for insurance procurement to one of the construction project’s primary participants. If the project owner is the controlling entity, the program is referred to as an owner-controlled insurance program. If the general contractor acts as the controlling entity, the program is known as a contractor-controlled insurance program. Either way, the wrap-up program intends to protect, or wrap around, all the participants involved in the project: the developer, general contractor and subcontractors. Construction managers, the principal suppliers of construction materials, or private inspectors can be insured through a wrap-up. The goal of the program is to avoid a string of endless lawsuits — and subsequent legal costs and delays in compensation to injured parties — that can follow disputes over the responsibility for a loss if claims are made with a traditional insurance mechanism. In a more traditional insurance program, each participant in the project procures its own insurance policy www.insurancejournal.com

and then includes the cost in their bid. With a wrap-up program, the cost of each insured participant’s bid typically excludes the cost of their insurance. An insurance broker usually serves as administrator of the wrap-up program and can help minimize the potential for claims by laying out the program details to each insured party. To help mitigate potential lawsuits and be sure contractual obligations are met, a contractor or developer should hire a qualified attorney, well-versed in local laws, customs and nuances, to review all contracts and legal documents. An experienced project manager is crucial to avoid unwieldy and contentious labor issues that can delay or derail a project’s completion or generate costly lawsuits filed by unions or individual workers. The contractor should hire a project manager with in-depth knowledge of the local labor market and laws and working conditions. Issues such as compensation and benefits, the ability to lay off workers and dealing with the use of undocumented workers need to be understood for both contractors and their subcontractors. The project manager should also be familiar with the laws surrounding compensation for workers injured or disabled on the site, an insurance area handled very differently than in the United States and that can vary throughout Latin America.

throughout Latin America, are not tradiwithout proof of contractor default. tional insurance contracts and represent Another important distinction is that, just a fraction of total written premiums in in many instances, performance bonds in the Latin American market. Latin America are “low penalty” obligations, Sureties are divided into two categories, meaning the amount of the bond is less contract and commercial bonds. than 100 percent of the contract price — Contract bonds, such as bid bonds, pergenerally 10 percent to 30 percent of the formance bonds and contract price. In the advance payment Latin America is offering United States, perforbonds, are used in the construction industry mance bonds are genconstruction projerally in the amount of billions of dollars of ects. Contractors the bonded contract opportunities in are required to post (i.e., the amount of the these bonds during infrastructure projects. bond is equal to 100 the bidding process percent of the contract and execution of a construction project to price). The key to a successful insurance ensure the work is done properly and on plan is making sure all the components — time. Given the growing social and infrabuilder’s risk, liability insurance and surety structure needs in Latin America, the need bonds — are thought through and handled for contract bonds should grow. properly, in advance of construction. It is essential that contractors know the ins-and-outs of the local market in surety Ellis is senior vice president and worldwide managbonds. For example, in Latin America, er for Chubb Multinational Solutions. Email: kellis@ these bonds may be conditional, as in the chubb.com. Opitz is worldwide inland marine United States, or on demand, which means product manager for5:13 the Chubb Group of Insurance Anderson Murison ad quarter pg Sept.pdf 1 8/28/13 PM an owner may be able to demand payment Cos. Email: ropitz@chubb.com

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November 17, 2014 INSURANCE JOURNAL-NATIONAL | 27

IDEA EXCHANGE

Minding Your Business Perpetuation Planning – Part Two

ast month’s “Minding Your Business” column explored a few reasons an agency might perpetuate the firm, the four common techniques to transfer ownership, pros and cons, and some options for internal perpetuation. This month’s column will discuss the remaining most popular perpetuation options used by insurance agencies. By Catherine Oak Planning for perpetuation long before the agency needs it is again desirable and recommended. Gifting the Stock Individuals may give up to $14,000 to any number of recipients each year without being subject to federal gift taxes. A spouse may also join in gifting. This allows a husband and wife to give together up to $28,000 annually to any number of recipients. A child and their spouse can receive up to $44,000 in stock per year, free of gift taxes. For 2014, the maximum one-time gift amount is $5.34 million, and this can be used in increments, not all at once. Personal Buy-Out One option that can be used alone or in combination with others is that of the personal buy-out. In a personal buy-out, an employee of the agency purchases stock from the retiring shareholder. The buying employee could fund the purchase through his existing salary or personal funds. Alternatively and realistically, the corporation can fund the buy-out by creating a device called an enabling bonus. The enabling bonus provides employees who otherwise could not afford a large block of stock with the means to do so. However, the enabling bonus offers a far greater advantage if also used as an incentive, such as for writing new business. Likewise, there are disadvantages. In a personal buy-out, the enabling bonus paid by the corporation is tax-deductible. 28 | INSURANCE JOURNAL-NATIONAL November 17, 2014

