Insurance Journal West 2016-07-11

WEST REGION Twist in Colorado MJ Debate Lyft’s $27M Settlement Deal Calif.’s Last Nuke Plant Closing

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Contents July 11, 2016 • Vol. 94 No. 13 • West

National

West

14 S&P: Private Flood Insurance

W1 California’s Last Nuke Plant Would Be Closed by 2025 Under Deal W2 New Twist in Colorado Marijuana Debate: Why Not Allow Pot Clubs?

W2 More California Drivers Spotted Using Cellphones, Traffic Report Shows

Products to Trickle In

18 QBE Weighs Brexit-Effect; Marsh Considers Some Brexit Scenarios

W1 CALIFORNIA’S LAST NUKE

PLANT WOULD BE CLOSED BY 2025 UNDER DEAL

Statistical Models Might Aid in Zika Risk Management

28 Special Report: Pandemic Insurance to the Rescue

W4 Applied Underwriters’ Workers’ Comp Business Faulted by California Regulator

Idea Exchange 22 Academy Journal: CoBRA Zones, OPAs and Flood Coverage

Takes Cycling to the Specialty Insurance Market

26 Special Report: How

W2 Judge Allows Bulk of Starbucks Suit in California over Lattes to Proceed

W4 Judge in California Approves Lyft’s $27M Driver Settlement Deal

20 Closer Look: Velosurance

14 S&P: PRIVATE FLOOD INSURANCE 28 PANDEMIC

INSURANCE TO THE RESCUE

32 Tech Talk: Digital Dinosaurs and Insurance Competency

34 The Competitive

Advantage: Chris Burand

35 Is It Time to Dust Off Your CAT Program?

38 Closing Quote: Preparation Before the Storm

8 | INSURANCE JOURNAL | WEST JULY 11, 2016

Departments 15 Declarations 15 Figures 15 InsuranceJournal.com Poll 16 Business Moves

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Economic Cost of Pandemics

A

pandemic influenza outbreak in the United States could have economic costs nearly double the total amounts experts have previously calculated, depending on how the public, government and businesses respond to an epidemic, according to policy and risk experts in a new study.

Using a methodology also applicable to the Zika virus and other biothreats to calculate the total cost of an influenza outbreak, the experts conclude that if the public used influenza vaccines during a pandemic outbreak the U.S. GDP loss would be $34. 4 billion. It would be a lot higher, however, if the public didn’t use vaccines: $45.3 billion.

That’s a much larger price tag than other studies have found. But it’s not just the use or non-use of vaccines that drives costs, the researchers note.

Most economic studies of pandemic influenza focus on direct impacts such as vaccination, hospitalization, injury, death and business revenue or profit losses from reduced workforce. But those conventional direct and indirect economic impacts related to lost work days “can be exacerbated greatly by various types of behavioral reactions and over-reactions by the public, businesses and governments,” says Fynnwin Prager of California State University, Dominguez Hills. Behavioral reactions include, for example, voluntary and mandatory avoidance of public places and interactions, such as sporting events, subway stations, quarantines and travel bans, with significant economic ripple effects.

The new study by Professor Prager and colleagues Dan Wei and Adam Rose of University of Southern California — “Total Economic Consequences of an Influenza Outbreak in the United States”— was published in the online version of Risk Analysis, a publication of the Society for Risk Analysis.

In their study, the authors estimate “the relative prominence of the various economic consequence types,” as well as complicating factors, many of which have not been addressed in any prior study. These complicating factors include different types of avoidance behavior.

They also include what are called resilience actions, such as partnering with businesses to FOR QUESTIONS encourage individuals to return to work soonREGARDING SUBSCRIPTIONS: Call: 855-814-9547 er and make up for lost work through flexible Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: working hours to recapture lost production. insurancejournal.com/subscribe These resilience actions can soften the overall Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media impact of an influenza outbreak.

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 The analysis “illustrates the importance of a per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubmore comprehensive framework for accuratelication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended ly measuring the macroeconomic impacts of to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2016 Wells biothreats,” the authors write.

Media Group, Inc. All Rights Reserved. Content may not be photo-

Resilience actions can soften the overall impact of an influenza outbreak.

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

Editor-in-Chief Andrea Wells awells@insurancejournal.com

West Sales Dena Kaplan (800) 897-9965 X115 dkaplan@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com

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Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Chris Burand, Tom Wetzel Contributing Writers Michael Carlson, David Coons, Scott Fallon, Dough Fullam, Dake Kang, Lorin Montgomery, Jacob Parsons, Mark Schwartz, Bruce Shipkowsi IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen bwhiffen@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

Marketing Director Derence Walk dwalk@insurancejournal.com Marketing Administrator Gayle Wells gwells@insurancejournal.com

NEW MEDIA

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Chief Marketing Officer Julie Tinney (800) 897-9965 X148 jtinney@insurancejournal.com

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10 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

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National

‘At this point, we don’t expect a wave of private insurers to sweep into this market but rather a trickle, as insurers would enter cautiously before they become more comfortable with the risks involved.’

S&P: Private Flood Insurance Products to Trickle In Slowly

O

pening U.S. flood insurance to private insurers won’t lead to a surge of new market entrants, Standard & Poor’s asserts in a new report.

Even if Congress passes legislation to make the change as it is widely expected to do, insurers have a number of obstacles to overcome first, the ratings agency said.

“They’ll need to surmount several difficulties in underwriting, modeling and pricing flood risk,” S&P said. “At this point, we don’t expect a wave of private insurers to sweep into this market but rather a trickle, as insurers would enter cautiously before they become more comfortable with the risks involved.”

Right now, the National Flood Insurance Program handles the bulk of flood insur14 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

ance in the U.S.; it is a federal government option created to make flood insurance affordable in flood-prone areas. At the end of April, House members passed the Flood Insurance Market Parity and Modernization Act (H.R. 20901) unanimously, a measure designed to open the market to additional private insurers and give consumers more choices. The U.S. Senate is expected to consider the bill.

A.M. Best has said “there are benefits to be gained from a legitimate expansion of the current flood insurance market” that enables private insurers to join in.

Standard & Poor’s notes that the NFIP is dealing with steep losses due to claims severity from previous floods, and points out that ongoing reforms to the program

could encourage private insurers to join.

S&P is more neutral, however, as to whether that would be a good thing.

“Although a few insurers have experience in flood insurance, many will have to improve their claims handling capabilities if they want to provide flood insurance in a significant way,” S&P noted. “As of now, we believe a slight increase in flood exposure wouldn’t significantly affect our financial strength rating on a given company.”

All bets are off, however, if private insurers were to make an aggressive grab. “If private insurers were to enter ... aggressively without proper underwriting guidelines, models, and risk tolerances/limits in place, we could take some rating action on the insurers,” S&P said.

INSURANCEJOURNAL.COM

West

California’s Last Nuke Plant Would Be Closed by 2025 Under Deal

C

alifornia’s last nuclear power plant will close by 2025 under an accord announced in June, ending three decades of safety debates that helped fuel the national anti-nuclear power movement.

The state’s largest utility, Pacific Gas & Electric Co., and environmental groups announced the agreement on the Diablo Canyon nuclear plant, which sits along a Pacific Ocean bluff on California’s central coast.

INSURANCEJOURNAL.COM

Environmentalists had pressed the Nuclear Regulatory Commission for years to close Diablo, given its proximity to seismic faults in the earthquake-prone state.

Under the accord, PG&E has agreed not to seek relicensing for the plant, which supplies 9 percent of the state’s power.

The deal will replace the plant’s production with solar and other forms of energy that don’t emit climate-changing greenhouse gases.

“The important thing is that we ultimately got to a shared point of view about the most appropriate and responsible path forward with respect to Diablo Canyon, and how best to support the state’s energy vision,” the utility’s leader, Tony Early, said in a statement.

The move ends a power source once predicted to be necessary to meet the growing energy needs of the nation’s most populous state.

Copyright 2016 Associated Press.

JULY 11, 2016 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

New Twist in Colorado Marijuana Debate: Why Not Allow Pot Clubs

L

egal marijuana is giving Colorado a stinky conundrum. Visitors can buy the drug, but they can’t use it in public. Or in a rental car. Or in most hotel rooms.

