Insurance Journal West 2015-04-20

WEST Self-Driving Cars and Accidents Calif. Regulator on Utility’s Safety WCIRB’s Lower Mid-Year Filing

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WEST

Inside This Issue

On The Cover

Special Report:

Young Agents Survey

April 20, 2015 • Vol. 93 No. 8 • West

W8

W12

36

42

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

8

W2 California Agent Nabbed on

Bogus Bond, $100K Premium

Theft Charges

W8 Legal Matters: Can I be Held

Negligent if My Self-Driving Car

Causes an Accident?

14 Spotlight: 10 Things to Know

About Cyber Risks in Public

Entities

W2 WCIRB Submits Lower Mid-Year

Filing

34 Growing Your Property Casualty

Agency: Alan Shulman

16 M&A Review: Activity Continues

to Climb

W6 Study Reveals Extent, Nature

of Health Data Breaches

36 Revamp Your Current Millenial

Retention Practices

20 Closer Look: Why the Simplex

in Cyber Liability Needs to Change

W12 Arizona Governor Signs Bill to

Modify Asbestos Injury Claims

38 Minding Your Business: Catherine

Oak & Bill Schoeffler

24 Special Report: Young Agents

Survey

W12 California Regulator: Utility Too

Big to be Safe

42 Closing Quote: 5 Myths About

Cyber Security & Data Breach

10 Most Common and Costliest Small Business Claims

28 Recruiting the Next Generation

of Agency Employees

DEPARTMENTS 10 Declarations 10 Figures W4 People 11 Business Moves 32 MyNewMarkets

4 | INSURANCE JOURNAL-WEST April 20, 2015

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Opening Note Future Competition

Y

oung agents, while generally happy with their career choice, temper their optimism with doses of reality about what lies ahead in terms of competition. Who can blame them?

This issue of Insurance Journal features exclusive results from the 2015 Young Agents Survey, where more than 400 young agents nationwide chimed in to tell us their opinion on the insurance industry, their agency and how they feel about being an insurance agent. (see page 24 for the full report).

These young agents also shared their views on the future and most importantly their biggest competitors in the years to come.

Some young agents worry about the future with increasingly competitive online and direct sales channels.

“Online writing is the biggest competition and will continue to grow,” one young agent wrote. That is until the client has a claim. Then they find out they are uninsured for something. “Clients need an agent to help them insure what they are looking to insure.”

Some, but not many, reported having concerns over non-traditional firms like Google entering the insurance world.

“Google is a very real threat,” one young agent ‘Looking to the future, it’s wrote. “I focus on comworrisome to think of what mercial insurance, but the will become of independent basic lines of coverage like BOPs are next. I think agents.’ we’re many years away from the larger more technical risks, as it requires a very technical approach, but nothing is safe these days with the way technology is advancing.”

But one young agent noted that competition is good for the market and it’s good for the clients. “The entry of Google and the other non-traditional businesses in the P/C insurance business is something that could be good for the clients — the prices are going to be very competitive.”

This same agent had more concerns over the future of agents and brokers existing at all in the industry. “My biggest concern is that the agents/brokers in the future are going to disappear with non-traditional businesses getting into insurance.”

Another said: “Looking to the future, it’s worrisome to think of what will become of independent agents. With technology becoming so advanced, I am worried that future generations will not even consider having an agent.”

The most talked about area of concern for young agents responding to the 2015 Young Agents Survey was by far just good-old competition from other agents and brokers.

“Our biggest competition is other brokerage houses (Marsh, Aon, Willis, etc.),” one young agent said.

Bringing in the right young producers Andrea Wells will be the key to growth and staying releEditor-in-Chief vant in the years to come.

6 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Publisher Mark Wells | mwells@wellsmedia.com EDITORIAL Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Catherine Oak, Bill Schoeffler, Alan Shulman Contributing Writers David Coons, Marie French, Dena Magyar, Meredith Reeves, Tom Wetzel, Joseph Wheatley SALES Chief Marketing Officer Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com Sales Manager Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@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 Chief Technology Officer/Chief Innovation Officer Joshua Carlson | jcarlson@insurancejournal.com V.P. of Design Guy Boccia | gboccia@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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insurancejournal.com/subscribe Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation.

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

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News & Markets 10 Most Common and Costliest Small Business Claims

F

our out of 10 small businesses are likely to experience a property or general liability claim in the next 10 years, according to an analysis of The Hartford’s small business claims. Topping the list for the most common claim is burglary and theft. However, the most costly claim for a small business is reputational harm, which includes libel, slander and violation of privacy.

“An unexpected event happens more often than many small business owners realize,” said Stephanie Bush, senior vice president of Small Commercial insurance at The Hartford.

The company identified the most common claims as well the most costly on average after analyzing five years of data from more than one million property and liability policies.

Burglary and theft affected 20 percent of small business owners in the past five years.

However, burglary and theft ranked lowest out of the top 10 most costly claims, averaging $8,000, compared to reputational harm claims, which cost $50,000 on average.

A claim payout on a reputational harm claim, covered through a general liability policy, can run much higher if a lawsuit is involved, according to the insurer. If a lawsuit is involved, a general liability claim can average more than $75,000 per case to defend and settle. Based on The Hartford’s claims history, 35 percent of all general liability claims result in a lawsuit.

Fire claims are ranked in the top five of both the most common and costly claims.

The average cost for a fire claim is $35,000, impacting 10 percent of small business owners in the past five years.

The top 10 costliest small business claims are: reputational harm, ($50,000); vehicle accidents ($45,000); fire ($35,000); product liability ($35,000); customer injury or damage ($30,000); wind and hail damage ($26,000); customer slip and fall ($20,000); water and freezing damage ($17,000); struck by object ($10,000) and burglary and theft ($8,000).

8 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Top 10 Property and Liability Claims Most Common

Most Costly

Burglary & Theft (20%)

Reputational Harm ($50,000)

Water and Freezing Damage (15%)

Vehicle Accident ($45,000)

Wind and Hail Damage (15%)

Fire ($35,000)

Fire (10%)

Product Liability ($35,000)

Customer Slip and Fall (10%)

Customer Injury or Damage ($30,000)

Customer Injury and Damage (Less than 5%)

Wind and Hail Damage ($26,000)

Product Liability (Less than 5 percent)

Customer Slip and Fall ($20,000)

Struck by Object (Less than 5 percent)

Water and Freezing Damage ($17,000)

Reputational Harm (Less than 5 percent)

Struck by Object ($10,000)

Vehicle Accident (Less than 5 percent)

Burglary and Theft ($8,000)

www.insurancejournal.com

69%

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cyber threats will impact their growth*

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© 2015, American Institute For Chartered Property Casualty Underwriters * PwC’s 2014 U.S. State of Cybercrime Study

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FIGURES

DECLARATIONS

$16.9 Million

$50,000

The amount in revenue that New York City generated in 2014 from issuing $50 speed camera tickets. The New York Daily News reported that 445,065 speed-camera tickets were issued in the city last year. New York City had 49 active speed cameras in 2014 and anticipates having 140 active by the end of this year.

How much retired Army Sergeant Clark Bartholomew got from a settlement with the U.S. Army and Air Force Exchange from a lawsuit that alleged he was injured by needles in a Burger King sandwich purchased on a Hawaii base.

Big Step Forward

“This will be a big step forward in the city’s overall resiliency efforts as we prepare to deal with the future of extreme weather.”

— New York City Mayor Bill de Blasio on the Federal Emergency Management Agency’s decision to authorize $3 billion in funding to repair and protect city housing developments damaged by Superstorm Sandy. The mayor said in his March 31 announcement that it is the largest single block grant in FEMA’s history. The grant will fund repairs and upgrades to 200 buildings in 33 New York City Housing Authority developments.

Laws of Nature

20

$33.8 Million The amount awarded by a Tarrant County, Texas, jury to a man who was severely injured after falling through a skylight while working on a roof. Attorneys representing 31-year-old Steven Landers had sought a $15 million judgment against skylight manufacturer Wasco Products, but jurors awarded $33.8 million. Landers’ broken right leg eventually was amputated from the 2010 fall. His back, some ribs and his left arm were broken as well.

The number of trucks stolen by a theft ring that struck Missouri towns along Interstate 44 in the past three to four months. Police say there may be more. The vehicles were primarily taken from used car lots, repair shops and body shops.

— Troy Costales, an administrator at the state Department of Transportation, Oregon lawmakers at a public hearing that a plan to increase the speed limit to 75 mph on interstate highways might lead to more crashes and fatalities.

Prescription Drug Deaths

“More Oklahomans die from prescription drug overdoses each year than they do from car wrecks in our state.”

$1 Billion The amount in pre-event bonds Florida’s Citizens Property Insurance Corp. has issued to have as readily available cash flow for the 2015 hurricane season and beyond.

The bonds bolster Citizens’ immediate claims-paying resources, even in the event of a 1-in-100 year scenario or subsequent relatively smaller events, similar to the 2004 and 2005 hurricane seasons.

10 | INSURANCE JOURNAL-NATIONAL April 20, 2015

“While we can change the laws of man, we can’t change the laws of nature. When speed goes up, for every 10 miles an hour it doubles the energy released when something happens. So a small mistake becomes a big mistake at the higher speeds.”

— Oklahoma Gov. Mary Fallin, who recently signed a new law requiring doctors in her state to check a prescription drug database before prescribing certain addictive drugs.

Oklahoma’s drug overdose rate increased by nearly 400 percent from 1999 to 2013, and the state now has the sixth-highest unintentional drug overdose death rate in the United States.

Teen Drivers

“We would support any changes that would show a reduction in youth fatalities.”

— Iowa Traffic Safety Office Bureau Chief

Patrick Hoye comments on a study by the Insurance Institute for Highway Safety showing Iowa could halve its rate of fatal teen car accidents if, among other changes, the state’s licensing age was raised from 16 to 17. Hoye says the state has been working to reduce traffic deaths but doubts the age would be raised due to Iowa’s rural demographics.

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News & Markets California Agent Nabbed on Bogus Bond, $100K Premium Theft Charges

L

suppliers and subcontractors icensed insurance agent Lars are paid for work performed.

Hedegaard, 63, of Danville, Calif.

ICW evidently became was arrested on two felony counts of aware of the fraudulent grand theft in April. bonds when an insured Hedegaard was doing business asked for a return of premias Westport & Associates Insurance um as they completed a conServices Inc. when he allegedly struction job under contract. issued 14 fraudulent bonds to con ICW reportedly notified tractors and collected $111,365 in Lars Hedegaard California Department of insurance premiums, which he Insurance investigators when they discovfailed to send to the insurance company he ered surety bonds were issued for multiple transacted bonds for and instead used for construction contracts without its approval personal expenses. and the insureds were paying premiums Between 2009 and 2010, while working in that ICW never received. ICW backed all of Concord, Hedegaard issued multiple unauthe fraudulently issued bonds and the conthorized surety payment and performance tractors suffered no losses. bonds to two contractors, according to CDI has begun the process of suspendinvestigators. ing Hedegaard’s insurance license and is He allegedly continued to collect preasking anyone that may have done business miums on the bonds even after Insurance with Hedegaard or Westport & Associates Company of the West terminated his Insurance Services Inc. to contact the conappointment to transact its bonds in August sumer hotline at (800) 927-4357. of 2010.

Hedegaard was booked into Contra Costa Payment and performance bonds are County Jail. The Contra Costa County surety bonds issued by insurance compaDistrict Attorney’s office is prosecuting the nies to protect owners of construction projcase. ects against contractor failure and to ensure

Nearly 500K License Applications in California Under AB60

C

alifornia received nearly a half-million applications for driver’s licenses from immigrants in the country illegally in the three months since a new law took effect.

Department of Motor Vehicles Director Jean Shiomoto said in a statement that the figure shows far higher demand than the DMV expected. She said the agency thought it would take twice as long to get so many W2 | INSURANCE JOURNAL-WEST April 20, 2015

applications.

The DMV said in the figures released in April that of the about 494,000 applications already received, about 203,000 licenses have been granted and about 245,000 more are expected to be granted.

AB 60, signed into law by Gov. Jerry Brown, allows people in the country illegally to obtain driver’s licenses with identification from their home countries.

Copyright 2015 Associated Press.

Colorado Prosecutors Charge Uber Driver Accused of Attempted Break-In

P

rosecutors have charged a Colorado Uber driver accused of trying to break into the home of a woman he drove to the airport.

The Denver District Attorney’s Office announced in April that 51-year-old Gerald Montgomery was charged with attempted second-degree burglary, possession of burglary tools and attempted first-degree criminal trespass.

Police say Montgomery dropped off the passenger at the airport March 26, returned to her home and then tried to break in. An arrest affidavit says he ran when the woman’s roommate spotted him.