However, the bonus received by the buyer of stock and proceeds received by the seller of stock are taxable. The tax benefits derived by a corporate tax deduction are wiped out in large part by the taxes imposed on both the buyers and sellers of stock. So that the buyer of stock is not overwhelmed with a tax burden he cannot handle, the enabling bonus must be adjusted upward, thus making the transaction more expensive. As a generalization, for every dollar spent to fund a personal buy-out, about $0.44 is lost to federal taxes alone. Stock Redemption A method commonly used in the perpetuation process involves the corporation buying outstanding shares of common stock and retiring these shares into treasury stock. A disadvantage with this method is that the payment for the stock must come from after-tax dollars. However, interest associated with a stock redemption can be tax-deductible. The sheer simplicity of this method is appealing, although costly from a tax point of view. As a generalization, for every dollar spent to fund a stock redemption about $0.43 is lost to federal taxes alone. If a company has the unfortunate choice between only a personal buy-out, or a stock redemption, neither method produces a clear advantage. GRATification A grantor retained annuity trust (GRAT) is an irrevocable trust to which a donor transfers property, retaining the right to receive annual payments from the trust for a term chosen by the donor. A taxable gift is made as to the present value of the remainder interest (at the end of the fixed term) in the property. If the grantor survives the fixed term, the entire value of the property escapes estate tax. The value of the stock remains frozen until it passes to the designated beneficiaries. The value of the grantor’s annuity interest is subtracted from the value of the trust property in determining the amount of

Any succession planning will take time and must include the advice of tax and estate planning professionals. the taxable gift resulting from the creation of the trust. The transaction is leveraged in the sense that the gift removes a larger amount from the grantor’s gross estate for estate tax purposes than is subject to the gift tax. Basically, a GRAT allows property to be transferred to a member of the grantor’s family at a reduced transfer tax cost. Payments are normally deductible for the firm. There are sizeable gift tax savings when the stock is transferred to the trust. Leveraged ESOP An employee stock option plan (ESOP) is a defined-contribution benefit plan designed to invest primarily in the employer’s stock, providing employees with ownership of the company. An ESOP allows a business owner to: 1. Diversify a portion of the equity in the business without a taxable event and without selling a controlling interest in the business; 2. Lock in valuable key employees with “golden-handcuffs;” and 3. Create a plan for the eventual sale of the www.insurancejournal.com

rest of the stock, again without paying income tax on the gain realized from such sale. A business with an ESOP typically uses internal cash flow or outside financing to make regular tax-deductible contributions of cash to the plan, which then purchases from the company shares of company stock. Oak & Associates does not recommend most independent agencies set up an ESOP, as they can be fairly expensive. There is also a need for an annual valuation of the ESOP shares, which will add to the annual cost. Expenses incurred might be

outweighed by tax savings for firms over a certain size. The ESOP must be adequately funded so that vested employees that quit or retire can be bought out. This repurchase liability creates costs to the company above and beyond the annual loan repayment. Recapitalization Consider corporate recapitalization prior to transfers. Restructuring the capital of the business can permit senior business owners to achieve many of the objectives of business succession planning. Creating the second class of common stock is a nontaxable event. The corporation is recapitalized so that the bulk of its equity lies in non-voting stock (permissible in an S corporation so long as the only difference is in voting rights). The donor can then give away the

equity without relinquishing the vote. For information on recapitalization, contact the business attorney and/or CPA. Any succession planning will take time and must include the advice of tax and estate planning professionals. These techniques must be done within the context of acceptable legal limits and must not be used in a manner to avoid taxes. Most owners would like their business to continue and thrive after they exit the firm. With the proper planning, owners can create a structure that will increase the chances that the business will be passed successfully to the next generation. Oak is the founder of the consulting firm, Oak & Associates, based in Northern California. Phone: 707-936-6565. Email: catoak@gmail.com.

When you need coverage for a client’s specialty risk, Safehold has your solution. Whether it’s builders’ risk or a sports venue, insuring special risks requires extensive experience, knowledge, and a commitment to helping you succeed. At Safehold Special Risk, we’ve brought the best of the specialty insurance world together to better serve our clients, and we represent some of the most respected, “A” rated, admitted carriers in the industry, as well as excess and surplus carriers. We focus on building cost-effective, customized solutions for a wide range of niche markets. From quoting to binding and issuing a policy, our process is accurate, quick, and done with the highest level of personal service.