The result is something marijuana advocates and opponents feared — people toking up on sidewalks, in city parks and in alleys behind bars and restaurants — despite laws against doing so. And they’re getting dinged with public marijuana consumption tickets.

From the capital city of Denver to mountain resorts like Aspen and Breckenridge, police wrote nearly 800 citations in for the new crime of public consumption in 2014, the first year recreational sales began.

Some legalization advocates believe they have a solution — pot clubs. Denver voters may consider a ballot measure this fall to expressly allow pot clubs.

But marijuana clubs have proven a harder sell here than legalizing the drug in the first place.

The amendment that legalized marijuana doesn’t give people the right to use it “openly or publicly.” But Colorado’s constitution doesn’t ban public use either, leading to a confusing patchwork of local policies on weed clubs.

Denver and Colorado Springs have existing pot clubs, but the clubs operate somewhat underground with occasional police busts.

The small northern Colorado town of Nederland regulates a club that advertises, “out of state, out of country, and of course locals are welcome.”

Things are more complicated in the Denver suburb of

Englewood, where city council members were apparently taken by surprise that the city had licensed a pot club. They then voted 7-0 last month to allow no more clubs.

No other states with legal recreational pot have licensed clubs. Alaska’s Marijuana Control Board voted last year to repeal an explicit ban on social marijuana clubs, but the state hasn’t yet finished work on the potential to allow for people to use pot at certain stores that sell marijuana.

Law enforcement officials

have said the clubs could lead to more impaired driving, though there’s no evidence that existing underground clubs have been linked to traffic accidents or crime.

Others worry that pot clubs would further encourage minors to try the drug.

Marijuana activists trying to get a club measure on Denver ballots say pot skeptics should welcome clubs for just that reason.

“You don’t want it in your face? Great. Let’s get it off the street,” said Jordan Person, head of Denver NORML, which is backing the ballot measure.

“We’re not going to put more people on the road high.

They’re already there, probably driving while they use it. So this is better than that.”

Copyright 2016 Associated Press.

More California Drivers Spotted Using Cellphones, Traffic Report Shows

Judge Allows Bulk of Starbucks Suit in California over Lattes to Proceed

he number of California drivers using cellphones is rising, as are deaths and injuries blamed on distracted driving.

The California Office of Traffic Safety reported in late June that nearly 13 percent of drivers were seen using mobile devices in an April survey.

That’s up from about 9 percent last year and exceeds the previous high of about 11 percent in 2013.

The number of drivers killed or injured in crashes where

federal judge is allowing the bulk of a lawsuit accusing Starbucks of systematically under-filling lattes to move forward.

Two California residents are suing the Seattle-based coffee chain, claiming that Starbucks lattes are only filled to about 75 percent of the cup’s capacity. The lawsuit says Starbucks instituted a recipe in 2009 to create smaller lattes in order to save money on milk.

A federal judge in San Francisco has thrown out three of the eight claims

T

distracted driving was a factor increased each of the last three years, to more than 11,000 last year.

Nearly 60 percent of drivers reported they have been hit or nearly hit by another driver using a cellphone.

The California Highway Patrol wrote more than 13,000 distracted driving tickets in April alone.

Copyright 2016 Associated Press.

W2 | INSURANCE JOURNAL | WEST JULY 11, 2016

A

filed against Starbucks.

Starbucks spokesman Reggie Borges says in a statement that the company believes the lawsuit is “without merit” and it will be prepared to defend itself in court. He says if a customer is unhappy with their beverage, Starbucks “will gladly remake it.”

Copyright 2016 Associated Press.

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WEST | News & Markets

Judge in California Approves Lyft’s $27M Driver Settlement Deal

By Dan Levine

A Applied Underwriters’ Workers’ Comp Business Faulted by California Regulator

By Jonathan Stempel

C

alifornia’s insurance commissioner said in late June a Berkshire Hathaway Inc. insurance business evaded a state law designed to protect small businesses from unexpected workers’ compensation costs.

Commissioner Dave Jones faulted Berkshire’s Applied Underwriters Inc. and California Insurance Co. units over the sale to Shasta Linen Supply Inc. of a nontraditional workers’ compensation policy whose terms and rates had not been reviewed by state officials.

Jones said the policy sold by Applied essentially replaced a policy sold by California Insurance, and subjected Shasta, a family-owned employer of 63 people, to hundreds of thousands of dollars of extra costs. He ordered a refund of extra sums that Shasta paid.

“California employers should be able to trust that their insurance companies are doing business by the book and not exploiting them in the name of profit,” Jones said in a statement. “Unfiled rates and unfiled major policy terms are void as a matter of law.”

Berkshire had no immediate comment. Applied and a lawyer for California Insurance did not immediately respond to requests for comment. Shasta’s lawyer did not immediately respond to similar requests.

W4 | INSURANCE JOURNAL | WEST JULY 11, 2016

Workers’ compensation insurance typically covers lost wages and medical costs for employees injured on the job. Jones said it is mandatory in California.

The 70-page decision issued June 20 is a rare regulatory critique of Berkshire’s insurance operations, which account for roughly a quarter of operating profit at the Omaha, Nebraska-based conglomerate run

by Warren Buffett.

The policy in question is called EquityComp, which Berkshire has said carries a profit-sharing component and is meant for medium-sized employers.

Jones said EquityComp was launched in 2008, and now generates 80 percent of California Insurance’s policy premiums.

He said it has helped the company roughly triple its profit and market share in the state, while reducing the percentage of premiums used to pay claims to well below industry norms.

“CIC knew of the review and pre-approval process and deliberately ignored that process,” he wrote.

Jones said he ordered a review by the state’s insurance department of whether Berkshire and its rivals are selling other unfiled workers’ compensation policies.

He said the outcome will determine whether enforcement actions and penalties are justified.

Reporting by Stempel in New York; Editing by Marguerita Choy. Copyright 2016 Reuters.

U.S. judge granted preliminary approval to ride service Lyft’s $27 million settlement of a class action lawsuit brought by California drivers who claimed they should be deemed employees instead of independent contractors.

U.S. District Judge Vince Chhabria in San Francisco previously rejected a $12.25 million deal as too small.

Lyft and larger rival Uber are attempting to resolve lawsuits by drivers who contend they should be classified as employees and therefore be entitled to reimbursement for expenses, including gasoline and vehicle maintenance.

Drivers currently pay those costs themselves.

The profits and valuations of so-called on-demand technology companies would be affected by a determination that these workers are employees.

Chhabria had said the previous Lyft deal “short-changed” drivers because it represented only 9 percent of the potential value of drivers’ reimbursement claims. The new deal represents roughly 17 percent.

In a statement, Lyft said it was pleased with the ruling, adding that the deal will preserve the flexibility of its drivers. Shannon Liss-Riordan, an attorney for drivers, said she was pleased with the order.

Chhabria will likely set a hearing for later this year to consider final approval.

Uber has agreed to settle a similar suit involving California and Massachusetts drivers in a deal worth up to $100 million. That agreement is under review by a different federal judge.

Reporting by Levine; Editing by Leslie Adler. Copyright 2016 Reuters.

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WEST | News & Markets

Unlicensed Agent Nabbed for Stealing More Than $140K in Premiums

R

obert Meseer, 63, of Westminster, was arrested last month by California Department of Insurance investigators on 32 felony counts of grand

theft, insurance fraud, and forgery after acting as an insurance agent to allegedly steal more than $140,000 from several business owners.

Evidence revealed Meseer, doing business as MRM Insurance, began illegally managing MRM Insurance after a relative’s license expired in 2009. The relative had been operating the agency, which gave Meseer access to client files and allowed him to implement various schemes to bilk premiums from unsuspecting policyholders, according to CDI investigators.

After receiving a referral from a business owner who discovered Meseer had issued them a bogus insurance certificate listing a nonexistent insurance company, the CDI launched an investigation.

Additional evidence revealed numerous alleged violations by Meseer, including issuing bogus insurance documents, overcharging several times the amount of the premium, giving inflated billings, not disclosing the true cost of coverage to customers, renewing policies without forwarding’ premium payments, and even soliciting new insurance business, all without a proper license, the investigation showed.