The roommates say they realized the attempted burglar was the Uber driver after the woman sent her roommate a picture of him.

Copyright 2015 Associated Press.

WCIRB Submits Lower Mid-Year Filing

T

he California Workers’ Compensation Insurance Rating Bureau in April submitted a July 1 pure premium rate filing to the California Department of Insurance proposing advisory rates that average $2.46 per $100 of payroll.

The average proposed advisory pure premium rate is 5.0 percent lower than the corresponding industry average filed pure premium rate of $2.59 as of Jan. 1 and 10.2 perpcent less than the approved average January 1 advisory pure premium rate of $2.74.

The committee cited lower medical loss development, as well as indemnity and medical severities that continue to be below expectations, among its reasons for the reduction. www.insurancejournal.com

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People Gay Chung

Auturo Perez-Reyes

Stan Loar

Paul Carpenter

Shalila Cheta

Hub International Insurance Services Inc. has promoted Gay Catherine Chung to senior vice president and client director and Arturo Perez-Reyes to senior vice president and cyber-group leader of the executive liability practices division in the company’s commercial risk division in San Francisco, Calif.

In addition to her client director role, Chung will continue to execute certain account management oversight responsibilities and serve in a risk management consultative role.

Prior to Hub, Chung was a principal at Makani o Ka’u Consulting, where she was director of risk management.

Before that Chung was a placement advisor and life science industry practice leader for Marsh USA in its San Francisco office and the manager of the Aon Global Group of Jauch and Huebener in Zurich, Switzerland.

Prior to Hub, Perez-Reyes was affiliated with the Barney and Barney LLC in Oakland, Calif., where he was a client executive and broker. Perez-Reyes began his insurance consulting career at Marsh.

Chicago, Ill.-based Hub is a global insurance brokerage that provides an array of property/casualty, life and health, employee benefits, investment and risk management products and services.

Stan Loar, chairman of Woodruff-Sawyer & Co. in San Francisco, Calif., was sworn in as chair of the World Federation of Insurance Intermediaries.

WFII promotes the role of insurance intermediaries in today’s economy and represents insurance agents and brokers from more than 100 national associations.

Woodruff-Sawyer is an active partner of Assurex Global and International Benefits Network. Woodruff-Sawyer has offices throughout California, and in Oregon, Colorado, Hawaii and Washington.

Leavitt Group has hired Paul Carpenter in its Portland, Ore., office.

Carpenter specializes in commercial insurance. He has more than 15 years of experience managing teams and agencies in the life, individual and group health and annuity markets.

Prior to Leavitt Carpenter managed sales and marketing teams in the digital online and social media space.

The Leavitt Group provides clients with specialty products, a wide-range of insurance programs, risk management strategies and employee benefits solutions.

LP Insurance Services Inc. has named Shalila Cheta as a workers’ compensation consultant in it risk management services division in California.

W4 | INSURANCE JOURNAL-WEST April 20, 2015

She is responsible for providing claims management, oversight and program implementation for commercial clientele.

Cheta has more than 20 years of experience in California workers’ comp claims administration.

Reno, Nev.-based LP Insurance specializes in property/ casualty, surety, workers’ comp, employee benefits, medical/professional practice and risk management services.

SAIF Corp. named Kerry Barnett as the workers’ compensation insurer’s new president and CEO. Barnett has worked for Cambia Health Solutions since 2004, most recently as executive vice president and chief legal officer. He previously held executive positions with ODS Health Plans and HealthFirst Medical Group, and he was director of the Oregon Department of Consumer Business Services, which serves as the state’s insurance commissioner.

Barnett will begin work on May 22, succeeding Interim President and CEO John Gilkey, who is retiring.

SAIF is Oregon’s not-for-profit, state-chartered workers’ comp insurance company.

Edgewood Partners Insurance Center has named Christopher R. Mitchell senior vice president of sales in the firm’s Northern California Bay Area property/casualty insurance division.

Mitchell will be based in Concord and report to Curt Perata, managing principal and director of property/casualty in the Bay Area.

Mitchell has more than 25 years of insurance industry experience. He comes from Wood, Guttmann and Bogart Insurance Brokers, where he was managing director of the risk management division.

San Francisco-based EPIC offers services including commercial property/casualty, employee benefits, specialty program insurance and private client services.

Barney & Barney Insurance Services LLC has named Carla Frolich a client executive.

Frolich will work in the firm’s San Francisco and Walnut Creek, Calif., offices.

Frolich has 20 years of experience. Before Barney & Barney, she was an alliance manager for ADP. Before that she was principal at Wishbox Events, an event management company she owned and operated.

In 2014, Barney & Barney joined Marsh & McLennan Agency LLC, a subsidiary of Marsh Inc. Barney & Barney Insurance Services maintains offices in San Diego, San Francisco, Walnut Creek and Orange County. www.insurancejournal.com

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News & Markets Study Reveals Extent, Nature of Health Data Breaches

B

etween 2010 and 2013, there were more than 900 data breaches of protected health information affecting at least 500 individuals, with most of them resulting from

1 W6ABRAM16738.indd | INSURANCE JOURNAL-WEST April 20, 2015

overt criminal activity, according to a study in the April 14 issue of the Journal of the American Medical Association.

Six of the breaches involved more than

4/7/15 11:48 AM

1 million records each and the number of reported breaches increased over time (from 214 in 2010 to 265 in 2013). More than 29 million records were affected by the breaches included in the JAMA study.

Vincent Liu, M.D., M.S., of the Kaiser Permanente Division of Research, Oakland, Calif., and colleagues evaluated an online database maintained by the U.S. Department of Health and Human Services. The database described data breaches of unencrypted protected health information reported by health plans and clinicians covered under the Health Insurance Portability and Accountability Act. The researchers included breaches affecting 500 individuals or more reported as occurring from 2010 through 2013, which they said accounted for 82 percent of all reports.

Compared with those of other industries, health industry breaches are estimated to be the most costly in health care, but few studies before this one have detailed their characteristics and scope, the authors said.

Breaches were reported in every state, the District of Columbia, and Puerto Rico. Five states (California, Texas, Florida, New York, and Illinois) accounted for 34 percent of all breaches.

Most breaches occurred via electronic media (67 percent), frequently involving laptop computers or portable electronic devices (33 percent). Most breaches also occurred via theft (58 percent).

The combined frequency of breaches resulting from hacking and unauthorized access or disclosure increased during the study period (12 percent in 2010 to 27 percent in 2013).

Breaches involved external vendors in 29 percent of reports.

The authors note that since their study was limited to breaches that were already recognized, reported and affecting at least 500 individuals, their study “likely underestimated the true number of health care data breaches” occurring each year.

Source: JAMA www.insurancejournal.com

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Legal Matters Can I be Held Negligent if My Self-Driving Car Causes an Accident?

O

n the topic of automation, Frank Lloyd Wright said: “If it keeps up, man will atrophy all his limbs but the push-button finger.”

It is safe to assume that Mr. Wright had no idea how true his words would ring or how far technology would come.

In late May 2014, Google announced a new prototype for its self-driving car fleet that would have

By Amy Levine no steering wheel, gas or brake pedals, thus “designed to operate safely and autonomously without requiring human intervention.”

One-hundred percent of the driving would be undertaken by the car. The range finder mounted atop the car uses a laser to generate a 3D map of its environment, and sensors are placed on the car to remove blind spots and detect objects from a distance the equivalent of the length of two football fields.

Unlike an airplane operating on autopilot mode, which still requires the pilots to account for unanticipated objects in the sky and regain control of the aircraft when necessary, the “operator” of this model of self-driving car would not even have the opportunity to intervene in the driving of the vehicle.

Automated cars will solve several problems. For example, they will provide a mode of personal transportation for the elderly and those with physical disabilities. However, as so often happens with new technologies, they will likely create many new problems.

W8 | INSURANCE JOURNAL-WEST April 20, 2015

From a legal perspective, the most uncertain aspect of self-driving cars involves potential liability if a self-driving car is involved in an accident.

In a normal vehicular negligence situation, human error results in property damage, personal injury, or both, and the person at fault is responsible for paying for the damage. When informal resolution is not possible between the parties, litigation typically ensues.

For an injured party to recover civil damages from the party at fault, the injured party must prove: (1) the at-fault party had a duty to use reasonable care to prevent injury to others; (2) the at-fault party breached that duty; (3) such a breach was the actual and proximate cause of the other party’s injuries; and (4) the other party suffered damages.

Negligent behavior is usually easy to identify in a car accident scenario: someone ran a red light, drove in excess of the speed limit or recklessly weaved in and out of traffic. In each situation, the negligence analysis is straightforward. The driver had a duty to drive in a safe manner that did not put

others at risk for injury. The individual drove in a dangerous manner, thereby breaching his duty. But for this dangerous driving behavior, the other party would not have been injured and it was foreseeable that driving in such a manner would likely cause harm to someone in the other driver’s position, like another driver on the road. If the other party was in fact damaged, the “at-fault” driver would be liable for negligence.

In contrast, the scenario involving a

self-driving car is anything but cut and dry.

Assume that the self-driving car involved in a car accident is the new Google prototype with no steering wheel or pedals, and that the automated car caused the accident. A person sits in driver’s seat but has no ability to operate the car, even if the individual desperately wants to regain control to avoid an accident.

Does the same duty from the normal accident scenario apply to a driver of an automated car?

It seems logical to say that a person sitting in the driver’s seat of a car has a duty to use reasonable care to prevent harm to others, but how can that duty be imposed on someone who cannot take any action whatsoever? Even if the driver felt that more caution was necessary, such as driving at a slower speed or moving over to avoid another reckless driver, there is nothing the person can do to override the autonomous nature of the car.

In that instance a court would be unlikely to impose a duty on a person to act a certain way when he or she is incapable of causing any change based on behavior. It would be akin to saying that Driver 1 who recognizes the careless driving of Driver 2 would be negligent for Driver 2’s behavior because Driver 1 acknowledged the dangerous behavior and did nothing to stop it. Driver 1 had no control over Driver 2’s car, and a court would never hold that driver accountable for Driver 2’s negligence.

One potential way to impart a common law duty on the owner of a self-driving car would be through a legal concept called res ipsa loquitur. When the res ipsa loquitur doctrine is employed, the injured party does not have to prove liability because the harm could only have occurred if the continued on page W10 www.insurancejournal.com

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Legal Matters continued from page W8 allegedly liable party was at fault. In other designed to top out at a speed of 25 mph from a negligent or wrongful act or omiswords, the law simply assumes that the and are built with the purpose of decreassion by any person using or operating the only explanation for the incident is that ing the rate of car accidents. Any harm that car with the owner’s express or implied negligence occurred. results for a self-driving car’s accident will permission.

However, a court is unlikely to apply res likely be minimal. As such, there is not In other states, however, such as ipsa in the autonomous car context. If, for likely to be anything inherently dangerous Alabama, the owner of a vehicle is not liable example, the accident is caused by a malabout this activity, and common law strict for the negligence of a permissive user of function in the car, then a products liability liability would not apply. that vehicle. issue is presented, not negligence.

Any law passed relating to self-driving ‘Swift action establishing the extent cars would be of a similar nature to the Because there would be uncertainty regarding why a self-driving car caused of liability that will be imposed on permissive use statutes — the owner an accident, imposing the res ipsa preof a vehicle, simply from his status owners of self-driving cars involved as “owner,” would be liable for harm sumption would be problematic. in an accident will provide clarity in caused to a third party, even if he is Another possible way of imposing common law liability upon the owner an industry that is constantly evolvnot driving the car. The statute would of an autonomous vehicle is through essentially say, “The owner of any autoning and filled with uncertainties.’ strict liability. An individual can be omous vehicle that does not allow for held strictly liable for an injury caused by human intervention is strictly liable for any Yet another option for imparting negan inherently dangerous activity, even if injury or damage caused by the vehicle, up ligence on the owner of a self-driving car that person took every reasonable precauto ‘X’ amount.” would be through the passage of legislation tion to prevent injury to another. Examples If statutory or common law provides creating liability. of such behavior include explosive blasting; for liability of the owner of a self-driving Several states have “permissive use” stattransportation, storage or use of radioactive car, the next question is whether insurers utes that impose liability on the owner of a or hazardous materials; and the keeping of will provide coverage for such accidents. car for the acts committed by a third party wild animals. However, it is unlikely that a Will insurers start with a broad exemppermissively using that car. court would consider use of a self-driving tion on autonomous vehicles as part of an The California Vehicle Code, for examcar to be an inherently dangerous activity, individual’s automobile insurance coverage? ple, holds every owner of a vehicle liable, especially considering that the cars are Or will they only provide coverage to the up to a capped amount, for injury caused self-driving cars that allow a person to override and regain control of the car? Even though the surplus lines market will likely cover self-driving cars initially — until a loss history is established — asking these questions now will provide insurance companies with the ability to adapt quickly to the evolving technology.