Visit us at www.safehold.com or call us at 1-800-842-8917 and see how we can help you succeed. Products and services are offered through Safehold Special Risk, Inc., dba Safehold Special Risk & Insurance Services, Inc. in California, a non-bank insurance agency affiliate of Wells Fargo & Company. Coverage is provided by unaffiliated insurance companies, with the exception of crop and flood insurance, which may be underwritten by Safehold Special Risk, Inc.’s affiliate, Rural Community Insurance Company. © 2014 Safehold Special Risk, Inc. All rights reserved. WCS-1215717 (09/14)

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Cyber Liability 5 Tips for Clients to Consider When Buying Cyber Liability

here’s been a myriad of articles outlining the benefits of cyber liability insurance following the well-publicized data breaches of Target, P.F. Chang’s, JPMorgan Chase, eBay, Home Depot and hundreds of other organizations. While most people know that cyber liability insurance pays for claims following a loss, many overlook By David Lewison the benefits to an organization prior to a breach and even in absence of a data breach. This will not only reduce the odds of having a data breach, but should a breach occur, having coverage could meaningfully reduce potential damages and regulatory exposure. Here are five areas to consider when reviewing cyber liability with insureds. Training and Compliance We know from many reports, such as the annual Ponemon Institute Annual Cost of Data Breach Study, that employees are a leading cause of data breaches. One way to improve a cyber liability risk profile is to train employees how to properly handle private information. Some insurers provide a solution that not only helps train employees, but also monitors progress, tracks completion by every employee and generates a report that can be used for many purposes.

Having a high completion rate can be critical following a breach in conversations with the many regulatory agencies that will investigate. There is a direct correlation between an organization’s negligence prior to and during a breach and the magnitude of the possible regulatory fines and penalties. Privacy attorneys say their discussions with regulators are far more pleasant when they can quickly demonstrate a breach stemmed from an honest mistake rather than negligence or indifference. Network Testing Insurers have partnered with well-known security firms to help assess the strength of network security. These firms can provide vulnerability scans, Internet traffic tracking, and penetration tests. This shouldn’t be viewed as a threat to the competence of an IT department, but rather an additional assessment that’s free. Typically the results are not shared with the insurance company. Insurers benefit by knowing that their clients are using high quality vendors to protect their networks and reduce the odds of a loss. Risk Management Portals Most insurers offer risk management content from highly specialized vendors on a web portal specifically for the use of the insurance buyer. These portals typically contain sample privacy policies for web-

sites and employee handbooks, data breach examples, loss calculation tools, FAQs, vendor due diligence assistance, risk management tips, news articles and claim contact information. Hotlines Some insurers will provide access to both legal and IT professionals to ask questions about incidents that may constitute a breach. With multiple federal regulations and 47 out of 50 states having their own privacy regulations, it is often hard to discern if an event is material enough to disclose to regulators or the individuals whose personally identifiable information (PII) and personal health information (PHI) was potentially compromised. Every legitimate breach needs to be disclosed in accordance with the applicable regulation, but some events do not need to be disclosed. The disclosure of an event that doesn’t constitute a breach can lead to regulatory attention as well as reputational harm. Battle Plans Often included with cyber liability policies is a roadmap of what to expect in the event of a breach, including a “breach coach” that coordinates all the players on an insured’s behalf. Among the players: a forensic security vendor, law firm (protecting the process with attorney client privilege), public relations professionals, notification firms, credit monitoring firms, identity restoration firms, insurance company claims contacts, PCI compliance experts, forensic accountants and call centers. Many risk managers buy cyber liability insurance just to get the prepackaged “SWAT” team. With cyber liability insurance policies, insureds get a two-for-one deal — an insurance product that may cover financial losses and expenses associated with a data breach, and a host of services that help lower the risk profile. Lewison is the financial services national practice leader for AmWINS.

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Growing Your Property Casualty Agency Coping With the Digital – Traditional Communication Dilemma

t’s a fatal mistake to disregard the massive impact of digital marketing and selling. Insurance shopping is diving headlong into this direction and every forward-thinking agency must accept it as inevitable. But recognizing the inevitability of digital dominance does not require abandoning the communication By Alan Shulman skill set that still thrives within the independent agency universe. To sustain the system, agencies must accommodate the informational needs and wants of their insureds, prospects, and staff while constantly enhancing revenue and bottom line. This means using both electronic and tangible communication channels to write, retain and service accounts. As important as digital communications are to your future, person-to-person and business-to-business relationships are equally vital to your present. Therefore, you must accept the inefficiencies of employing dual skill sets, while converging them whenever possible. Here are several approaches to consider. Personal lines Encourage auto and home policyholders to actively accept and participate in your digital communications. These interactions may include social media Motivating and such items as bill policy delivery, insureds and payments, renewal questionnaires, prospects to plus agency newsletters and interact with blogs. But don’t demand you digitally that reluctant insureds digitally. Be patient. is a strategic interact In time they’ll be willing to decision. do so, as their phone carrier, credit card companies, banks, physicians, and other service-providers will simultaneously encourage them to make the switch as well. And once they do it for one, they’ll likely do it for all. www.insurancejournal.com