Meseer was booked into Orange County Jail and bail is set at $100,000. The Orange County District Attorney’s office is prosecuting this case.

“Meseer’s alleged criminal acts exposed victims to thousands of dollars of financial risk and loss,” Insurance Commissioner Dave Jones said in a statement. “It is important for consumers and businesses to check on the license status of any agent in order to protect themselves and their finances.”

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Figures

46

The percentage of Northwest drivers who admit to using their phone to talk or text while driving, at least on a few trips, when they know it’s against the law, a poll by insurer PEMCO found.

$242,717

$268 MILLION

The amount that each of 18 immigrant car wash employees in New York and New Jersey received as part of a federal court settlement for unpaid wages, making it the biggest per-worker recovery in the car wash industry, lawyers said. The agreement awarded the final part of a $1.65 million settlement to the workers, who were said to have earned less than $20,000 a year at four car washes owned by J.V. Car Wash Ltd. INSURANCEJOURNAL.COM

Moped Safety

“Literally, you can be stinking drunk on a moped and can’t be arrested.”

— South Carolina State Sen. Greg Hembree, in response to the lack of regulation for mopeds. Gov. Nikki Haley vetoed a moped safety bill in June that would have required moped drivers under 21 to wear helmets and reflective vests for nighttime driving and would have created a special moped license.

Pipeline Shortcuts

“Instead, it chose a cheaper method that did not ensure the safety of pipelines running through high-consequence areas.”

— Assistant U.S. Attorney Hallie Hoffman said Pacific Gas & Electric Co. ignored pipeline safety regulations to cut costs and tried to cover up its illegal practices by misleading federal officials investigating a deadly explosion of one of its natural gas pipelines in the San Francisco Bay Area.

Baylor Sexual Assault

“(S)exual assault issues at Baylor were not an ‘athletic department issue,’ but were an institution-wide problem that Baylor and Baylor regents failed to properly address.”

— A federal lawsuit accuses the school of creating a “hunting ground for sexual predators.” Brought by a former student, the suit is the third in recent months to claim the school was indifferent to or ignored claims of sexual assault.

The amount an Independence, Mo., woman must pay in restitution to her victims after pleading guilty to participating in a conspiracy to commit arson and wire fraud, and one count of mail fraud. Tina Shonk was also ordered to pay $62,364 to the government and spend three and a half years in prison without parole for arson and insurance fraud scheme.

$91,000

Declarations

Between a Rock and Hardship “In short, Ohioans who trusted in the Obamacare marketplace now find themselves between a regulatory rock and financial hardship.”

— Ohio Republican Sen. Rob Portman on the possibility that nearly 22,000 Ohioans could end up paying much more for health care as their struggling insurer, InHealth Mutual, winds down its operations.

No Cyber Impunity The number of controlled substances expected to be dispensed in West Virginia by the end of the year, a decrease from the 295 million doses of drugs dispensed in 2011.

Dispensing of the opioid hydrocodone has dropped by 40 percent in the five-year-period, while the number of oxycodone pills has remained largely unchanged. The painkiller tramadol has increase 30 percent. West Virginia has the highest drug overdose rate in the nation.

$250,000 The amount in false insurance claims filed by a Pulaski County, Ark., fleet records clerk who processed insurance claims involving county vehicles and equipment. Wanda Wyatt was charged with creating false accident reports and submitting them to the Central Arkansas Risk Management Association.

“Many foreign cybercriminals believe they can operate overseas with total impunity, but this case proves they can be held criminally responsible for their actions, which can have devastating consequences on thousands of victims at a time.”

— Manhattan District Attorney Cyrus R. Vance Jr., after Vadim Polyakov, a Russian, admitted to coordinating an international operation that took over San Francisco-based StubHub users’ accounts.

InsuranceJournal.com

Poll

How should ridesharing drivers like those who drive for Uber and Lyft be classified?

Other (1.08%)

A new classification is needed

14.46%

20.81%

As employees

63.65%

As independent contractors

Total Votes: 740

JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Business Moves benefits industry experience.

He will be senior benefits consultant at NFP. New York-based NFP provides employee benefits, property/casualty, retirement, and individual insurance and wealth management products and services through licensed subsidiaries and affiliates.

Bearence Management Group, AERO Risk Management

Rogers & Gray, Albert Brock Co.

Cape Cod, Mass.-based Rogers & Gray Insurance has acquired the independent insurance agency, Albert G. Brock Co., located on Nantucket Island, Mass.

The newly formed entity will now be known as Brock Insurance, a division of Rogers & Gray.

The Brock agency has served Nantucket Island businesses and residents for 130 years and will continue to operate in the same location, and employees will remain with the agency.

Founded in 1906 in Orleans, Rogers & Gray Insurance is an Insurance Journal Top 100 independent insurance agency and was selected as Insurance Journal’s “Best Independent Insurance Agency to Work For” in the nation in 2015.

Farmers National Bank, Bowers Insurance Agency

The Farmers National Bank of Canfield, Ohio, has acquired the Bowers Insurance Agency Inc. The transaction closed on June 1, 2016, and is expected to

be accretive to earnings immediately.

The Bowers Group will continue to operate under its name from its location in Cortland, Ohio, but is expected to merge with Farmers National Insurance LLC, Farmers’ wholly owned insurance agency subsidiary.

The Bowers Group will be a business extension of Farmers’ Wealth Management division, and Farmers’ financial experts will be able to offer full-service programs to all current Bowers Group customers, including private client, retirement, investments, trust and insurance.

NFP Corp., Benefits Solutions Plus

Insurance broker and consultant, NFP Corp. has acquired Benefits Solutions Plus Inc. (BSP), based in Anoka, Minn.

BSP is a benefits brokerage that specializes in providing group health plans and ancillary products for small- to midsize employers.

BSP Principal Allan Glad has three decades of insurance and

16 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

Bearence Management Group, based in Des Moines, Iowa, and AERO Risk Management, headquartered in Minneapolis, have formed a strategic partnership to provide clients of both firms with access to expanded risk management and insurance placement capabilities.

In conjunction with the agreement, AERO’s specialized aviation risk and insurance services will be available to Bearence clients, and Bearence’s broad range of property and casualty, employee benefits, and financial strategies capabilities will be available to AERO clients.

In addition to Des Moines, Bearence Management Group has offices in Mendota Heights, Minn., and Overland Park, Kan. The firm was founded in 2005.

AERO Risk Management has specialized risk management and insurance brokerage services to clients whose primary business is aviation, and to those who use aviation to support their business.

Arthur J. Gallagher & Co., Ashmore & Associates Insurance Agency

Arthur J. Gallagher & Co. has acquired Ashmore & Associates Insurance Agency Inc. head-

quartered in Lubbock, Texas.

Terms of the transaction were not disclosed.

Founded in 1984, Ashmore & Associates Insurance Agency Inc. is a retail insurance broker providing property/casualty, employee benefits consulting, and risk management insurance services for commercial and personal lines clients in the central United States.

The firm specializes in placing coverage for the manufacturing, healthcare and energy industries.

Wilburn Ashmore, Elizabeth Ashmore and their team will continue to operate from their locations in Lubbock, Canadian and Midland, Texas, under the direction of Bret VanderVoort, head of Gallagher’s South Central retail property/casualty brokerage operations, and John Neumaier, head of Gallagher’s South Central employee benefit consulting and brokerage operations.

Confie, ExpressLink

Confie has acquired ExpressLink Inc., a Calabasas, Calif.-based provider of auto dealer point-of-sale insurance and related products and services.

Brian Murphy will continue as president of ExpressLink.

Huntington Beach, Calif.based Confie is a national insurance distribution company primarily focused on personal lines and small commercial insurance.

Risk Strategies, OakBridge Advisors

Risk Strategies Co. has acquired employee benefits firm OakBridge Advisors in Newport Beach, Calif.

INSURANCEJOURNAL.COM

Founders Edward Kirkwood and Lawrence Hartley their staff will continue serving their current client base.

They will work with Risk Strategies’ other California offices in Irvine, Glendale, San Francisco and Sacramento.