It is no secret that the law moves slower than innovation. With self-driving cars predicted to be on the market by 2020, now is the perfect time for the legislature and the insurance industry to act in a pre-emptive manner. Swift action establishing the extent of liability that will be imposed on owners of self-driving cars involved in an accident will provide clarity in an industry that is constantly evolving and filled with uncertainties.

Earthquake

M.J. Hall & Company, Inc.

www.mjhallandcompany.com (209) 948-8108

States Covered: AK, AZ, CA, NV, & HI Surplus Lines Broker - General Agent MJHALLCO16803.indd 1

W10 | INSURANCE JOURNAL-WEST April 20, 2015

License #0488901 4/7/15 11:46 AM

Levine is an associate in the regulatory and administrative law practice group at Michelman & Robinson. Phone: (818) 728-3743. Email: alevine@mrllp.com. www.insurancejournal.com

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“Together, we’re on the hunt for new opportunities to expand our reach and build our businesses. We’re aiming high, together.”

To locate the General Star broker nearest you, visit our website at www.generalstar.com.

© 2015 General Star National Insurance Company is licensed in the District of Columbia, Puerto Rico and all states. General Star National Insurance Company has its principal place of business in Stamford, CT and operates under NAIC Number 0031-11967. Insurance is placed with General Star National Insurance Company by licensed producers. General Star Indemnity Company is an eligible surplus lines insurer in all states, the District of Columbia, Puerto Rico, and the Virgin Islands. It has the status as an unlicensed insurer in California and operates under NAIC Number 0031-37362. Insurance is placed with the General Star Indemnity Company by licensed producers and, for risk that qualify, by licensed surplus lines brokers.

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News & Markets Arizona Governor Signs Bill to Modify Asbestos Injury Claims

Former California Agent Charged with Scamming Elderly Church Members

A

C

ttorneys representing victims of asbestos exposure say a bill Arizona Gov. Doug Ducey signed into law in April will limit victims’ ability to recover losses.

Ducey said he signed the measure to increase transparency and fairness in asbestos litigation.

Ducey signed the bill just two days after the end of a national awareness week to promote information about asbestos-related illness. Asbestos inhalation can result in asbestosis and lung cancer such as mesothelioma, according to the Centers for Disease Control and Prevention.

House Bill 2603 by Rep. Sonny Borrelli,

R-Lake Havasu City, requires people who file personal injury lawsuits for asbestos exposure to provide a sworn statement of every asbestos-related claim they’ve made or plan to make. The law also allows companies being sued to ask a judge to delay proceedings if they believe the injured person may be able to make a claim with one of dozens of asbestos-injury trusts created by companies.

The Arizona Trial Lawyers Association says the measure places new legal hurdles for Arizona residents with asbestos-related illnesses. Advocates say Arizona already has laws preventing victims from getting more than their share of recovery. Pro-business group the American Legislative Exchange Council has been pushing similar legislation in states around the country.

Copyright 2015 Associated Press.

California Regulator: Utility Too Big to be Safe

R

epeated natural-gas accidents — including a 2010 pipeline explosion that killed eight people — suggest that California’s largest power utility could be too big to operate safely, the state’s top utility regulator says.

California Public Utilities Commission President Michael Picker said in midApril he would ask the commission’s staff to study “the culture of safety” and the structure of Pacific Gas & Electric Co., which has its gas and electricity operations under a single corporate board and chief executive.

He also wants staffers to review the possibility of the state claiming bonuses given to executives of PG&E, one of the country’s largest power utilities with 9.7 million gas and electric customers.

PG&E officials said that the utility has redoubled safety training, changed top W12 | INSURANCE JOURNAL-WEST April 20, 2015

executives and carried out extensive safety improvements to its natural-gas system.

Picker’s statement cited what he said were rising numbers of state safety citations against PG&E’s natural gas operations and said it appeared the utility, with $1.6 billion in earnings in 2014, was able to shrug off financial penalties.

Another state official said the staff would study whether the commission could split the company’s gas and electric operations, if it chose to do so.

The National Transportation Safety Board faulted repeated safety failures by PG&E, as well as lax regulation by the commission, in the blast. The fiery explosion from a broken pipeline engulfed a neighborhood on Sept.

9, 2010, killing eight people and destroying more than three dozen homes.

Copyright 2015 Associated Press.

onstance Gail Fortune, 61, was arraigned in Los Angeles Superior Court in California in April and charged with three felony counts of grand theft and one felony count of financial elder abuse for allegedly scamming seniors, many of whom were members of First AME Church, out of more than $100,000.

California Department of Insurance investigators uncovered evidence that Fortune, a licensed agent at the time, sold homeowners, auto and life insurance policies to numerous consumers, but never actually purchased policies and stole their premiums.

Fortune’s alleged illegal activities occurred over a two-year period and left consumers with no coverage and at considerable financial risk, according to investigators.

Fortune, an employee, trustee and former spokesperson for First AME Church, allegedly hosted meetings and met with fellow church members and others to market insurance products. She fabricated bogus insurance documents on official insurance company letterhead in an effort to give consumers the appearance that the policies were legitimate, and then Fortune used consumers’ premiums to pay for her personal expenses, including lease payments for her insurance office and rent for her apartment, according to investigators.

The Los Angeles County District Attorney’s Office Elder Abuse Unit is prosecuting the case. This case is being investigated and prosecuted under the Life and Annuity Consumer Protection Program.

Fortune was arrested on April 8 and was arraigned at the Superior Court of Los Angeles on Aril 10. Her court date is set for May 4.

Fortune faces up to five years in state prison if convicted. www.insurancejournal.com

NATIONAL COVERAGE

Business Moves Confie Seguros, Your Insurance Spot, Wise Insurance Agency, Bronkie Agency Confie Seguros, a national provider of personal lines insurance based in Huntington Beach, Calif., has acquired three East Coast insurance brokerages.

Confie Seguros acquired the assets of Your Insurance Spot Inc., which is based in Kissimmee, Fla., and was founded in 2007 and specializes in nonstandard auto insurance; Wise Insurance Agency Inc. of Columbia, S.C, founded in 1999 and specializing in personal lines insurance; and Bronkie Agency Inc. of Williamsville, N.Y., near Buffalo. Founded in 1961, Bronkie specializes in personal lines and small commercial insurance.

Confie Seguros has 52 locations in New York, 31 in Florida, and 13 in South Carolina.

Established in 2008, Confie Seguros is a portfolio company of Boston-based ABRY Partners and a national insurance distribution company focused on the insurance needs of Hispanic consumers.

Hub International, The Flood Group Hub International Ltd. announced that its subsidiary Hub International Northeast Ltd. has acquired the assets of The Flood Group LLC and its affiliate, The Flood Group of Long Island Inc., a Floral Park, N.Y.-based property/casualty brokerage servicing the Tri-state area. Terms of the acquisition were not disclosed.

The Flood Group has been a part of the local market community for more than 50 years and serves more than 3,500 clients.

The Flood Group’s operations in Floral Park will relocate to Hub Northeast’s Woodbury, N.Y., office. The firm’s president, Terrence Flood, will join Hub as vice president for commercial lines reporting to Doug Schenendorf, president of Hub Northeast’s Long Island, N.Y., operations. Brian Flood, The Flood Group’s vice president, will join Hub as vice president for personal lines.

Hub Northeast has a network of 15 locations and 700 employees throughout New York, New Jersey, Connecticut, Pennsylvania and Rhode Island.

Headquartered in Chicago, Hub www.insurancejournal.com

International Ltd. is an insurance brokerage that provides property/ casualty, life and health, employee benefits, investment and risk management products and services throughout North America.

Hardenbergh Insurance, Meyer Insurance Hardenbergh Insurance Group, an independent insurance agency based in Marlton, N.J., has acquired Meyer Insurance Agency, an independent agency in Medford, N.J. Terms of the transaction were not disclosed.

Established in 1957, Meyer Insurance provides commercial and personal insurance and risk management services for clients in the Delaware Valley region. In addition, the firm offers insurance support services including: contract reviews, claims management, loss control, bonding and modification modeling. All eight employees of Meyer Insurance Agency will join Hardenbergh Insurance Group, which has 55 employees.

Founded in 1954, Hardenbergh Insurance Group is a family owned and operated agency providing personal and business lines of insurance, as well as group and individual benefits. The firm has four offices in South Jersey and offers client service capabilities throughout the Delaware Valley region.

Meyer Insurance President Dave Miller and his colleagues will operate out of Hardenbergh Insurance Group’s headquarters office in Marlton under the direction of Rick Hardenbergh, president of Hardenbergh Insurance Group.

CRC Insurance, NAPCO CRC Insurance Services Inc., a wholesale insurance subsidiary of BB&T Corp.’s principal subsidiary Branch Banking and Trust Co., announced an agreement to acquire strategic assets of NAPCO LLC. Terms of the transaction were not disclosed.

Founded in 1996, NAPCO is an independent wholesale broker of commercial property catastrophe insurance coverage.

The Iselin, N.J.-based privately held broker

provides retailers with an independent marketing arm for difficult placements that have significant property exposures.

David Pagoumian, NAPCO’s president and CEO, will continue in his leadership position.

CRC, which had more than $4.3 billion in casualty, property and professional premiums in 2014, is a wholesale property/casualty insurance broker. Founded in 1982, CRC has 46 offices throughout the country.

CRC’s parent BB&T is a financial services holding company, which had $186.8 billion in assets and market capitalization of $26.8 billion, as of Dec. 31, 2014. Based in Winston-Salem, N.C., the company operates 1,839 financial centers in 12 states and Washington, D.C., and offers consumer and commercial banking, securities brokerage, asset management, mortgage and insurance products and services.

Agency Network Exchange ANE (Agency Network Exchange LLC), a network of independently owned and operated insurance agencies, has added two New Jersey agencies to its network: Glenn Insurance Inc. with offices in Absecon and Vineland; and Mile Square Insurance Agency of Hoboken.

Founded in 2009, the Monmouth continued on page 12 April 20, 2015 INSURANCE JOURNAL-NATIONAL | 11

NATIONAL COVERAGE

Business Moves continued from page 11 Junction, N.J.-based ANE includes more than 40 agencies in New Jersey and has recently expanded its network into the mid-Atlantic region.

National General, Risk Solutions National General Holdings Corp. has closed the acquisition of Saddle Brook, N.J.based Assigned Risk Solutions Ltd. from Toronto-based Kingsway Financial Services for a purchase price of $47 million in cash and potential future earnout payments.

Assigned Risk Solutions is a managing general agency that services assigned risk auto, private passenger auto and commercial lines of business. It also offers claims, investigative, and cost containment services. The firm is licensed in 22 states with a heavy concentration of business coming from New York, New Jersey and Pennsylvania.

Assigned Risk Solutions has managed more than $100 million in premium in 2014 across its multistate distribution platform.

National General Holdings is a specialty personal lines insurance holding company providing personal and commercial auto, homeowners, umbrella, recreational vehicle, motorcycle, supplemental health, and other niche insurance products.

the insurance needs of the construction industry.

Higginbotham A group of five commercial property/ casualty insurance professionals led by broker Mark Conner has joined Higginbotham in Houston. The group specializes in homeowners association (HOA) insurance and loss control, serving hundreds of single family community associations in Texas.

The group came from the Houston office of Willis of Texas Inc., where Conner served as vice president for 29 years for both Willis and certain predecessor organizations. In 1987, he created the Texas HOA program for Ace American Insurance Company. His group maintains exclusive access to that coverage.

Higginbotham is ranked as one of the largest independent insurance brokers of U.S. business providing property and liability insurance, risk management and employee benefit services to businesses and individuals. As a managing director at Higginbotham, a regional firm that has more than 20 offices across Texas, Conner can reach more HOAs and provide broader services to existing and future clients.

BNC Insurance, Milbrandt BNC Insurance Agency Inc., an independent agency based in Rye Brook, N.Y., has acquired Milbrandt & Co. Inc., an independent agency based in New Rochelle, N.Y., with a satellite office in Hudson, N.Y. Terms of the transaction were not disclosed.

Milbrandt’s executive team of Bob Antoinette and John Cofini, and more than a dozen staff members, have transitioned to BNC Insurance Agency’s operations.

Founded in 1947, Milbrandt & Co. has been providing commercial and personal insurance services to businesses and families in the New York Tri-state area.

BNC Insurance Agency, founded in 1997, has more than 50 employees and is licensed in 22 states. The agency provides insurance and risk management services to its personal, commercial and employee benefits clients. BNC’s specialties include serving

J.H. Blades, Swett & Crawford, Wild Well Control Houston-based upstream oil and gas energy managing general agent (MGA), J.H. Blades & Co. Inc., Swett & Crawford’s Dallas energy team and the recently-acquired Burke Daniels Inc. have joined Wild Well Control Inc. to launch an early intervention pollution control and mitigation program for the U.S. energy market.