Commercial Lines Agencies can and do sell business insurance online, yet most of it is sold old school. That’s because many small-to-medium sized operations want to insure with agents who will actually talk to them and willingly visit their premises, instead of sufficing with a digital drive-by, property tax data, or an outside inspector. Face-to-face interaction facilitates on-the-spot upselling, cross-selling, plus new and renewal sales. Nevertheless, much of the routine back and forth between business buyer and seller happens digitally, including emails and smaller compensation audits. It’s clear that commercial lines will be sold and serviced more and more online, following the digital pathways first established in personal lines.

common creative elements across multiple media. And when your data allows it, incorporate custom content into each solicitation, based on each insured’s known buying history and habits.

External Marketing Uniformity in marketing keeps your message consistent across multiple channels while containing your creative costs. So, employ the same integral elements when marketing to selected prospects, digitally and traditionally. Use identical images, similar headlines, and common copy in your email, direct mail and ad-based solicitations when they are directed to the same targets. Simultaneously add the same image and message to your social media posts. Direct all interested shoppers, regardless of originating media, to a web-landing page (with a prospect-identifying contact form) that displays these very same elements.

Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. Phone: 800-724-1435. Email: alan@agencyideas.com. Website: www.agencyideas.com.

Be Strategic Motivating insureds and prospects to interact with you digitally is a strategic decision, and shouldn’t be one that’s left to the whims of each employee. Never let CSRs and producers “force” clients and potentials out of their comfort zone. Help staffers to accept that it’s still necessary to communicate both online and off, whether they like it or not. Why? Because the promised paperless world is getting a lot closer, but it’s not here yet.

Internal Marketing Match your chosen contact method with each insureds’ stated communication preference. Go digital (email, texts and social media) only when your policyholders allow you to interact with them this way. For those who withhold permission, use postal mail to deliver custom solicitations. As above, share your November 17, 2014 INSURANCE JOURNAL-NATIONAL | 31

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MyNewMarkets Misc. Professional Liability Market Detail: Nautilus Insurance Co. & Great Divide Ins. Co.’s (www.nautilusinsgroup.com) miscellaneous professional liability product is available for a variety of professional service firms. Coverage may be written as a standalone policy or add separate coverage parts such as general liability or property to create a package. Top classes for miscellaneous professional liability include: management consultants, franchising services, property managers, property preservation services and customer software development. Available limits: As needed Carrier: Nautilus States: All states Contact: Shawnae Bentley at 480-367-5422 or email: sbentley@ nautilus-ins.com

Products Liability (General) Market Detail: The Mechanic Group (www.mechanicgroup.com) offers insurance programs, brokerage and risk management for the security officer, electronic security-alarm, investigation and background screening industries. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Marc Katz at 800-214-0207 or email: mkatz@ mechanicgroup.com

States: Ariz., Calif., Colo., Md., Neb., Nev., N.M., Ore., Pa., Tenn., Texas, Utah, Va., and Wash. Contact: Dan Mulligan at 800-922-7283, ext. 2019 or email: daniel@ agostinisurplus.com

National Pest and Lawn Insurance Program Market Detail: LIPCA Insurance (www.lipca.com) offers coverage for: pest and termite control; wood destroying insect inspections (WDIs) or wood destroying organism inspections (WDOs); fumigation; lawn care and landscaping; right-of-way; and aquatic weed control. Available limits: Minimum $100,000, maximum $10 million Carrier: Berkley Program Specialists States: All states except Alaska Contact: Customer service at 800-893-9887

Financial Institutions Market Detail: Innovative Risk Solutions (www.irs-incorporated.