Risk Strategies is an insurance broker that offers risk management advice and insurance placement for property/casualty, healthcare and employee benefits risks.

Cross Insurance Bardwell, Bowlby & Karem

Cross Insurance has purchased Pittsfield, Mass.-based independent insurance agency Bardwell, Bowlby & Karam. Terms of the acquisition are not being disclosed.

Bardwell, Bowlby & Karam is a regional property/casualty retail insurance agency providing commercial and personal insurance, along with financial services and risk management.

Under terms of the acquisition, Bardwell, Bowlby & Karam will continue under the same leadership and staff, and will join forces with Cross Surety Inc., to offer bonding services for its clients.

Michelle Orlando will oversee the combined insurance and bonding operation as president. Ed Chagnon will continue to run the commercial insurance operations, and Ed O’Brien continues managing the personal lines insurance operations.

Founded in 1954, Cross Insurance has grown from a small, family-owned and operated insurance agency based in Bangor, Maine, into one of the largest insurance providers in New England with 700 employees in more than 35 offices in the region.

Oswald Companies, The Hoffman Group

Oswald Companies, headquartered in Cleveland, Ohio, has acquired The Hoffman Group, an Ohio insurance firm founded in 1919.

Hoffman’s employees are now employee-owners of Oswald and will operate out of offices in Cleveland and Medina, Ohio.

The acquisition marks Oswald’s fifth acquisition in the past five years. In addition to significant investments throughout its five regional office markets — Akron,

Columbus, Cincinnati, Detroit and Toledo — in 2016, Oswald has also expanded its Cleveland headquarters at Oswald Centre.

acquired its second Houston-based firm, The Stevenson Group.

Principals Brian and Audrey Stevenson, along with their 16-member team will conDigital Benefit Advisors, tinue servicing clients of the firm, which The Stevenson Group has been providing professional services 30357 Ins. Journal 2016 4.75x7.5 bridgegap ad 1.qxp_Layout 1 6/29/16 6:57 AM Page 1 Digital Benefit Advisors (DBA), has for more than four decades.

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NATIONAL | News & Markets the company does not expect any material impact on its “day to day insurance operations as a result of the UK’s decision to leave the EU.”

Reviewing Risk Profile

QBE, Marsh Consider the Brexit-Effect

By L.S. Howard

Q

BE Insurance Group announced last month that it will be reviewing its UK-based operations in light of the UK leaving the European Union.

“The referendum outcome may require a revised approach in relation to approximately £500 million [$665.4 million] of insurance and reinsurance premium that QBE currently sources from EU member countries that is written via branches of UK-regulated entities under current EU passporting rules,” said Sydney-based QBE in a statement.

QBE is just one of many re/ insurers and other businesses that must determine their options for their UK-based operations after the UK exits the European Union. A report published by Marsh & McLennan Cos. provides an overview of some of the challenges and the possibilities ahead.

Brexit is presenting a particular challenge to London’s position as a global hub, “since it is unclear what will happen to ‘passporting’ rights — the

ability of financial services firms based in one EU country to operate in another without setting up a new legal entity,” according to the report titled “The UK Chooses Brexit – Considerations for Companies.” “[G]lobal non-EU multinational companies and EU-headquartered firms with sizeable UK operations will need to rethink and possibly restructure their UK operations, given the likely additional cost and complexity associated with accessing EU markets,” the report said.

Insurers and brokers that want to continue doing business in the EU may be required to obtain licenses or form a new legal entity based in one of the EU member states, the MMC report added.

That possibility was suggested by QBE in its statement.

“Should EU passporting rules not be preserved, QBE will be required to renew this business into newly established licensed EU entities,” QBE said.

Of course, it’s not just re/ insurers with UK-based operations that will be affected.

18 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

EU-based insurers “may need an additional license to carry on insurance business in the UK, or to form a new UK entity. Writing business through local branches would require local authorization and capital being deposited to support the branch in certain cases,” the report continued.

“In advance of full regulatory clarity, some major insurers with UK operations may establish a greater presence in continental Europe in order to operate more easily under a single license.”

On a positive note, the report said that UK-headquartered firms with global operations and domestic firms “will all face tactical challenges, but will be less affected in the medium term.”

Ample Time for Transition

In its statement, QBE also sought to reassure its customers about what’s ahead. The exit negotiations are expected to take a minimum of two years, QBE said, noting that this period will provide ample time for any needed “administrative transition and to ensure our service commitments to QBE’s European customers are uninterrupted.”

Meanwhile, QBE emphasized, its ability to source business from EU member countries is “unchanged” and

The MMC report said the prospect of “market volatility and protracted policy and regulatory uncertainty will hold little appeal for many companies at a time of continued economic fragility.”

“Now that we have a decision [on Brexit], companies would be wise to review their risk profile and consider the resilience of their planning assumptions to both likely and unexpected scenarios,” the report went on to say.

Companies need to monitor the Brexit negotiations closely, “factoring the impact of different regulatory and market scenarios into their investment plans.”

During the two-year negotiations to exit the EU — expected to begin when a new Conservative leader is elected — Marsh recommended “strong communication with employees,” which will be critical to maintain “morale, loyalty and productivity.”

“The list of potential actions is long. They will need to be prioritized and sequenced appropriately, as well as reconsidered and adjusted over time,” MMC said, noting that agility in planning is essential.

Looking at the silver lining, the MMC report said: No one ever claimed the EU is perfect, “and UK-based businesses may well find advantages in legislation and regulation that is better attuned to UK needs and possibly faster-moving to address urgent issues.”

INSURANCEJOURNAL.COM

THERE ARE SOME RISKS ONLY A SPECIALIST CAN HANDLE. We’re LIU, the global specialty lines division of Liberty Mutual Insurance. To meet our underwriters and learn more about how they can help you and your clients handle unique risks, visit www.LIU-USA.com.

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Boston | New York | Chicago | Atlanta | Dallas | Houston | Denver | Los Angeles | San Francisco | Miami | Baltimore | London | Europe | Asia | Australia | Canada | Latin America | Middle East Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. Š 2012 Liberty Mutual Insurance.

NATIONAL | Closer Look | Recreation & Leisure

Velosurance Takes Cycling to the Specialty Insurance Market

By Andrea Wells

C

ycling enthusiasts everywhere are watching what might be the world’s most famous bicycling event — the Tour de France — this month. They are also watching some of the world’s most expensive bicycles, which often cost as much as a small vehicle.

Pro-cylists are not the only ones buying high-dollar cycles. The U.S. bicycle industry rang in sales of $6.2 billion in 2015 — bicycles, related parts and accessories — through all channels of distribution. The overall size of the industry has remained strong since 2003, with sales between $5.8 billion and $6.1 billion each year.

The growth in the cycling industry and a need to find specialized coverage for high-valued bikes, led to the creation of Velosurance, a national insurance agency founded by two cyclists to address the insurance needs of bicycle riders nationwide.

Dave Williams, co-founder of Velosurance and a mountain biking enthusiast, said after a homeowners insurance client suffered a less than satisfying claims experience with a bicycle theft, he knew something needed to change. “The straw that broke the camel’s back was a client whose $2,000 bike was stolen,” Williams said. “His homeowners insurance company paid the claim, but depreciated the

20 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

value of the bike, and then took away his deductible, and sent him a check for $183.”

While frustrated with the loss, Williams’ client remained understanding until he received his homeowners insurance renewal policy — $400 higher than the previous year, thanks to the claim.

“We started thinking that maybe there was some coverage out there that would work better, but there really wasn’t,” he said. That’s when Williams reached out to Markel.

“Markel liked the idea of creating a specialty product for bicycles and ran with it,” he said.

“We started issuing policies in November 2012 and have been growing every year.”

Now, “all we do is sell bicycle insurance,” he said.

Most business comes directly from consumers but Velosurance also partners with about 2,000 bicycle shops nationwide. The product is licensed in all states except, Hawaii, N.D., S.D. and W. Va. Williams said there’s “often a misconception about coverage” and owners of high-end bikes often do not understand what they have.

For example, a bike can be scheduled on a homeowners policy but it’s typically actual cash value coverage and will not cover the bike for everything that can happen to it.