The rapid response team is available exclusively to Blades policyholders via the Berkley Gemini contract or Contract 400.

It is an addition to the Kick Assistance Program, which is designed to use early intervention techniques to minimize a well control incident and its environmental impact before it becomes a costly blowout.

In the event of an incident, Wild Well will dispatch a joint team of specialists to the scene for both well and pollution control at the source in the hot zone.

12 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Swett & Crawford and J.H. Blades are subsidiaries of CGSC North America.

Crum & Forster, The Redwoods Group The Redwoods Group, a provider of insurance to YMCAs, Jewish community centers and residential and day camps, has entered into a merger agreement pursuant to which it will join the Crum & Forster family of companies, part of Fairfax Financial Holdings Ltd. According to Kevin Trapani, president and CEO of Redwoods, the partnership was initiated because it is “a strong match in operating principles and values ... and accomplishes all of the goals we set out at the beginning of this process.”

Trapani said the move will allow The Redwoods Group more leeway to craft insurance and risk consulting products that are designed for child-serving organizations.

The Redwoods Group will continue to operate out of Morrisville, N.C., as an independent brand of Crum & Forster, and Redwoods’ senior leadership team will remain intact.

All Redwoods staff have been offered jobs with their same responsibilities, compensation and benefits.

Crum & Forster and Redwoods will work on technology, processes, knowledge sharing, and relationship and business growth opportunities.

Marc Adee, Crum & Forster’s chairman and CEO, said the transaction is an opportunity to expand its direct underwriting operations to include the underwriting, claims handling and risk consulting offerings, and the geographical territory, broker relationships and customer relationships that Redwoods has built.

Redwoods has worked for the past 18 years focusing on prevention in efforts such as child sexual abuse and drowning.

Redwoods was also named by the nonprofit B Lab to the “Best for Workers” list in 2013 and 2014. It is a Certified B Corp by B Lab, which grants the designation to those companies that meet rigorous standards of social and environmental performance, accountability and transparency. www.insurancejournal.com

Hank Haldeman EVP, Sullivan Group President of NAPSLO

Jerry Sullivan Chairman, Sullivan Group

Great Leaders...the Sullivan Difference.

Hank Haldeman is a true difference maker. He has been dedicated to wholesale distribution throughout his career. Hank’s commitment, through leadership and advocacy on behalf of insurance industry trade and professional organizations, has had a significant impact on our industry, our company and our clients. His motto Get Involved, Be Relevant is infused into The Sullivan Group organization.

Jerry Sullivan has been an entrepreneur, innovator and industry leader for decades. Jerry was recently honored by Lloyd’s of London for his 50 year trading relationship. His steady guidance of The Sullivan Group and tireless support of the insurance industry are unparalleled.

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“We’re Different” is a bold claim. We back it up everyday.

For more information contact us at (213) 626-1000 or www.gjs.com

G.J. Sullivan Co. Insurance Services, Sullivan & Associates of Oregon, Sullivan Brokers Wholesale Insurance Solutions, G.J. Sullivan Co. Reinsurance, and Kevin Davis Insurance Services are members of the Sullivan Group.

Insurance License #0582676

SPOTLIGHT

10 Things to Know About Cyber Risks in Public Entities Data breaches in the government/military sector accounted for 11.7 percent of U.S. breach incidents in 2013. — Identity Theft Resource Center

The per capita cost of a data breach to the public sector is $172 per record, according to the “2014 Cost of Data Breach Study: United States” — Ponemon Institute

Public sector companies have the highest estimated probability of having a data breach, which could be attributed to the amount of confidential and sensitive information they collect and store. — Ponemon

At least 47 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands have enacted legislation requiring private or government entities to notify individuals of security breaches involving personal identifiable information. — Insurance Information Institute’s 2014 Cyber Risk Report

Only 10 percent of current public sector clients add cyber protections to existing insurance policies. — Robin Leal, underwriting director, Travelers Public Sector Services

More than 94 million records containing personally identifiable information were exposed by breach incidents in government agencies between January 2009 and May 2012. — Rapid7

The average annualized cost of cybercrime to the public sector was $8.5 million in 2014, according to the “2014 Cost of Cyber Crime: United States” research report. — Ponemon

Educational organizations accounted for 9 percent of the 614 publicly disclosed data breaches in 2013. — I.I.I.

Educational organizations had 3.2 million records exposed as a result of data breaches in 2013. — I.I.I.

14 | INSURANCE JOURNAL-NATIONAL April 20, 2015

A 2014 survey of public risk managers and other public officials found that only 40 percent of the 236 survey participants said their public entity has purchased a cyber liability policy.

25 percent of all survey respondents were unsure if their public entity has cyber insurance protection.

— Travelers Public Sector Services

www.insurancejournal.com

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NATIONAL COVERAGE

M&A Review Merger & Acquisition Activity Continues to Climb

A

cquisition activity for the first quarter of 2015 reached 90 deals, a record for the first three months of the year. We saw the same number of transactions announced during the fourth quarter of 2014, typically the most active quarter of a year. Continuing the momentum from one of the most active years, January came in strong

By Meredith Reeves with 47 deals. February followed with 23 and March with 20.

Buyers are prudent but continue to look for the right partner to satisfy their own growth goals. In the first quarter, private equity-backed and independent agencies accounted for 59 deals or 66 percent of the total activity. Public brokers completed nine deals, or 10 percent of the total. Banks, insurance companies and other buyers completed the remaining 24 percent of acquisition activity.

The sellers were skewed heavily toward property/casualty firms, with 61 percent of the total deal volume during the first three months of the year falling within this category. Multi-line agencies, those with both property/casualty and employee benefits, were targets of 28 percent of the deals while employee benefit-only firms comprised 11 percent of the total. Typically, employee benefit-only firms represent about 25 percent to 30 percent of all deal activity.

While activity was down in the first quarter for this segment of the market, there does not seem to To see a chart be a shortage in detailing the Q1 demand for the 2015 M&A activity highly consultago to page 18 tive, resource-rich benefit firm.

Retail agencies comprised 82 percent of all deals with the specialty distribution segment taking the other 18 percent.

Specialty distributors were broken down between program administrators (12 deals) and wholesale brokers (four deals). Program 16 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Number of Announced Deals

Note: Past performance is not necessarily indicative of future results.

Source: SNL Financial, Insurance Journal and other publicly available sources administrators include managing general agents (MGAs) and managing general underwriters (MGUs). While there does not seem to be a specific concentration of buyers seeking these specialty distributors, the buyer, whether a regional or national player, typically has established capabilities in this space.

The top six buyers completed 26 percent of all deal activity for the first quarter of 2015. Among those in this group, not surprisingly, were the top five buyers of 2014. Tied for We expect activity the top spot was Arthur heights in 2015.

J. Gallagher & Co. (Gallagher) and AssuredPartners Inc., each with five announced acquisitions. Gallagher completed a mix of retail and specialty distributor deals, and AssuredPartners continued its aggressive growth with property/casualty and multiline retail firms.

Private equity-backed Confie Seguros further strengthened its geographic footprint with the acquisition of four retail personal lines agencies. Brown & Brown Inc., Acrisure and Hub International Ltd. rounded out the top six, each announcing three U.S.-based deals. The remaining 67 deals were completed by 61 different buyers.

We expect activity to reach new heights in 2015 as the industry builds on the momentum from the recent past. With organic growth remaining difficult, buyers continue to deploy high levels of excess capital and put their resources to work on the acquisition front.

Strategic buyers have a growing interest in the market, and if the large deals we saw over the latter part of 2014 are any indication, the supply of available agencies, especially larger ones, may be increasing.

Whether an expeto reach new rienced acquirer or a new buyer, agencies are looking to enhance their capabilities, achieve greater scale, and solidify their presence in the market.

Securities offered through MarshBerry Capital Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co. Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440354-3230). Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation. Past performance is not necessarily indicative of future results.

Reeves is a senior consultant with Marsh, Berry & Co. Inc. Website: www.marshberry.com

www.insurancejournal.com

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M&A Review Merger and Acquisition Activity Announced Date Announced Date

Buyer Buyer

01/01/15 01/01/15 01/15/15 02/28/15 01/01/15 01/20/15 01/20/15 03/16/15 01/06/15 02/02/15 02/13/15 03/02/15 03/02/15 03/03/15 01/20/15 01/16/15 01/15/15 01/28/15 01/29/15 02/11/15 02/18/15 01/05/15 02/09/15 03/23/15 03/01/15 01/01/15 01/12/15 02/10/15 03/31/15 03/31/15 03/31/15 02/06/15 03/23/15 03/30/15 01/30/15 01/01/15 01/01/15 02/03/15 01/12/15 01/31/15 01/01/15 01/01/15 03/02/15 01/01/15 03/01/15 02/28/15 01/07/15 02/04/15 03/04/15 01/01/15 01/09/15 01/01/15 02/04/15 02/19/15 03/10/15 03/03/15 03/18/15 03/04/15 01/27/15 01/27/15 02/01/15 01/01/15 01/26/15 02/18/15 01/26/15 01/21/15 01/12/15 02/01/15 01/12/15 01/15/15 01/31/15 01/01/15 03/01/15 02/04/15 03/31/15 01/02/15 02/05/15 02/02/15 02/26/15 01/01/15 01/13/15 01/01/15 01/02/15 02/05/15 02/05/15 01/28/15 01/26/15 01/16/15 01/12/15 02/13/15

AAA Allied Group Inc. Acrisure LLC Acrisure LLC Acrisure LLC Ahmann & Martin Co. Alliant Insurance Services Ally Risk Services LLC American International Group Inc. AmTrust Financial Services Inc. Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. Ashley Insurance Inc. Associated Banc-Corp AssuredPartners Inc. AssuredPartners Inc. AssuredPartners Inc. AssuredPartners Inc. AssuredPartners Inc. Brown & Brown Inc. Brown & Brown Inc. Brown & Brown Inc. CBIZ Inc. Chadler Group Inc. Clark Insurance Inc. Confie Seguros Insurance Services Confie Seguros Insurance Services Confie Seguros Insurance Services Confie Seguros Insurance Services Cooper Gay Swett & Crawford Limited Cross Insurance Crum & Foster Enterprise Dacotah Banks Inc. Domenick & Company Inc. Duffy Insurance Agency Inc. Eastern Bank Corp.

Eifert French & Ketchum Insurance Agency FBinsure LLC G2 Insurance Services LLC Garrett Insurance Agency Inc. Higginbotham & Associates Inc. Hilb Group LLC Hilb Group LLC Holmes Murphy & Associates Hub International Limited Hub International Limited Hub International Limited Hylant Group Inc. Insgroup Inc. Insurance Office of America Insurance Shopper LLC Integro Ltd. Integro Ltd. Johnson Financial Group Inc. Kaplansky Insurance Agency Inc. Kohlberg Kravis Roberts & Co. L.P. Leavitt Group Enterprises Inc. Leavitt Group Enterprises Inc. Lighthouse Insurance Group Inc. Mason & Carter Inc. Mesirow Financial Holdings Inc. National Financial Partners Corp.

National General Holdings Corp.

National Planning Corp.

NexTier Inc. North Point Group Inc. Northwest Bancshares Inc. Norton Insurance and Financial Services Patriot National Insurance Group Inc. Peoples Insurance Agency Private Investors Protector Holdings LLC Protector Holdings LLC Redwood Credit Union Smith Brothers Insurance Inc. Spencer Capital Holdings State Bank Financial Corp.

Stephens Inc. SterlingRisk Insurance The Andrew Agency The Andrew Agency TowneBank TowneBank UIG Inc. Undisclosed buyer Veridian Credit Union Westaim Corp.