Jewelers Block Market Detail: Jewelers unBLOCKed (www.jewelers-unblocked. com/) provides the underwriting and issuance of the exclusive jewelers block policy offered through the Chubb Group of Insurance Cos. The program offers coverage for jewelry retailers, designers, wholesalers and manufacturers. The Jewelers unBLOCKed Collector Edition portfolio of services offers tailored insurance programs to meet the heightened exposures of private clients. Available limits: As needed Carrier: Chubb States: All states Contact: Laurette Merusi at 201-794-7705 or email: lmerusi@ jewelers-unblocked.com

Technology E&O with Office Package Market Detail: Agostini Wholesale Insurance (www. agostinisurplus.com) offers technology packages with errors and omissions and office packages starting at $995. Policy admitted in most states. Program features include: optional intellectual property; one-stop shopping for information technology consultants, web designers, software developers and more. Quote turnaround within 48 hours or quote online. Workers’ compensation can also be quoted with this risk. Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted available 32 | INSURANCE JOURNAL-NATIONAL November 17, 2014

com) offers force placed, real estate owned (REO) and flood coverage for residential and commercial risks. Available limits: Maximum $100 million Carrier: Lloyd’s of London States: All states except Alaska, Hawaii and Mich. Contact: John Watt at 954-931-4795 or email: jwatt@ irs-incorporated.com

Limousine Services Market Detail: Prime Property and Casualty Insurance Inc. (PPCI) (www.primeis.com/ppci) offers coverage for automobiles used for business purposes, including taxi cabs and medical transport vehicles, with customizable options for the insured’s specific needs. Classes include: taxi cabs, limousine services, black car services, airport bus services, and long-haul trucking. Available coverages include: auto liability, auto physical damage, and optional nonowned hired auto coverage, with excess coverage also available. PPCI provides customizable policies for specialty risks. Available limits: As needed Carrier: Unable to disclose, admitted States: Ill. and Nev. Contact: Customer service at 800-257-5590 www.insurancejournal.com

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Closing Quote Care Act (ACA) on Workers’ Compensation” by attorneys Elizabeth Luzuriaga and Brian McElreath for the National Shipbuilding Research Program); and • Claims professionals acknowledge that the first 90 days of a claim define the course for the claim, but obstacles to timely initiation of a proper course of treatment will slow workers’ ability to recover and return to work. So what can be done to help? The use of either nurse practitioners (NPs) or physician’s assistants (PAs) will provide needed depth to providers who may not have access to sufficient numbers of physicians to meet the treatment needs of their patient population.

Workers’ Compensation and the Affordable Care Act

By Mark Noonan

he Affordable Care Act (ACA) has been the law of the land for less than a year and the buzz is far from beginning to quiet. The overall impact of the ACA on those citizens who did not have healthcare seems to be obvious: they will now have healthcare available to them and it is suspected (but not yet verified) that they will use their access to healthcare to improve their health and maintain wellness. How the ACA could impact workers’ compensation is not yet known, but the potential is real. Provider shortages in some areas are most often identified as an area of concern. Projected solutions are being considered, but the differences between general healthcare and the state-mandated benefits provided under workers’ compensation will cause challenges. Provider Shortages The reality in 2014 is: • 55 million Americans live in areas with an inadequate supply of primary care doctors; • With 30 million people moving from uninsured to insured, waiting times will increase by roughly 50 percent (according to a recent report “The Potential Ramifications of the Patient Protection and Affordable

34 | INSURANCE JOURNAL-NATIONAL November 17, 2014

Workers’ Comp Providers Workers’ compensation is a state-mandated benefit with a different insuring philosophy. Unlike non-occupational health insurance which is constantly changing what it defines as appropriate methods of care to meet the innovations created by healthcare institutions and its professionals, workers’ compensation is reactive and slow in moving toward new methods of dealing with traditional problems. Workers’ comp regulations do not indicate that the treating provider can be a nurse practitioner or physician’s assistant. Some in the industry believe this to be a worrisome trend, not because a PA and/or NP isn’t an acceptable standard of care, but because employers and insurance carriers don’t perceive that this treatment should rate the same reimbursement level as for a physician. Healthcare providers often bill follow-up appointments with specialists and physician’s assistants at the Nurse practitioners same rate as a primary and physician’s care specialist, accordassistants must ing to the report “The Potential Ramifications continue to be part of of the Patient Protection the standard and Affordable Care healthcare delivery Act (ACA) on Workers’ model. Compensation.” The shortage of doctors and nurses means that PAs and NPs must continue to become part of the standard healthcare delivery model. Having knowledgeable and professional caregivers for employees injured at work is the focus of enlightened employers. To discourage the use of NPs and PAs, without an adequate source of new physicians for the system, will result in a failure to provide assistance to those in need at a critical point in their lives. Noonan is managing principal and senior knowledge manager of workers’ compensation at Integro Insurance Brokers.

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