“Often that coverage costs

more than what it would cost through Velosurance.”

The Velosurance policy provides broader coverage including while in transit by airline and other shipping companies, or when carried in or on a car.

Also, while covering the bike for theft and accidental damage, the policy extends coverage to cycling apparel, spare parts and accessories — such as a racing wheelset or a bike computer — and provides race fee and rental bike expense reimbursement for those situations where the bike is lost or damaged before an event.

Medical coverage is also an option.

It’s not just for high value bikes. “We have $300, $400, $500-bike owners who own policies. The minimum premi-

um is $100 and the minimum deductible is $100.”

Williams welcomes referrals from other independent agents. “Because all we insure are bicycles we are not a threat to an independent agent. If there is an agent who has a client that has high value bikes they can send them over to us knowing that we are not going to prospect their client.”

For more information visit www.velosurance.com.

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Idea Exchange

Academy Journal

CoBRA Zones, OPAs and Flood Coverage

By Christopher Boggs

R

apid development in coastal areas, on barrier islands and near habitat-rich wetland areas prompted the federal government to pass the Coastal Barrier Resources Act of 1982 (CBRA).

This was a legislative effort to minimize loss to human life, wasteful federal expenditures and damage to fish, wildlife

and natural resources in protected areas by discouraging further development.

Coastal Barrier Resource System (CBRS) units were delineated by Congress with help from agencies within the Department of the Interior creating areas of land subject to “passive” federal protection.

CBRS units are indicated on Flood Insurance Rate Maps (FIRMs) using backward slanting lines.

Congress expanded the CBRS units with the adoption of the Coastal Barrier Improvement Act of 1990 (CBIA). Beyond adding CBRS units not part of the original act, the CBIA created additional zones known as “Otherwise Protected Areas” (OPAs). OPAs are shown on FIRMs with backward slanting dotted lines or backward slanting dotted lines with bullets

between lines (simply an indication of when the area was created).

OPA boundaries generally follow federal, state or local park boundaries and include land used for recreation or conservation. However, OPAs are not always restricted to these properties. Congress intentionally incorporated undeveloped land located contiguous to defined park land into OPAs even though individuals and private entities owned some of this undeveloped land.

These two acts combined encompass 3.2 million acres of land (1.3 million CBRS and 1.9 million OPAs).

Federal Funds in Protected Areas Federal spending is strictly

limited in CBRS units. Federal money can be used only to fund emergency assistance (not the same as disaster assistance), military activities necessary for national security, exploration for and removal of energy resources, and the maintenance of existing federal navigation channels. Individuals and entities within a CBRS unit cannot receive federally-backed loans (i.e. VA, FHA, Fannie Mae or Freddie Mac loans), nor can they purchase federal flood insurance through the National Flood Insurance Program (NFIP).

Only one restriction on federal money applies in OPAs. Structures located in an OPA cannot purchase flood coverage through the NFIP. The U.S. Fish and Wildlife Service estimated that during the first 27 years these zones existed the federal government would save $1.3 billion. Restrictions on federal spending for roads, wastewater systems, potable water supply, disaster relief and flood insurance in these areas would combine to create this savings.

Grandfather Laws in CBRS and OPAs

Structures existing prior to

continued on page 25

22 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

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continued from page 22

the adoption of these Acts garner “grandfather” status and remain eligible for federal flood coverage, provided they were built or substantially improved on or before specified dates and have not suffered substantial damage.

Grandfather status is granted as follows: •

•

•

To any structure in a CBRS unit created by the CBRA of 1982 built or substantialy improved on or before Oct. 1, 1983; To any structure in a CBRS unit added by the CBIA of 1990 built or substantially improved on or before Nov. 1, 1990; or To any structure in an OPA built or substantially improved on or before Nov. 16, 1991.

Grandfathered buildings suffering substantial damage, from any hazard (fire, wind or flood), or substantially improved after the above dates lose eligibility under the grandfather laws and no longer qualify for flood coverage through the NFIP. Substantial damage and substantial improvement are specific NFIP terms.

Substantial damage means damage beyond 50 percent of the structures market values.

Substantial improvement means improvement beyond 50 percent of the structures market value.

Passive Federal Protection

Restrictions on the availability of federal money for loans or federal flood coverage in these protected areas do not preclude the use of “free INSURANCEJOURNAL.COM

market” loans or open market flood insurance.

Further, these laws do not disallow building and development in these areas; they just don’t allow the use of federal dollars to finance, insure, build roads to or supply potable water to such development.

Standard flood insurance policies require that if ANY part of a structure is in a Special Flood Hazard Area (SFHA), the entire building must be rated in the higher risk zone.

Owners are allowed to develop their property as they desire (subject to building codes and other applicable laws) but without any federal money.

The government did not take away property rights, just the availability of federal funds, thus the term “Passive Federal Protection.”

Determination of Coverage Eligibility

Only the U.S. Fish and Wildlife Service can officially determine if a property is located in a CBRS unit or an OPA. No local surveyor, building inspector or other town official has the authority to make an official determination.

Standard flood insurance policies require that if ANY part of a structure is in a Special Flood Hazard Area (SFHA), the entire building must be rated in the higher risk zone. This rule does not necessarily apply in CBRS units or OPAs. If a building is dissected by a CBRS or OPA boundary line, provisions in the law may allow the property to remain eligible for federal flood coverage. Decisions are made on a case-by-case basis depending on the specific details and history of the property in question.

Additions made to a structure after an eligibility ruling has been made can be problematic. Expansion on the seaward side of the dissecting boundary line could jeopar-

dize the structure’s continued eligibility. However, additions on the leeward side should not result in any coverage issues (provided there is no change in the reference level).

States Affected

Twenty-one states have within their boundaries CBRS units and/or OPAs — Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, North Carolina, Ohio, Rhode Island, South Carolina, Texas, Virginia and Wisconsin.

CBRS units and OPAs are also found in Puerto Rico and the Virgin Islands.

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IJMAG.COM/711JK Boggs is vice president of education for the Academy of Insurance.

Phone: 800-897-9965 ext. 173. Email: cboggs@ijacademy.com.

JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 25

NATIONAL | Special Report | The Disaster Issue

How Statistical Models Might Aid in Zika Risk Management

By Doug Fullam

T

he Pan American Health Organization first confirmed Zika virus infections in Brazil in May 2015. It took nine months for the World Health Organization (WHO) to declare an international public health emergency. It was then only a matter of days before the Centers for Disease Control and Prevention (CDC) elevated its response to Level 1, the highest activation at the agency.

As healthcare providers and public health officials closely monitor and report Zika cases, they hope to improve their understanding of the virus.

It seems certain that Zika will continue to spread, and it will be difficult to determine how and where the virus will expand over time.

The Zika virus only recently emerged in the Americas, and it is difficult for insurance companies to assess the financial risks of an outbreak because of limited data. Thankfully, actuaries can look to epidemiological models of similar diseases — such as dengue fever — to better understand the potential spread and financial impact.

For outbreaks of infectious diseases, these models are better at capturing variability and uncertainty than traditional statistical techniques.

What We Know about Zika

• The virus is spread mainly through the bite of a tropical mosquito called Aedes aegypti.

• The virus can also spread sexually and from a pregnant woman to her fetus during pregnancy or around the time of birth.

• According to the CDC as

of June 22, 2016, no local mosquito-borne Zika virus disease cases have been reported in U.S., but there have been 820 travel-associated cases.

• Local transmission is occurring in U.S. territories in the Caribbean.

What Is Likely about Zika

• The virus seems to be spread through blood transfusions, but this is not confirmed.

• The incubation period — the time from exposure to symptoms — for Zika virus is not known, but is probably a few days to a week.

• The number of Zika cases among travelers visiting or returning to the United States will likely increase.

• Local-mosquito borne outbreaks of Zika virus may occur in the U.S. as soon as this summer, as mosquito populations rise in the warm and humid weather.

There is no vaccine for the Zika virus. Only recently did two drug makers receive approval from U.S. regulators to begin human trials to test a vaccine. Phase 1 results are expected later this year.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has said that the world’s best hope against Zika is a vaccine. Until one is available, actuaries can only continue to respond to what we learn.