World Insurance Associates LLC

18 | INSURANCE JOURNAL-NATIONAL April 20, 2015

continued from page 16

January to March 2015

Seller Seller Gateway Potter Insurance Arthur Chernick Co. Inc. Sinatro Agency One LLC Paul Goebel Group Affiliated Benefit Group Inc. U.S. underwriting agency businesses of QBE Insurance Group Ltd. J.H. Berry Insurance Agency Inc. Controlling stake in NSM Insurance Group Inc. Oryx Insurance Brokerage Inc. Aequus Trade Credit LLC Cohn Financial Group LLC Excel Insurance Services Inc. McCloskey Surplus & Excess Inc. NationAir Insurance Agencies Inc. German Hersloff & Swanson Inc. Ahmann & Martin Co. Omni Risk Management Inc. / Omni Benefits Inc. Chapple Insurance Group RSI Insurance Brokers of Florida LLC MCM, A Meisenbach Co. Amtech Insurance Brokers Inc. Hall-Wright General Agency Inc. Liberty Insurance Brokers Inc. Spain Agency Inc. Model Consulting Inc. Benefit Sources & Solutions James L. Cooney Insurance Agency Inc. Baja Auto Insurance Your Insurance Spot Inc. Bronkie Agency Inc. Wise Insurance Agency Inc. Burke-Daniels Co. Inc. Corcoran & Havlin Insurance Agency Inc. The Redwoods Group Agri-Business Group Human Services Co. Connolly Insurance Agency Inc. James J. Sullivan Insurance Agency Inc. Arnold K. Davis & Co. Inc. Henry L. Newbury Insurance Agency Inc. Book of business from Wells Fargo Insurance Services USA Inc. Frantzen, Kaderli & Klier Insurance Agency Inc. Aycock & Fowler Insurance Agency Inc. CityInsurance Professionals West Coast Insurance Inc. Nebraska operations of Willis of Minnesota Inc. MMZ Associates Inc. Alexander Insurance Agency Inc. Laubacher Insurance Agency Inc. Gardner Group Inc. Book of business from Dean & Draper Insurance Agency LP Commonwealth Insurance of the Bay Area Inc. Ceranski Insurance Agency Inc. E&O Professional Risk Management and Insurance Services Inc. Design Insurance Agency Inc. Higgins Insurance Group LLC North State Insurance Agency Inc. Kassa Insurance Services Inc. Colorado Springs accounts Smart Insurance Solutions Inc. Graves & Co. Harry Cohen Insurance Agency Inc. Benefits & Incentives Group Inc. Weber’s Insurance Service Inc./Weber’s Assurance Group LLC Healthcare Solutions Team Inc. National Insurance Consulting Group Inc. ESS Insurance Group Inc. Insurance Counseling & Management Inc. B. J. Petruso Agency & Associates Inc. Brennan Insurance Agency Phoenix Risk Management Inc. Alta Vista Insurance & Services Corp.

Redmer Insurance Group LLC Peartree Insurance Services Inc. Oasis South Insurance Services Inc. SST Insurance Brokers Inc. McMahon Company Inc. USA Risk Group Boyett Agency LLC Jonesboro insurance business Gramercy Brokerage Inc. Assurance Associates Inc. Bradshaw Agency Inc. Gloucester Southside Insurance Agency Inc. Lackey Saunders Co. Inc. Shiretown Insurance Agency Inc. Acumen RE Management Corp.

Fleener Insurance Services Inc. Elite Underwriting Services Inc. John Cecchettini Insurance Agency

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CLOSER LOOK

Cyber Risks Why the Simplex in Cyber Liability Needs to Change

O

ur industry loves acronyms and buzzwords. Allacronyms.com publishes a list of 1,086 insurance industry acronyms.

Iwebhound.com has an acronym list that is even larger. You can tell when insurance people are talking to insurance people, because every other utterance is an acronym or an industry buzzword. We get so caught up in this world of expression that when we are explaining coverage to a customer, we

By Joseph L. Wheatley have to slow down and use words like bodily injury instead of BI so the client can understand in more simple terms what we are trying to sell them. Clients like simple.

I haven’t met one yet that doesn’t.

In the buzzword(s) department, we have worn out words like synergy, collaboration, value-added and cross-sell — all of which have burned through their useful effectiveness. One recently has popped up in the trade press that advertising and educational forums have been using for few years now called “simplexity.”

Simplexity is a merger of simple and complex. What is simple can be made complex and what is complex can be made simple. Webster dictionary doesn’t recognize it as a word yet, but Wikipedia sites sources of its possible origin. When we explain cov-

erage to clients in the future, we can talk about the simplexity of each coverage form.

The world of cyber liability coverage forms in the marketplace is about as simplex as you can get right now. An instructor at a Certified Insurance Counselor James K. Ruble Seminar last year described the coverage forms available as the “Wild, Wild, West of Insurance.”

With more than 60 standalone policy forms in the market and countless additional endorsements that offer some stripped-down coverages in the first- and third-party coverages, cyber liability is readily available for sale. You can read trade journal articles weekly about the need for customers to buy cyber liability and the comments from industry professionals about not understanding why more customers do not see the light and purchase coverage. Customers won’t buy what they don’t understand.

Cyber liability forms are mostly nonadmitted paper, claims-made with retro dates. Some coverages pay on behalf of and some reimburse you, some cover notification costs up to a dollar amount and others have a number of notified individuals cap and deductible for notification costs.

When comparing coverage with one carrier versus another, as independent agents will do, many times it is difficult to get past the first- and third-party coverage

description headings to get to the forms to do a quality job of coverage comparison for clients. We’ve made it too simplex and complex, and we need to move quickly as an industry to simple.

The arguments presented for why we don’t have greater standardization of cov-

erage descriptions and language in cyber liability that do not hold water any longer.

Here’s why: •It’s still a relatively new coverage, so coverage is evolving. It’s not a new coverage. Cyber liability had its origin in the late 1980s and plenty of carrier activity in introducing policy forms during the past 15 years.

•It’s a professional lines form and there is no ISO to standardize lancontinued on page 22

Cyber Coverage Highlight Sheet Carrier A

Carrier B

Carrier C

(10 Insuring Agreements) (6 Insuring Agreements) (10 Insuring Agreements)

Theft & Fraud Hacker Damage Crisis Management Event Expense Extortion Cyber Extortion Security Breach Remediation and Notification Expense Computer Data Loss & Restoration Cyber Business Interruption Computer Program and Electronic Data Restoration Expense Forensic Investigation Privacy Protection Computer Fraud Business Interruption Breach Costs Funds Transfer Fraud Crisis Management Multimedia Protection E-commerce Extortion Regulatory Response Business Interruption & Additional Expense Notification Costs Network and Information Security Liability Credit Monitoring Communications & Media Liability Privacy Liability Regulatory Defense Expenses, Including Fines & Penalties 20 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Carrier D

(8 Insuring Agreements) Network Asset Damage Network Extortion Crisis Management Network Business Interruption Data Breach Liability Media Liability Privacy Regulatory Proceedings Notification Costs

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Management & Professional Liability

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But privacy mistakes, security breaches and inappropriate employee behavior can burn your business, your bottom line and your brand.

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CLOSER LOOK

Cyber Risks continued from page 20 guage. The professional lines industry has been able to standardize descriptions of coverage such as directors and officers policies using Side A, B, C and excess Side A successfully for many years now.

•Carriers want to differentiate themselves from their competitors.

They can with breach support services, claims handling, loss prevention, pricing and financing terms, limits, ease of doing business and a coverage form in simple-to-understand language.

We can start by standardizing the coverage descriptions for first- and third-party coverages.

On page 20, there is a chart showing four leading writers of cyber liability and their coverage description headers for first- and third-party coverages, taken from the online brochures we put in front of customers.

Upon closer investigation of the coverage forms themselves, some of the insuring agreements that were expanded to 10 by carriers A and C are included in the insuring agreements of carriers B and D — they are just not as obvious until you dig more deeply intoPersonal the form.

You may have1 lost Umbrella.pdf 1/7/15 your customer already by showing them the

chart or even two of these brochures before you’ve had a chance to get into the forms.

Cyber forms have different triggers of coverage for data breaches. Some have a specific trigger of coverage by a violation of a federal or state law, while others are much broader and can be triggered by a suspected breach. You have to go to the forms to figure out the triggers. We need to take a step back as an industry and make the descriptions of coverage easier to understand first — then work on standardizing coverage language.

We have already successfully done this with so many other lines of insurance.

In standard lines commercial insurance, buildings are buildings, business income is business income, comprehensive and collision on auto are known industrywide as the same coverage descriptions.

The professional lines industry has also had some success in standardizing the basic coverages and descriptions of coverage for D&O, employment practices liability and fiduciary liability. While the professional lines industry does not have an ISO to write suggested forms and gather statistics, 11:01 AM there are industry practice and educational

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groups such as the Professional Liability Underwriting Society (PLUS) that can help push standardization.

Standardization of coverage description and coverage language may be easier said than done, right? Issues such as refiling forms with states cannot be overlooked. In time, other lines of business in commercial insurance have worked through these issues, and the groups that have successfully achieved this in the past need to find ways to get this done on cyber insurance.

The need for cyber coverage is obvious.

The market’s capacity and competition for cyber liability is robust — many sellers and many buyers. There’s no oligopoly, monopsony or monopoly on product availability and supply. Yet there are still more firsttime potential buyers of cyber insurance in the market than there are renewal buyers.

Why is this still the case when we have privacy laws in 48 states and many federal laws that can result in suits against our customers? First-time buyers will tell you they want to think about the presentation you just made to them. The truth is they won’t buy what they don’t understand.

Complex to Simple When we simplify form and language, more agents will understand how to sell this product and more clients will purchase. Carriers want these first-time purchasers. Standardizing language might help competition and movement more, and competition is healthy for our industry and our customers.

We want to see every customer that has a cyber-breach exposure buy coverage. The reasons why more clients have not purchased coverage yet are simplex. Coverage descriptions and language are not standardized but they can be and need to be. We need the leaders of our industry, carriers and professional lines experts that work in our industry to come together and take this line of business from complex to simple.

Wheatley is property/casualty marketing director for Assured Neace Lukens in Louisville, Ky. Phone: 502-259-9356. Email: joe.wheatley@neacelukens.com.

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SPECIAL REPORT

Young Agents Survey

By Andrea Wells

What Young Agents Earn Under $30,000

10.1%

$31,000 to $50,000

30.5%

$51,000 to $75,000

26.5%

$76,000 to $100,000

13.8%

$101,000 to $125,000

5.9%

$126,000 to $150,000

4.7%

$151,000 to $200,000

3.2%

More than $200,000

5.4%

0

5

10

24 | INSURANCE JOURNAL-NATIONAL April 20, 2015

15

20

25

30

35

T

he independent insurance agency system is getting older. So much so that the average age of a U.S. insurance agent today is 59 years old, according to some estimates. And as more than a quarter of the entire insurance industry gets ready to sail into retirement in the next three years, the next generation of agency talent — young agents and agency owners in particular — better get ready to step up.

This is good news for young professionals working in independent agencies today — those 40 years old and younger.

According to Insurance Journal’s Young Agents Survey 2015, 82.7 percent of young agents feel very optimistic or optimistic about their career as independent agents.

Agency owners are a maturing group. www.insurancejournal.com

Profile of Young Agents Older Side of Young According to the 2014 Agency Universe Study (AUS) published last fall by the Independent Insurance Agents & Brokers of America, the average age of agency principals with 20 percent or more ownership in their agencies is 56 years old, with 18 percent of those principals age 66 years old or older. That’s up from just 10 percent of principals aged 66 years old or older in the 2012 AUS study.

While the vast majority of agency principals (82 percent) do not anticipate a major ownership change for at least three years, according to the AUS study, the graying of agency principals will lead to a new generation of agency owners within the next 10 years.

Some young insurance agents are gearing up now for that future opportunity.

Hard Work Pays Off Jules Roussel, a 26-year-old second generation insurance agent, is one young agent looking to seize the opportunities as the older generation heads toward retirement.

Roussel has been an independent agent for about three years at Eagan Insurance, an Insurance Journal Top 100 Agency with $12 million in property/casualty revenue in 2013, located in the New Orleans area of Louisiana.

Roussel is no stranger to the agency world. His father, Wayne Roussel, a vice president at Eagan Insurance, has spent the past 40 years building a profitable book of business and introduced his son to the insurance business when he was still in high school.

“I went to work with my dad one day to see what it was like,” the younger Roussel said. He admits he always thought his dad’s job seemed “kind of boring” but then he saw his dad in action. “He had a lot going on that day, I saw how busy he was. At the end of the day he asked me if I wanted to be an agent. I said, ‘there’s no way I could do what you do.’”

Then 12 years later, the son found himself doing the same thing. The elder Roussel, at 62, is nowhere near retirement, but Jules knows that someday he will be ready and hopes to take over his father’s book of business at that time.

For now, the younger Roussel is happy gaining experience and industry knowledge writing any new account that

‘Insurance is a long-term career. You can’t get into an insurance position and expect to have results right away. However, if you can make it through the slow times, insurance pays off in the long run.’

continued on page 26 www.insurancejournal.com

59.8% are 31 to 40 years old; 40.2% are 30 and under.

Career Choice

81.0% consider insurance to be a permanent career choice; 16.4% are unsure; 70.1% would recommend career choice to another young person but 20.6% are not sure they would.

Experience

27.9% have less than three years in insurance; 21.1% have three to five years; 26.4% have six to 10 years; 18.9% have 11 to 15 years; 5.8% more than 15 years.