Modeling an Outbreak

There is no straightforward way for insurers to build statistical models on Zika. In instances like this, insurers look at historical records, starting with the CDC, WHO, epi26 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

demiological medical journals, and news sources that serve as aggregators of information.

This research gives insurers an understanding of the geographic locations of events or where a specific type of mosquito lives, to get a good sense of the start location, transmission rate distribution, and fatality or hospitalization ratios.

Before they start to model the outbreak, insurers will also want to understand the correlation between those ratios.

There is no straightforward way for insurers to build statistical models on Zika.

There are two main options insurers have when it comes to modeling an outbreak: scenario testing (a.k.a. stress testing) and stochastic modeling.

While scenario testing won’t give insurers the full picture, it is a relatively quick way to get an understanding of the financial effects of a pandemic.

However, this approach doesn’t provide a probability of occurrence. It won’t tell an insurer, for instance, whether the chance of a severe event occurring is 2 percent or 10 percent.

Stochastic modeling is an ensemble of many scenarios, each derived from a set of random draws from a set of specific distributions. This allows the modeler to estimate the severity and likelihood of an event.

Stochastic epidemiological models have been used by many people in the epidemiological community. They combine our understanding of disease spread and virulence,

continued on page 37 INSURANCEJOURNAL.COM

C ATA S T R O P H E S E R V I C E STM

NATIONAL | Special Report | The Disaster Issue

By Don Jergler

T

he shoe may eventually be placed on the other foot for the United States.

This nation has a long-standing tradition of innovating products and ideas — particularly insurance products — and then exporting them to other countries.

Now the U.S. may benefit from an insurance-like product being

developed for third-world countries to battle pandemics, which

28 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

some experts think will be made more severe and widespread by climate change.

That product, its designers say, may eventually create a new market for private insurers and reinsurers in the U.S. and abroad.

In May, at the G7 Summit, participating countries agreed to support the implementation of the Pandemic Emergency Financing Facility (PEF).

This is a financial response mechanism to price pandemic risk under development by

the World Bank in cooperation with the World Health Organization, global reinsurance companies and catastrophe modelers.

The idea is to facilitate the quick dispersal of funds in the event of large-scale disease outbreaks through this publicly backed parametric product, which the World Bank will syndicate through capital markets, investors, and insurance and reinsurance companies.

Which insurers and reinsurers are so far involved has yet to be made public.

World Bank tapped Swiss Re INSURANCEJOURNAL.COM

and Munich Re to design the financing facility, and Bostonbased AIR Worldwide was brought in as the third-party modeler.

Financial Pillars

The PEF will enter into operation in late 2016, according to those involved. It will consist of two financing pillars: a parametric insurance mechanism, and a cash reserve composed of long-term pledges from development partners.

“The insurance mechanism is designed to facilitate quick, efficient outbreak response by providing funds to hire and deploy preapproved international responders (response organizations, emergency task forces or national governments, depending on existing response capacity) in affected countries to cover immediate objectives in the event of a major outbreak,” states a report by students at the Johns Hopkins University School of Advanced International Studies.

The students collaborated with Swiss Re on the report to examine the implications of climate change on global pandemic risk, and to analyze the potential of the PEF to provide the basis for a long-term market for pandemic insurance. Swiss Re helped fund the report.

Alex Kaplan, senior vice president of Swiss Re global partnerships, said the goal of the report — and the creation of the PEF to some extent — was to deal with a humanitarian and economic issue posed by both climate change and the threat of pandemics.

“You have two seemingly uncorrelated risks, which are converging on a global scale, and it’s something the industry INSURANCEJOURNAL.COM

and also the global community needs to be watching very closely,” Kaplan said.

The Johns Hopkins report draws a strong parallel between climate change and pandemics, citing two reports out this year: The Global Risk Report published by the World Economic Forum, which identifies a link between climate change and the spread of infectious diseases; and the U.S. Global Change Research Program report, which examines the ways through which climate change will affect overall public health.

“Changes in climatic conditions will act as threat multipliers to a wide range of noncommunicable and infectious diseases, from temperature-related deaths, asthma and allergy conditions, water-related diseases such as cholera and meningitis, to mental health and stress-related illnesses,” the Johns Hopkins report states.

According to the report, climate change affects ecology and the vulnerability of human populations before an outbreak, and exacerbates the intensity during an outbreak.

Prior to an outbreak, changes in temperature, precipitation

patterns and pH levels will affect the quantity and quality of ecosystem services — food supply, water availability — and supporting services like soil formation and nutrient recycling. This affects migratory patterns and the habitats of animals and insects. Changes in precipitation patterns, atmospheric temperature and seasonality will influence animal and insect populations, according to the report.

The report also brings home the topics of climate change and pandemics for Americans who may think they’re immune to either: “The steady increase in temperatures in the Northeast and upper Midwest regions of the U.S. has contributed to the geographic expansion of tick habitat. Also, extended spring and summer periods and higher average temperatures lead to faster growth rates of mosquitoes, allows them more time to reproduce, and contributes to mosquito population growth.”

Mosquitoes aren’t just a nuisance. They transmit diseases like Zika, Dengue, Malaria, West Nile Fever and Yellow Fever, according to the report.

‘You have two seemingly uncorrelated risks which are converging on a global scale and it’s something the industry and also the global community needs to be watching very closely.’

PEF Trigger

Under the PEF, payouts will be triggered when an outbreak meets a set of predetermined thresholds, such as death toll, or infections within a given timeframe, based on the characteristics of each of the covered diseases.

The initial phase of the program will cover filovirus, coronavirus (this includes SARS and MERS), ADOM, and pandemic influenza.

The humanitarian aspect behind the idea is clear. But how does the economy tie in to all of this?

The financial mechanism is designed to get funds into

continued on page 30

JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 29

NATIONAL | Special Report | The Disaster Issue continued from page 29 affected countries in as little as 10 days, in contrast to the slow, political decision-making processes of dispersing funds.

Take the Ebola virus outbreak for example.

Six months after the initial cases were reported, roughly one-third of financial pledges had been dispersed. As the crisis worsened, resource requirements grew, according to the report.

“Appeals for funds by the WHO grew from USD $4.8 million in early April 2014 at the onset of the outbreak to USD $1.5 billion by November of the same year, to roughly USD $4 billion by January 2015,” the report states. “Combined with a poorly coordinated global response and lack of capacity, this left Guinea, Liberia and Sierra Leone devastated both physically (lives lost) and economically.”

Nikhil da Victoria Lobo, head of global partnerships Americas for Swiss Re, said roughly $5.4 billion in appropriations came from the U.S. government following the Ebola outbreak.

“It would be far smaller for the U.S. government to put up some tens of millions of dollars … than to appropriate $5.4 billion after the horse has left the barn,” Lobo said.

The ongoing Zika outbreak in Latin America has already begun to slow projected growth in the region, while response costs are mounting, and governments and businesses are losing revenues. Zika has also been tied to babies being born with encephalitis.

“Zika creeps forward every week,” Lobo said, adding that it isn’t just a problem on foreign soil. Earlier this year, a woman

became New Jersey’s first confirmed case of Zika.

Premium Support

The first three-year phase the PEF (see graphic on previous page) entails G7 donor countries providing premium support to the World Bank, enabling the PEF to purchase insurance coverage on behalf of 77 developing countries to cover the costs of containing outbreaks.

This is expected to change pandemic financing by quantifying the risk, according to the report.

“By allocating capital to the risk of a pandemic outbreak, reinsurer and capital market investors will be effectively putting a price tag on the frequency and severity of pandemic outbreaks,” the report states. “Until now, responding to large outbreaks has been done on an ad hoc basis, with the WHO, affected countries and international organizations estimating the cost of the response as an outbreak progresses.”

Insurers and reinsurers may want to note that the PEF is expected to evolve to expand coverage and encourage private sector involvement in pandemic financing.

“We believe this is a very powerful opportunity to create a market … and also to introduce many of these large insurance and reinsurance companies to these markets,” Lobo said.

Not only does this lay the groundwork for the private industry to delve into parametric products at home and abroad, it

30 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

puts companies in a position with both potential public and private entity customers to introduce to them other products that aren’t covered under the PEF, such as business interruption insurance and agricultural products, according to Lobo.

The initial phases of the PEF are expected to reduce the cost for other insurance companies and institutional investors who want to become involved in the market. And as a global insurance mechanism, it will pool the outbreak risk from different regions, according to the report.

“The PEF

will increase global demand for data on diseases, and it will encourage further research and understanding into how to respond to pandemics and how factors like climate change affect the occurrence of disease outbreaks,” the report states.

“The barriers to entry into the industry of pandemic risk will be greatly reduced by the trailblazing efforts of the PEF and its partners.”

As disease modeling improves over time, it will enable the insurance market to expand to cover a wider spread of outbreak risks, and in the long run the cost of insuring against pandemic risk is expected to fall. As the pool of covered countries expands, the premium costs will go down for all members.

“This has already proven true with other, sustainable types of sovereign risk mechanisms like the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the African Risk Capacity (ARC),” the report states.

Unlike the markets they often arise in, pandemics are not an emerging threat, and they aren’t confined by borders or wealth. That’s a reality U.S. insurers and residents alike should pay attention to.

“Pandemics are not an emerging problem, they are a humanity problem,” Lobo said. “And the solutions and needs that are required are as valid in the United States as they are in sub-Saharan Africa.”

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JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

Tech Talk

Digital Dinosaurs and Insurance Competency

By Tom Wetzel

I

have had agents tell me they have lost clients because of their “digital deficiencies,” which can include outdated websites and email systems and the lack of mobile capabilities.

The exact mix of factors vary, however they all boil down to one result: these agents pushed clients into the arms of competitors with sporadic contact and by making themselves less accessible online. In a more ominous development, we have also heard of instances in which some clients are questioning the insurance competence of agents with these digital deficiencies.

The premise is logical.

Competitive pressures are pushing most businesses to go digital with better internal systems and websites, social media outreach and heavier reliance on smartphone technology. These businesses use digital tools because they save time and money. They expect the businesses they patronize to use the same tools for the same reasons.

Cyber risks, including malware, viruses, data and identity theft, and breaches via personal smartphone access pose

a growing threat.

In this column, we have covered how agencies can address these cyber threats for their own operations. Many agents, however, are still unprepared for many of these threats and present a decidedly outdated digital presence. Yet more of their clients look to them for help in understanding digital risks and insuring them. As a consequence, if an agent does not “practice what they preach,” some clients are questioning the value of their insurance counsel. It may not be fair, however perception, as the saying goes, is reality.

One cyber coverage expert challenged the premise saying it is “highly flawed” and that an agent does not need to be digital savvy to talk about cyber risk in a knowledgeable way. That may be true for some insurance buyers, but for others, the digitally deficient agent is a red flag.

32 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

Insurance technology expert Steve Anderson disagrees that the premise is flawed.

“Agencies which use outdated digital tools, or none at all, are certainly at risk of not being able to attract the digital consumer,” he said. “There is a growing expectation that businesses will be available digitally. If an agency can’t use simple digital communication tools, are they going to be able to protect private and secure information? I do think this is a question that impacts a company’s decision on who they want to do business with.”

Anderson said some consumers might be a bit more forgiving of agencies that are not on the “cutting edge.” He added, however, that the larger a business is the more likely they are to expect a higher level of digital competency in vendors and suppliers, including the professionals they deal with.

Agent Chris Paradiso agreed.

“We have to stay focused on what’s right for the client,

not just what’s right for us as agents. I don’t want customers, I want clients,” he said.

Paradiso said the fact that so many agents still don’t have a mobile app defies logic. He said larger clients are more likely to notice whether or not their agents are digitally up-to-date.

He also cautioned that the situation is changing, and more and more businesses and individual consumers will expect digital competence from their agents. We could find no formal studies on this issue, however we hope some are initiated, and soon.

Share this article with a colleague. IJMAG.COM/711NO

Longtime insurance communicator Tom Wetzel heads his own insurance marketing firm that specializes in website design and social media programs for agents through its Social Media Content Roadmap©. Website: www.wetzelandassociates.com. Email: twetzel@wetzelandassociates.com INSURANCEJOURNAL.COM

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Idea Exchange

The Competitive Advantage

4-H and 4-F: Facts, Face ‘Em, Focus on ‘Em, Go Forward

By Chris Burand

O

ne well-known youth program in the U.S. is 4-H, which stands for head, hands, heart and health. The concept is for youths to learn a wholehealth approach to life. The whole-health life approach is a proven successful way to balance lives in our 24-hour world.

I became familiar with 4-H through my grandmother, who was a state leader. She also introduced me to a similar acronym, 4-F. Many people are familiar with the military 4-F, especially readers old enough to remember the draft. The 4-F was either a godsend or an embarrassment for many men.

It meant the young man was declared insufficiently capable of performing adequately to serve the military.

Maybe it was flat feet or bad eyesight or more serious issues like those sung about by Arlo Guthrie in Alice’s Restaurant.

This was not the 4-F my grandmother had in mind. She proposed that people should aspire to the 4-F club and her definition of 4-F was: facts, face ’em, 34 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

focus on ’em, go forward. That is a pretty good way of dealing with life, especially when dealing with unpleasant aspects.

I have spent interminable hours, days, weeks, and months trying to fathom why some client or a producer cannot see a particular fact if it were broadcast in huge letters on a stadium screen, and they were the only person in the stadium. If by chance they recognized the words as a fact, they would inevitably think the fact was meant for someone else. They cannot face facts and therefore, the facts do not exist for them.

For example, their sales are inadequate so they must sell. That is a fact for many producers, except it is not a fact for them!

A similar example is a producer that does not produce and an owner that cannot face the fact that the producer will never produce.

Another fact involves owner compensation. A key reason many agency partnerships dissolve is because one owner does far more work than another, but they are both paid the same. The owners not doing as much work cannot, for the life of them, see the fact (much less face the fact) that they are being heavily subsidized by their partner.

The result is a high degree of unfair-

ness. Sometimes they can’t see the fact because their fear blinds them. They fear losing the income, and if compensation was commensurate with results, they cannot begin to see they have the opportunity to make just as much if they will only work for it. One has to see a fact before they can face a fact.

Another example is that companies, with a few exceptions (maybe), are no longer agencies’ partners. They are your competitors. This is a fact, maybe an easier one to recognize, but I find few agency owners will face this fact, focus on it, and strategically move forward.

When facts are so clear and yet a person cannot see them, they have an emotional blindness every bit as strong as a person without sight. For everyone else, the situation is frustrating, and infuriating. No matter how much a person likes the fact-blind person, the stark difference where the facts are spotlighted in black, 100-point font on a pure white background for everyone to see and yet, the fact-blind person does not see it makes the situation quickly personal.

“How can they not see it?”

Typically, the fact-blind person becomes passive-aggressive. These situations usually go on for years costing an emotional toll.

The fact-blind cannot see the facts if the facts do not fit their reality. Their reality is: I cannot take a pay cut even if I do not earn what I am paid ,and I cannot face facts if the facts do not present me in a positive light. There is even a test that will identify salespeople and salesowners prone to not seeing unpleasant facts pertaining to their performance.

Fear Driven

Others must face the fact the other person is fact-blind and their blindness is usually fear driven. Then focus on solutions which likely will be unpleasant, and then go forward. One key is to change the other person’s reality. If it is a partnership, change reality by not treating them as an equal. Leave the agency and start a new agency. Force their hand. If it is a producer, change their contract. If you think they are eventually going to come around on their own, then you are not facing facts. The reality of the situation must be changed.

Another solution is to pay for these people to undergo highquality therapy.

I am not a psychologist, but I have consulted with several high-quali-

ty psychologists on these situations during my career. If you can get a person started, the results can be transforming.

I have consulted on so many projects where some form of pure emotional blindness to stark, critical facts existed and these are the only two solutions I have found that have any reasonable chance of success. Facts, face ’em, focus, go forward.

Face ’Em

Another fact is that most agency owners are conflict adverse. Most are severely conflict adverse. This is why tumultuous business relationships continue for years. The emotionally blind do “see” the fact, but the other partner is conflict-adverse and then takes advantage of it. This is why reality must be changed in these situations if you want resolution.