Education

60.0% have a college degree; 10.2% have a master’s, doctorate or other advanced degree; 59.8% have completed or are working on an insurance designation.

81.7% have benefitted from an insurance agent mentor.

Family Affairs

61.0% work in family-owned agencies.

55.0% work for agencies generating $1 million to $25 million in property/casualty premium volume

89.9% are privately held.

Employment Status

88.9% are independent agents; 7.0% presently are sole owners of an agency; 13.0% share ownership with partner(s)

Ownership Dreams

80.0% do not presently own an agency; of these, 57.1% would like to own someday but just 34.2% report feeling very confident ownership dreams will come true.

26.1% don’t beleive it will happen.

Working class

61.1% work between 41 and 55 hours a week.

63.7% target mostly commerical lines; 36.3% target mostly personal lines.

Gender ID

53.3% Male 46.7% Female

Hired

25.1% were recruited for the family business; 24.1% were referred by a friend or family member; 15.1% were employee referrals; 11.4% answered a job posting; 10.4% directly contacted the agency; 6.4% used a recruiter; 5.3% worked for a competitor; 4.8% knew owner from previous employer; 4.1% were recruited from college; 3.6% used to be a captive agent and just 1.3% used social media

Recruitment Target

57.8% have been offered a job by another agency.

April 20, 2015 INSURANCE JOURNAL-NATIONAL | 25

SPECIAL REPORT

Young Agents Survey continued from page 25 crosses his path, mostly personal lines and small commercial accounts.

“My dad is the hardest working man that I know,” he said. “I probably won’t ever be as hard-working as he is but I strive to be.”

Roussel says his decision to become an insurance agent came from watching his father’s success all these years. It’s a great career path for young people willing to put in the work, he added. But not many young people seek out insurance as a career choice

Young Agents’ Outlook on Their Career

in Louisiana. Most of the agents Roussel sees are on the older side of their career, closer to retirement than not. “But if you stick with it and work hard, it’s a career that will pay off in the long run.”

Teachers to Agents A growing number of professionals are entering the insurance industry after successful careers in other industries. The same is true for some young insurance agents.

Outlook on U.S. Economy in 2015

4.2%

Very Optimistic

13.2%

Optimistic

51.6%

Very Optimistic

8.3% 16.6%

Very Optimistic Optimistic

52.8%

Cautious

31.4%

Not Optimistic

Independent Agents' Ability to Grow Personal Lines Market Share

7.3% 8.5%

Cautious

52.2%

Not Optimistic

Believes 2015 Income Will Be Greater Than 2014

Optimistic

32.2%

Cautious

31.1%

13.0%

2.7%

Very Optimistic Optimistic

31.3%

Cautious

43.8%

Not Optimistic

Outlook on the Future of the Independent Agency System

Not Optimistic

Independent Agents' Ability to Grow Commercial Lines Market Share 1.5%

2.7% 17.8%

Very Optimistic

35.5%

Optimistic Cautious

44.1%

Not Optimistic

Outlook on Attracting Quality Talent to the Agency

Optimistic Cautious

54.1%

Not Optimistic

Outlook on Financial Stability of P/C Insurers 1.0%

8.3% 13.4%

Very Optimistic

11.5% 30.1%

Cautious

45.1%

Not Optimistic

Outlook on Attracting Quality Talent to the Industry

Not Optimistic

Independent Agency Channel’s Ability to Advance in Technology Use 2.7%

Very Optimistic 45.0%

Cautious

57.7%

5.4% 10.0%

Very Optimistic Optimistic

Optimistic

33.2%

40.0%

Very Optimistic

26.0%

18.8%

15.7%

22.7%

Optimistic

Optimistic

Cautious Not Optimistic

26 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Very Optimistic

58.9%

Cautious Not Optimistic

Nicole Pryde Johnson, a producer for Lovitt & Touché based in Tempe, Ariz., has been working in the industry sector since 2007. But Johnson spent her first three years after college as a first grade teacher.

Johnson says that she enjoyed teaching but it didn’t allow her competitive side to shine. “That part of me, I had to shelve for a while,” she said. “But I couldn’t ignore my competitive nature and the need to challenge myself in a different way so I started to look at alternative career paths.”

That led Johnson to a family friend who had worked in the industry for 40-plus years. “I met with him to talk about the industry and what a sales career might look like in insurance. And after numerous interviews with several agencies in the area I took a leap of faith and joined the national agency Brown & Brown Insurance, which is where I started my career.”

But while working for Brown & Brown, Johnson kept hitting a roadblock with prospects — that roadblock was Lovitt & Touché.

“I found that I ran into Lovitt & Touché frequently in the Arizona marketplace and I found out quickly that I was unable to take their clients away from them.” That piqued Johnson’s interest. “I wanted to find out more about why their clients kept such long-lasting relationships with their broker and then I realized it was the way they built relationships — both with their clients and within the community. Johnson says that’s the main reason why she left Brown & Brown for Lovitt & Touché — to be able to develop such valuable relationships with her clients.

Today Johnson’s clients consist of a variety of large and middle market businesses but her family’s background in construction businesses has given her a leg-up when writing construction accounts. “I feel like home in the construction industry,” she says.

David Fishel, a 27-year old associate in business insurance for Fort Worth, Texasbased Higginbotham & Associates, also began his professional life as a teacher but continued on page 28 www.insurancejournal.com

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Young Agents Survey What Agencies Need to Know About Recruiting the Next Generation

By Tom Wetzel

R

ecruiting the next generation of talent is not a new challenge but a difficult one. At the recent NetVu15 conference in Indianapolis, a workshop titled “Generation XYZ in the Workplace” drew a large crowd, many of whom were agency principals seeking answers on how to attract and retain young employees.

Insurance Journal spoke with three of the panelists after the workshop including Marc McNulty of The Uhl Agency, Dayton, Ohio, and the chapter’s new chairman; Lynn Harper of the SilverStone Group, Omaha, Neb.; and Kate Foy of Foy Insurance, Exeter, N.H. Each had a different story as to what brought them into the insurance industry.

Foy started working in the family insurance agency as a teenager. Harper’s college roommate suggested the industry as a possible career track. McNulty said he “stumbled” into the insurance business when a friend told him of a job opening at the agency after he decided to leave his previous job in another industry.

Harper said the experience has been “better than I expected. I discovered the business is all about serving clients. We take a consultative approach and do not push policies. We want to be a trusted advisor.”

Foy knew the business from the beginning but McNulty, who has been with The Uhl Agency for 13 years, was unsure what to expect but found a home quickly.

“I was lucky to have a very forward-thinking management,” he said.

Attracting young employees into the insurance industry takes more than luck.

“Agencies need to work more with the colleges in their area,” said McNulty.

“Summer work and internships offer students valuable work experience and a chance to discover, as we all did, that the industry offers a great future.”

McNulty says it’s also critical that agencies develop clearly-defined career paths.

28 | INSURANCE JOURNAL-NATIONAL April 20, 2015

“Young employees want to take on responsibilities quickly, which is usually unrealistic. They need to see, however, how they can advance and build a career.”

Recruiting young agents is not difficult when management instills the right agency culture, says Harper. “We have developed clear career paths, education tracks, and offer the ability to work from home,” Harper says. “We have a number of committees to give employees a role in the operation, including ones covering wellness and fun. We actively encourage all of our employees to serve on a committee and to be part of the culture.”

McNulty says his agency doesn’t worry about prior insurance experience when hiring.

“We can give them the insurance training,” he said. “What we’re looking for is the right personality.”

53.8% These young agents agree that technology is 47.0% another key to attract63.0% ing young employees.

13.4% Millenials rely on smart35.8% phones and social media 25.3% in both business and 27.3% professional life and are less likely to work in 14.6% industries that do not 36.3% embrace technology.

20.9% Foy and McNulty 70.6% said their agencies have 76.2% always supported tech29.9% nology. Harper said she actively pushed for a 11.0% technology upgrade.

90.5% “Our challenge is to 62.8% show owners that tech52.1% nology allows agencies 39.7% to do more with less. To 11.4% do that we need to cite success stories and a 63.3% clear game plan.”

continued from page 26 found his way into the insurance industry when a friend’s father approached him about opening a branch office for a small agency.

After graduating from college in 2010, Fishel signed on with Teach for America as a high school math and special education teacher for two years. While working on his master’s in business administration the opportunity to enter insurance arrived.

“A good friend’s dad was one of the managing partners of Talon Insurance and they were looking to expand operations in north Texas and he approached us to open a branch office in Fort Worth,” Fishel said.

Up until that point, Fishel admits he’d never thought about a career in insurance.

“Never once in my life did I think I’d be in insurance but I absolutely love the industry,” he said. “I think it’s one of the best kept secrets out there.”

With very little knowledge about the

What Young Agents Do Attend local business or community meetings.

Attend insurance trade association meetings.

Volunteer in the community.

Get involved in local politics.

Attend church regularly.

Participate in a sports league.

Belong to country or athletic club.

Teach or write articles on insurance.

Attend meetings of industries I insures.

Speak before business and community groups.

Use Facebook.

Use LinkedIn. Use Twitter.

Write a blog.

Use an iPhone or other Smart phone device.

Use an iPad, Kindle or similar device.

Utilize insurance coverage or other checklists.

Utilize web conferencing.

Utilize a provider of sales leads.

Take insurance courses on the Internet.

www.insurancejournal.com

10 Things Young Agents Like ‘Best’ About Insurance

insurance industry, Fishel and his partner opened the branch office. But just a few months into business, Talon was purchased by Higginbotham in January 2014 and both Fishel and his partner joined Higginbotham’s team in its Fort Worth headquarters.

“It was a blessing,” he says. “Talon was a great organization, but Higginbotham has the resources and support we need at our fingertips. As a new producer that has been very significant.” Higginbotham, an Insurance Journal Top 100 Agency, wrote more than $60 million in property/casualty revenue in 2013.

Fishel is excited about what’s ahead.

“There is a huge opportunity in the next 10 years to pick up a lot of business left by agents who will be retiring,” he says.

Not Easy But acquiring those accounts may not be as easy as some think.

The long-lasting client and broker relationships that Lovitt & Touché’s Johnson found appealing about the independent agency system are also one of the biggest challenges for young agents trying to attract new business, says Nicholas R. DiCarlo, risk management consultant at J.W. Terrill based in Chesterfield, Mo., also an Insurance Journal Top 100 Agency with more than $17 million in property/casualty revenue in 2013.

DiCarlo has been an independent agent for nearly seven years but is a seasoned insurance professional. He previously worked for a direct writer for eight years prior to entering the independent agency channel. He joined the independent side for the chance to earn a higher total income and have ownership in his book of business.

But it’s not an easy path to take, he says.

Most young professionals who enter the independent agency world don’t understand how difficult it is to be successful, DiCarlo said. “Most don’t realize how hard they will have to work — at first. They see all the glamor, and not all the grinding, that needs to place initially.”

1. Hard work, dedication, drive, and education pay off quickly in this industry.

2. Being an independent agent gives you the opportunity to work to find the best option for the client, not to just sell them what is available.

3. I like that I have the ability to work with different markets because all of our clients’ needs are not the same.

4. Freedom to set own schedule.

5. You’re essentially self-employed, but also working on a team. The job offers flexibility and there’s a ton of reward for hard work.

6. Being able to help people protect the things that matter to them. There is always something new to learn.

7. I like that I have the ability to learn about multiple businesses, and determine the coverage that best fits each client.

8. Relationships with my clients and co-workers.

9. Being able to give back to community. I have a great work/life balance and great compensation.

10. Every day is a new challenge.

10 Things Young Agents Like ‘Least’ About Insurance 1. Not being offered ownership in my book of business or a partnership opportunity.

2. The public distrust of insurance agents.

3. Lack of confidence some clients have with a young broker even knowing that the young broker is well prepared.

4. Dealing with the constant company changes in guidelines, rates and underwriting.

5. Technology tends to be lagging behind other industries.

6. The ramp up period of the first three years.

7. The lack of continuity and efficiency in the industry. Every insurance company manages their quoting process differently. It makes it extremely difficult to be efficient and accurate.

8. Some carriers lack of technology such as e-signature and e-apps.

9. Lack of people to guide or mentor me in the insurance field.

10. There aren't enough young agents.

continued on page 30 www.insurancejournal.com

April 20, 2015 INSURANCE JOURNAL-NATIONAL | 29

SPECIAL REPORT

Young Agents Survey Does Age and Gender Matter?

T

he number of female young agents responding to the Young Agents Survey grew in 2015 — 46.7 percent were female while 53.3 percent were male. In the 2014, only 39.5 percent were female.

While the gender gap appears to be evening out, at least in terms of young agents participating in the survey, some believe gender bias still exists in the agency ranks.

The survey revealed that some 41.8 percent believed the statement that the industry offers men more opportunity than women was “basically true,” while 22.4 percent had “no opinion” on that statement.

One survey respondent wrote: “I don’t like that it is primarily women in administrative or account manager roles and men in sales. I feel like it should be more even.”

Another noted that while her agency is “progressive” she gets the “old boys club” feeling, especially at industry events. “When I go to a conference I feel like I took a time machine back to the ‘60s. It takes a lot of grace and patience to put up with the sexism and cultural ignorance of my peers.”

Being young and a female is challenging too, another respondent said. “I feel that being a woman and being young gives me a disadvantage. … I do see that business owners and commercial clients, both men and women, seem to feel more comfortable with a male salesperson.”

Nicole Pryde Johnson, a 32-year-old agent for Lovitt & Touché based in Tempe, Ariz., says that while insurance is a male-dominated field, that hasn’t prevented her from achieving her goals or seizing opportunities.

“Females offer many different advantages, and I choose to focus on those,” Johnson said. “For instance, many males tend to be transaction based, rather than relationship based. I always strive to build personal relationships with my clients.”

Johnson also believes more women in the industry should strive to help other women succeed. To help in that regard, she’s working on creating an informal women’s group to promote mentorship, networking and lead generation.

30 | INSURANCE JOURNAL-NATIONAL April 20, 2015

continued from page 29 It’s hard to build a book of business in the beginning because new agents must sever an often tight bond between the prospect and their old agent. “Your job is more or less to break existing relationships and most of the time those are pretty strong relationships especially if you are calling on larger accounts,” DiCarlo says. “It’s very challenging and sometimes takes many years.”

It’s doable, he says, but not without patience and perseverance. “You have to generate enough activity so that you are positioning yourself with those prospects.” A lot of people that come into the industry want immediate success, he says. “But you have to understand it’s about developing and positioning yourself for long-term success more so than anything.”

While the opportunities for young agents are plentiful, even young agents recognize that the career is not for everyone.

“I’ve watched many young, new agents hired into the insurance industry as producers for independent agencies, but I can only think of only one person who didn’t quit. Most of them resigned after one to five years. This job truly requires a special type of person to succeed,” one respondent in this year’s Young Agents Survey said.

Added another: “This career takes patience, which most people of my generation don’t have. We want everything, and we want it now.”

About the Survey Insurance Journal’s Young Agents Survey 2015 polled more than 400 young agents nationwide on their opinion about the industry, their agency, and how they feel about being an insurance agent.

Insurance Journal wishes to thank Foremost Insurance for serving as this year’s Young Agents Survey sponsor.

How Young Agents View the Property/Casualty Industry Customer service

Public image

Treatment of employees

Professionalism Excellent

Opportunities for advancement

Good Fair Poor

Ethics

Career attractiveness to young professional

Use of technology

Marketing and advertising 0

50

100

150

200

250

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Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states except D.C. Contact: Customer service at 888-568-0548

Market Detail: Hull & Co. – Stockton (www.hullandco.com) is the new program administrator for the former FLOW Traffic Control Program. It is designed to support the sale and distribution, setup, and installation of traffic control devices and signs. GL limits up to $1 million/$2 million with many options.

Available limits: As needed Carrier: Unable to disclose, nonadmitted States: All states Contact: Jeff Case at jcase@hullco.com

Motor Truck Cargo Program Market Detail: Guardian Insurance Wholesalers Inc. (www. guardian-ins.com) offers a nationwide program with an unlimited radius for new ventures (drivers must be 28 years or older with three years commercial driving license (CDL) experience) and experienced risks for motor truck cargo. Limits are available up to $250,000 with competitive rates for all classes. Excess coverage are available. Desirable risks include: dry van, reefer, flatbed, doubles, and intermodal or container haulers. For refrigerated risks, trailers must be 15 years or newer, and the driver must be 25 years or older and must have three years CDL experience. Ineligible commodities include: livestock, hazmat, mobile home and household goods.

Physical damage available with a combo policy, with discounted rates for qualified risks.

Available limits: Minimum $100,000, maximum $250,000 Carrier: Underwriters at Lloyd’s of London States: All states except Alaska, D.C., and Hawaii Contact: Tammy Summers at 800-325-9059 or email: tsummers@ guardian-ins.com

Social Service Agencies Market Detail: Care Providers Insurance Services LLC (www.inscps.com) offers auto commercial standard physical damage; crime; professional liability, equipment breakdown, business interruption, auto commercial-standard liability; abuse & molestation; D&O; GL; property; umbrella; nonowned and hired auto; liability; theft; and participant accident.

Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states except Alaska and Hawaii Contact: Priscilla Archer at 800-761-7072 or email: parcher@nsminc. com

Umbrella Market Detail: Lakeside Brokerage (www.lakesidebrokerage.com) has an umbrella market that has an appetite with more than 750 acceptable classes of business. Lakeside can quote, bind and issue most classes in-house.

Available limits: Minimum $1 million, maximum $10 million Carrier: Unable to disclose, admitted States: Ala., Ga., La., Miss., and Texas Contact: Trey Day at 601-382-5756 or email: trey@lakesidebrokerage. com

Vacant Property Market Detail: Safehold Special Risk (www.safehold.com) offers coverage for properties temporarily vacant due to renovation, between rental tenants, or on the market for sale. Property coverage provided on DP1 and DP3 or ISO commercial basic and special (ACV and RCV forms).

Available limits: Minimum $100,000, maximum $1 million Carrier: Unable to disclose, admitted States: All states except Fla., N.C., N.J., S.C., Tenn., and Texas Contact: Customer service at 800-842-8917 32 | INSURANCE JOURNAL-NATIONAL April 20, 2015

Farm & Ranch - Hard to Place Market Detail: Sierra Specialty (www.SierraSpecialty.com) provides coverage for difficult-to-place farm ranch and agriculture risks, including new ventures. Competitive coverage enhancements and packages are available, including farm liability, property, inland marine and homeowners. Target classes include: organic farms; roadside stands; fruit, nut and vegetable growers; orchards and vineyards; custom farming; farm managers; boutique wineries; nursery operations; poultry hatcheries and other feathers (ducks, chickens); fertilizer stores and dealers; feed stores and manufacturers; agri-tourism; fishing and hunting.

Available limits: Minimum $1 million, maximum $4 million Carrier: Unable to disclose, non-admitted States: Ala., Ariz., Calif., Colo., Fla., Ga., Ill., Ind., Iowa, N.C., Nev., N.M., Ore., S.C., Tenn., Texas, and Utah Contact: Mark Schroeder at 559-256-6900 or email: mark@ sierraspecialty.com www.insurancejournal.com

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IDEA EXCHANGE

Growing Your Property Casualty Agency The Positive Power of Negative Thinking

I

t’s easy to imagine that being positive about everything in your life is the ideal mental state. It’s a wonderful fantasy, but it’s not real. Negative thoughts exist — and in some ways these musings are positively enlightening.

One example of this is the “fact” that the insurance industry was built on negative thinkBy Alan Shulman ing. Without it, 17th century ship owners wouldn’t have been concerned about losing their vessels and cargo. And Lloyd’s famous coffeehouse may have become a venue for double lattes, instead of nascent marine insurance. Here are several more ways that insurance negatives and positives interplay.

Timeliness. Negatives tend to change with the times. For example, horse thievery is nowhere near as universal a problem as it once was, while cyber risks are now a major concern to every business with a website.

So, make certain that your agency’s

marketing and sales points are continuously contemporary.

Risk Analysis. Carriers reasonably expect their agents to serve as front-line underwriters. This requires methodically evaluating what could possibly go wrong — before submitting an account. In other words, performing preemptive negative thinking is an important part of your job, making it a good thing.

Social Marketing. Social media is a viable venue to pose negative questions about the suitability of someone’s personal insurance policy or commercial program. For example, you can ask, “After your car is damaged in a collision, do you really want to ride the bus?” Or “What happens to your business if a cyber-thief steals confidential data?”

Provide reassuring links to insurance positive solutions on a dedicated Web landing page, Facebook page, etc.

Competition. Anxiety about your agency’s ability to compete against a growing number of deep-pocketed rivals is healthy; panic is not. Such concerns feed competitive fires that motivate you to invest in your future, including staff, technology, and training.

It also pushes you to display ever-bolder leadership, which drives your continued success.

Skilled Employees. People quit their jobs every day, including talented insurance professionals. If you don’t recognize this possibility, you risk a potentially devastating impact to operations.

Consider this

issue in both positive and negative terms.

Minimize potential employee exits by giving everyone a fair compensation package, providing a safe, pleasant work environment — and for your protection, have a well-crafted employment contract.

Service. It’s wise to anticipate that your front-line staffers can unceasingly improve their skills. Negative person-to-person interaction adversely affects retention, new sales, and carrier-agency relations. Monitor how your producers and representatives act, and provide corrective training as needed.

Encourage employees to serve and sell in tandem and to positively prioritize each client’s needs over their own.

Claims. Every claim that’s filed, covered or declined, is a negative unto itself. Each claims vent reveals the obvious fact that bad stuff happens every day. As such, historical narratives of such occurrences (with identities purged) are potential positives to both sellers and buyers. Claims encourage agencies to suggest broader protection, and encourage prospects and insureds to acquire more of what they need.

Kittens and Rainbows. If everyone were always worry-free, you’d be out of business.

Folks and firms, without anxieties, don’t need to buy peace of mind because they already have it. You need to continuously jar complacent people into recognizing the realities of the risk-filled world around them. It’s your profession to be an alarmist, to offer sound advice and to reasonably profit off of the resulting insurance policy sales. The world isn’t just kittens and rainbows; too often, it’s downright disquieting.

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

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

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IDEA EXCHANGE

Human Resources Revamp Your Current Millennial Retention Practices

T

he Millennial generation is making big waves in the business world. Already 77 million strong and accounting for 25 percent of the U.S. workforce, Millennials are redefining the workplace of the future. Unfortunately, Millennials also have a much higher introductory turnover rate than their predecessors. According to

By David E. Coons Forbes, 60 percent of Millennials are expected to leave their companies within the first three years, costing their employers an average of $20,000 each.

To better compete in today’s labor market, a number of organizations are turning toward tactical strategies including increased salaries, benefit updates and restructured compensation packages.

While these tactics have proven successful in attracting emerging professionals, organizations looking to retain Millennial talent must undertake a more strategic approach. So what can organizations do to keep tomorrow’s leaders engaged in today’s competitive labor market?

Recruit for the Right Organizational Fit Glassdoor recently reported that company culture is the second-highest priority among job seekers after salary. As Millennials continue to place emphasis on culture fit as a job search criteria, ensuring that your new employees are a match with your company’s values is important in making a lasting hire.

Despite organizational knowledge of the importance of an employer-employee match, 89 percent of today’s hiring failures are the result of a poor culture fit.

Much of this disconnect can be linked back 36 | INSURANCE JOURNAL-NATIONAL April 20, 2015

to a missed opportunity during the hiring process. Organizations are often waiting too long to discover whether their candidate is truly a fit with the organization.

Aligning a candidate’s career aspirations with your organization’s ability to deliver can help alleviate some of these issues. Use the interview process to drill down and get a better understanding of what candidates really want when they mention more open-for-interpretation perks including technology and flexible scheduling.

For example, what does a candidate truly mean when they say they are looking for a company that offers good work/life balance?

Are they seeking an opportunity with open start and end hours? Perhaps they desire a chance to telecommute on a regular basis. If the answers do not line up with something that your organization can offer, or would be willing to offer, then this is not the right candidate for that role.

Companies may also consider surveying their departing staff to determine what exactly is causing them to leave. Maybe they were looking for an organization that had less of a suit-and-tie atmosphere, or perhaps the prevalence of cubicle Nerf wars was not in line with their idea of a casual workplace. If you can pinpoint the exact causes behind employee turnover, your organization can tailor interview questions to determine during the initial candidate discussion process whether these scenarios are going to be a future issue.

Discuss and Define Expectations Up Front Many of today’s Millennial professionals have, at one point, participated in an organized activity — such as a sport or club — where they were presented with a leader figure who immediately set the ground rules and expectations for their participation. They look for these types of individuals to provide them with insights on how things work and what is required of them within a particular role or organization. Unfortunately, that practice has not translated into the business world.

Coincidentally, a number of young employees come into the job on day one with expectations for their career that may not be realistic within their current environment. As a result, they become frustrated and disengaged with their jobs and eventually leave for “greener pastures.”

To combat this, organizations should set ground level expectations for new employees.

For example, a recently hired customer service representative may be looking to take on a supervisory or management role within one year to keep pace with his or her peers. Your organization, on the continued on page 38 www.insurancejournal.com

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Human Resources

continued from page 36 other hand, requires the achievement of certain milestones or a set number of years of experience before granting an upward move.

This disconnect between the employer requirements and the employee’s job and career path expectations can often lead to

frustration, disillusionment, and even a voluntary separation.

However, sharing these expectations and discussing processes with new hires can ensure they are aware of on-the-job requirements and are better able to manage their careers.

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Develop a System of Reward and Recognition Today’s Millennial professionals are looking for acknowledgment of their efforts and outcomes in the workplace. They want to know that their contributions are appreciated and their hard work is recognized.

Organizations should consider providing recognition, not only for business “successes,” but also for a job well done. Embrace a mindset of “everybody gets a trophy” where the trophy recognizes achievements at all levels, not just the standard “win.” While some may bemoan Company culture is the the second-highest priornotion of ity among job seekers everyone after salary. receiving a “trophy” as an overindulgence, incorporating this practice can be advantageous. If employees go above and beyond to provide research on a project or step up to the plate to provide backup for coworkers who were on vacation, acknowledge them for their work.

Young professionals are also on the lookout for the ability to develop and expand their skills. Use their successes as a chance to provide advice and feedback. Often, this opportunity for learning is the perfect “trophy” for a job well done.

With the labor market becoming increasingly competitive, retaining the next generation of emerging talent is key to ensuring your organization’s success. The global workforce is on the cusp of a talent crisis, with more than 1 million professionals expected to retire in the next 10 years. The influx of Millennials into the workforce is the key solution to bridging this gap and ensuring organizational success. Reviewing your current engagement strategies and taking a more strategic approach to your retention practices may be the deciding factor when it comes to keeping your Millennial professionals for the long term.

Coons is senior vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: dcoons@ jacobsononline.com.

INSBAA16721.indd 1

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www.insurancejournal.com

IDEA EXCHANGE

Minding Your Business Creating Performance-Based Compensation

F

or many businesses and employees, the standard business model is for the employer to pay the employee a fixed salary based on a basic understanding that the employee will perform certain tasks.

Compensation might be altered based on some variables like overtime, time not worked, annual pay

By Catherine Oak & raise or perhaps a periodic bonus system. This system works reasonably well and will likely be used in the foreseeable future.

Of course there are many exceptions Bill Schoeffler to this system, most notably producers that get paid based on commission. Others that might get paid on a per-work-handled basis could include production line workers, doctors, telemarketers and home-based piecemeal workers.

The employee salary model works because it is easy to understand and implement. Its success, however, relies on the law of averages. That is, on average, employees are satisfied with their pay, and on average, employers are satisfied with the employees’ performance. Problems show up at the detail level — individual employee dissatisfaction with pay and individual employer dissatisfaction with performance.

Another key problem is that there is not a clear and immediate connection to what the employee does and the success of the business. The employee expects to get paid whether the business is making money or not. Also, most employees expect to get paid whether or not they performed their best.

In general, salaried employees expect an annual pay raise of around 3 percent to 5 percent, plus some sort of bonus. Bonuses are often subjective, but might be based www.insurancejournal.com

on reaching goals or profitability of the firm. Typically, this approach means that compensation costs will go up every year, regardless of employee productivity or growth in sales. This compensation model is often referred to as “merit” based compensation, but despite a regular pay raise, it is not always reflective to its merit.

A related problem is that owners and managers tend to lose track of individual employee performance and focus on the big picture and annual results. If things are OK and the work is being handled, who cares who does it, right? Unfortunately, this leads to poor performers blending in with the rest of the employees. The high-performers often tend to feel frustrated or taken advantage of, which impacts morale. Management does not have great leverage to correct performance because pay increases, bonuses and employee reviews are once a year.

Besides, it is a hassle to fire people, even if they are not doing their job.

Performance-Based Compensation For some businesses, a good alternative is

to incorporate performance-based compensation into the overall compensation model.

The concept is that the employee receives monetary compensation for performing very specific measurable tasks.

The theory is that if the employee does A, B, C and D, then their overall job will be done properly and the business will be going in the right direction. This business model requires the designing and tracking of certain key performance indicators (KPIs), which eventually indicate the overall health and direction of the firm. What gets measured gets done.

Management needs to shift from only a big picture approach to incorporate individual performance, because they will be involved with tracking the numbers. It is also a very valuable exercise for business owners and managers to analyze the business and decide what the KPIs should be for each job. The good news is that the exercise will clearly show what steps need to be taken for the agency to be successful.

It also requires the business to hire continued on page 40 April 20, 2015 INSURANCE JOURNAL-NATIONAL | 39

IDEA EXCHANGE

Minding Your Business continued from page 39 employees that are willing to buy in to this model. Variable pay will not sit well for some people, especially at first. However, if designed correctly, performance-based compensation will allow top performers to shine and underperformers to go away. Not all people will fit in, so expect some attrition with the staff.

What Does It Look Like?

Some insurance agencies are already doing a little of this approach by offering incentive programs for the staff to sell new business or cross-sell existing customers.

These incentives can either be a flat dollar amount or a percentage of the commissions. When the employee does X, they will earn Y. The next level of performance-based compensation is to freeze salaries at the current level and then provide periodic

(monthly, quarterly or annually) bonuses based on reaching goals or specific KPIs. This approach helps stabilize the cost of compensation and rewards behaviors that should then lead to an increase in revenue and profits.

The agency can afford to pay more when it makes more. It will also reward those that contribute to the success of the agency to make more money. Those that do the bare minimum will stay at the same compensation level.

For example, a CSR’s salary can be set at $50,000 based on handling a $250,000 commission book of business. If that book of business were to grow to $285,000 at the end of the year, the CSR would earn a $5,000 bonus. This means that if they were to do more work, they get more pay.

If the book decreases, there is no bonus.

The $50,000 salary stays flat the following

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year, but revisions to the measurements and bonuses can occur.

Measuring workload by the commissions handled is a simple approach, but it does not factor in outside influences on the result, such as the role of the producer, insurance companies, the economy, etc.

It is much better to set some, if not most performance standards based on tasks that are generally in the control of the employee.

Keep in mind that the purpose is to encourage behavior that generates desired results.

Therefore, it is a good idea to also factor in department and agency-wide performance into the equation. Teamwork is part of the overall success of any business.

What Are KPIs? Here is where designing the right KPIs will make the business successful. The three primary parts of business for an insurance agency are sales, customer service and backroom/administration.

Employee KPIs should include one or two from each of these areas. KPIs for sales could include actual sales results, as well as cold calls made or referrals received.

Customer service could include feedback from the customers, account retention rate, and thank you notes sent out. Backroom/ administration could factor in accuracy in records, average turnaround time for specific tasks, or compliance with agency policies and procedures.

A benchmark is set for these KPIs with an allocation of the compensation the employee can earn. In many cases, it is best to have a scale and not an all-or-nothing approach. This way, the employee can still earn decent compensation even if he or she misses the mark in an area or two, like getting only 85 percent of the quotes done on time.

If the current salary is frozen and this approach for performance compensation is adopted, it will seem a bit more like a way to measure performance for bonuses, which is a good start. The next level — where only part of the current compensation is fixed (e.g. 50 percent or 75 percent of current level) — and the rest of the employee’s www.insurancejournal.com

compensation is based strictly on performance. This will require a leap of faith for some. However, it is a really good way to separate the performers from the non-performers.

Some agencies are even moving toward a system where 100 percent of the compensation is based on performance results. This requires a change in thinking for employees, managers and owners, as well as a real commitment to follow through by everyone in the agency to ensure success. However, it will create a clear understanding of what needs to be done to generate the results that make the business successful, and reward those that perform.

The Downside Tracking employee performance will add some complexity to handling the payroll. Depending on the KPI, it might be calculated from the agency management system, an Excel spreadsheet or even can be self-reported. This all needs to be compiled, and payroll needs to be calculated from the results. The upside of regularly tracking employee performance is it also tracks the key measurements that drive the business, which helps management make better decisions.

There are some options to simplify the process. First, use KPIs that are easy to track. Next, use something like an Excel spreadsheet to enter the data and make the calculations. There are even third-party options. One company, Catalyst Insurance Systems, has created a software system called Symphony where employees enter their KPI results and the system compiles the data and then calculates the payroll.

Once it is set up, management just monitors the overall results.

There is some belief that performance-based pay might actually lead to the opposite of its intent for cognitive (not physical) work. In the book, “Drive: The Surprising Truth About What Motivates Us,” Daniel Pink discusses studies that show the carrot-and-stick approach is outmoded when it comes to jobs in the 21st century. He cautions against pay based www.insurancejournal.com

on performance, for cognitive type jobs, which service work might be classified as.

However, his assumption is that the performance-based pay system is structured to appear like a reward/punishment system.

Therefore, it is important to foster the philosophy of “intrinsic motivation” into the new compensation model. Employees need to feel the joy of doing the task itself in order to be motivated. A well-structured performance-based compensation model will create the atmosphere of self-determination that is important to today’s employees. It will give the employee control over what they do and the results they get, helping them achieve a richer life. Performancebased compensation, when done properly with the right people, will be the elixir to great employee motivation.

Summary The old business model treats employees

as an expense, while treating machines and furniture as an asset. It is time to explore new options and develop a new business model. This includes creating a compensation system that aligns the employees’ performance and goals along with those of the business.

A performance-based compensation system will create a new culture for the business. Employees will gain a new sense of control and empowerments as they can directly see how their work impacts the success of the business and their fellow workers.

Oak the founder of Oak & Associates and Schoeffler is a consultant for Oak & Associates, an international consulting firm specializing in valuations, financial management, mergers and acquisitions for the insurance brokerage industry. Email: catoak@ gmail.com. Phone: 707-935-6565. Website: www. oakandassociates.com.

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April 20, 2015 INSURANCE JOURNAL-NATIONAL | 41

IDEA EXCHANGE

Closing Quote

5 Myths About Cyber Security and Data Breaches

D

By Dena Magyar

ata privacy is a rapidly evolving area with many misconceptions. Being aware of such myths puts agents at an advantage as they can explain, in relatable terms, why their clients need to focus on this issue.

Security and data breaches take place daily, and they don’t favor one organization or industry over another.

Companies should consider the “how” of a breach as opposed to the “who” to evaluate their exposure to a similar event. Until recently, many considered data and network security risk trivial compared to threats like theft, slip and falls and workplace violence. But with the compromising of data and computer systems occurring at much greater frequency, it’s one risk you don’t want to underestimate. Reputational harm stemming from a poorly managed breach can be catastrophic.

Consider the recent breach on the nation’s second-largest health insurer affecting more than 80 million customers and employees. Many believe healthcare providers are soft targets due to a lack of technology, but a data security approach that focuses on technology at the expense of people and processes will not be effective.

Five Myths You Can’t Afford to Believe Network security and data privacy is only a problem for

42 | INSURANCE JOURNAL-NATIONAL April 20, 2015

large companies. Data privacy and network security is a concern for any size organization. Rogue employees, data thieves, and unscrupulous business associates look to take advantage of any weakness. Additionally, human error by negligent or careless staff accounts for a surprising number of breaches around the country. The costs incurred as a result of a data or security incident can be crushing for any size business.

We can afford to self-insure the risk. With greater demands on limited budgets, many organizations spend less on discretionary items, such as certain lines of insurance.

They wrongly believe that, if something happens, they can afford to cover the costs. The average cost of an insured breach in 2013 was $733,000, according to the NetDiligence Annual Claims study. While these costs can be insured, incident response expenses alone, including legal, forensic investigation, notification, monitoring and public relations expense add up very quickly. This is a great talking point for potential clients on the fence over cyber insurance.

Insurance coverage is expensive and hard to get. This perception was true 10 years ago, but not today. Increased market capacity, claims experience and a larger pool of buyers have made network security and privacy liability insurance coverage more cost effective and easier to obtain.

Our general liability policy will cover us. General liability insurance typically covers bodily injury and property damage. The courts have consistently ruled that data is not property and is considered intangible. Tell your clients if they don’t carry specialized coverage for financial injury arising from a failure ‘The average cost of of security or a failure to protect confidential an insured breach in information, they’re 2013 was $733,000.’ probably exposed.

We have vendors who handle our sensitive information and credit card transactions; if they have a breach, it’s their problem, not ours. Not generally true. The data owner is ultimately responsible for that data. Therefore, a breach at a trusted contractor still triggers notification obligations — this risk can’t be transferred to that vendor partner.

From a small burger joint in California to a local dental clinic in Washington, these data breaches are occurring.

Transferring the risk brings not only financial security but also, in many cases, loss control services. Many carriers are offering value-add services with their insurance products that make the insured a better risk. It’s a win-win.

Magyar is a technology privacy and network risk practice leader for Wells Fargo Insurance. Phone: 704-553-6002; Email: dena.l.magyar@ wellsfargo.com.

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