To move forward for a conflict-adverse person in a situation like this, on their own, is an unreasonable expectation. If you are conflict adverse, you will need a coach, and that is not a sin or an indication of a weakness. It is just a fact to face, accept and move forward. Let the third party coach you or even do the heavy lifting for you. Either way, you have changed reality

in that you identified a solution and moved forward executing that solution.

Opportunities are fantastic for those who adopt the 4-F philosophy. An opportunity exists to develop strength to deal with unpleasant facts with less stress.

Maybe even the new web-based cognitive software will be required, but life will improve.

Last, but not least, one of the great advantages of owning an agency rather than working within one or working for a company is the opportunity to be completely proactive. If one is fact-blind but can see enough to seek help before reality changes, you get to protect your reputation, lifestyle, and your good fortune. No red tape needs to be involved. No need exists to ask a boss for permission. It is your opportunity and your choice to adapt the awesome 4-F lifestyle. What choice will you make?

Share this article with a colleague IJMAG.COM/0711QJ Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868.

Email: chris@burand-associates.com.

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JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 35

Idea Exchange

The Disaster Issue

Is It Time to Dust Off Your CAT Program? everything. Organizations must be ready to respond immediately and effectively, lest they find themselves unable to adequately meet the needs of their insureds.

A lull in disasters has made a number of organizations complacent in their CAT season prep. They are “rusty” in their ability to provide a seamless response to catastrophic events. We cannot let ourselves be caught off-guard. Dust off your current CAT program and make sure your organization is prepared for the worst.

By David E. Coons

D

oes your organization have an emergency response plan in case a massive hurricane devastates a coastal area and affects thousands of insureds? Is your staff prepared to handle the influx of calls after a tornado cuts across your coverage area, leaving broken buildings and homes in its path? How quickly can you ramp up your response to an earthquake that topples structures and injures thousands? Catastrophe (CAT) season is right around the corner; is your organization prepared?

Natural disasters — often sudden and overwhelming — bring added pressure to insurance organizations that are already embracing a “doing more with less” mindset and continuing to maintain a “run lean” staffing plan. In these emergency situations, timing is 36 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

Reassess Your Roster

Your organization’s disaster response is only as good as its staffing capabilities.

Many organizations are challenged to find the resources necessary when disaster strikes. Because of “run lean” strategies, they often find organizational human capital tapped out. Disaster situations are one of the most common causes for insurance organizations to turn to interim staff for immediate support and assistance.

The big question becomes, “is your roster up-to-date?” Has your organization maintained contact information and refreshed work histories for your index of contract professionals? Are phone numbers and emails still active? Update and refresh your list to ensure that your organization can quickly reach out to its team when disaster hits.

This may also be the time to think about expanding your roster.

The individuals your organization turned to in the past may no longer be available.

The recent drop in high-cost,

high-damage events has resulted in a lower need for temporary CAT professionals. A number of these con-

tractors have turned to full-time employment and are no longer available to join your organization in your time of need.

This presents an opportunity to invite your recent retirees to stay on the docket and assist with short-term opportunities.

They may not be available full-time, but are often willing to take on contract work throughout the year. Be aware that they may not be as “on call” as the rest of your list. Make a note of work preferences, locations, hours and needed accommodations before adding them to your CAT roster.

While evaluating your talent situation, you may determine you need an outside staffing firm. Begin building a relationship with a temporary staffing firm that can react quickly when the need arises. The key is finding a talent provider who staffs a broad landscape of interim professionals — from entry-level staff all the way to executives and subject matter experts. Research available service providers and ensure that they understand your business well enough to provide much-needed talent on an immediate basis. Consider a boutique firm that provides access to a database of insurance professionals; they will provide your organization with highly skilled contract professionals ready to jump right in and get started.

Revamp Your Training Program

The insurance industry has experienced a wave of retirements in recent years.

The median age for claims employees is 43 years old — slightly younger than the overall insurance industry median age of 45 — so many claims organizations have found themselves faced with an aging and retiring workforce. As a result, the individuals your organization relied upon to assist in the previous CAT disaster may no longer be with the organization or able to help with current needs.

Training should be a top concern in preparing your staff for the upcoming CAT season. While many have already completed mandaINSURANCEJOURNAL.COM

Special Report | The Disaster Issue tory customer training sessions, it’s time to refresh. During a natural disaster, people are under stress and duress. Your staff and representatives must know how to deal with policyholders during what is likely to be one of the worst moments of their lives.

Your organization also should add ongoing refresher courses and continuing education. In-depth training will ensure that your operations run smoothly and that employees are well aware of their roles.

Online trainings and updated manuals can provide flexibility, while enabling your front-line employees to be best prepared for any impending CAT disasters.

Rethink Your CAT Strategy

CAT season is no time to rest on your laurels. What was successful during the previous CAT situation may not work today. The world is constantly evolving, and your organization must evolve with it.

We are now in an era of constant contact and social media. Your organization’s CAT strategy must adapt.

Be proactive. Review your practices and procedures, and see where updates are needed. Do you have a strategy for handling social media posts and commentary?

Is there a plan to promote positive stories, including promotions of how your organization is serving those affected? Does your organization have innovative products available to assist in the efforts, including apps for claims reporting and tracking?

Bringing your CAT strategy into the “now” may be key to ensuring that your organization is able to efficiently and effectively manage the next CAT event.

Preparedness is vital to successfully navigating CAT season. Only those organizations with current rosters, strategic staffing plans, revamped training and modernized strategies will be able to seamlessly respond to a disaster. Ensure your organization can answer a resounding “yes” to the question, “are you prepared?”

Share this article with a colleague IJMAG.COM/0711YD Coons is senior vice president of The Jacobson Group. Email: dcoons@jacobsononline.com.

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continued from page 26 and help assess the status of an outbreak, and where it may be in a few weeks.

Organizations like WHO and CDC, and use them to plan how to deploy their resources to fight an outbreak to stop or limit the effect of the pathogen.

Insurers can use stochastic modeling to better gauge the severity of an event and determine how to limit the financial burden. These simulations can be applied to an insurer’s portfolio to determine a probabilistic financial loss.

Addressing Extreme Events

It is still a novel concept to implement these statistical techniques in insurance.

Insurers are excellent at dealing with medical cost claims and the effect of mortalities.

Life and health insurance companies deal with the effect of catastrophes on portfolios less commonly, because they are rare.

That’s where modeling companies — with their actuaries, epidemiologists, data scientists, and other subject-matter experts who are familiar with severe events and understand the variable interactions — can help insurers, financial institutions, and others calculate the risk. Insurers want that knowledge to help assess solvency, determine pricing and estimate reserve needs in the event of a severe outbreak.

Ask an epidemiologist if there is a potential for a pandemic and the answer is almost invariably yes. “There’s not just the potential. It’s going to happen. It’s just a matter of when. Therefore, we in the life and health space need to prepare before the event is upon us.”

Making Better Decisions There is great interest in Zika among insurers. Primary insurers and reinsurers are trying to grasp the short- and long-term effects of the virus. One of the factors coming into play for life and health insurers is where their book of business is located. If the U.S. experiences local transmission of the Zika virus, insurers in the southern to mid-Atlantic states are most likely to experience the first wave of cases because the mosquito that carries Zika is most prevalent in that region.

By nature, insurers like to plan.

Pandemics don’t always give us time to prepare. Insurers should learn to behave like epidemiologists and understand severe events, so they don’t feel the severe financial implications of them.

Share this article with a colleague IJMAG.COM/711DP Fullam is an associate of the Society of Actuaries and pandemic modeling expert for AIR Worldwide.

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JULY 11, 2016 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Preparation Before the Storm

By Mark R. Schwartz and

Lorin S. Montgomery

W

hether it’s an earthquake on the West Coast, a hurricane on the East Coast, tornadoes and floods in the Midwest, or an act of terrorism, all businesses have the potential of being faced with a disaster that can interrupt or shut down their operations.

As an insurance agency, we made sure we took the necessary steps to protect our interests and minimize our disruption, so that we could get up and running as quickly and efficiently as possible after a catastrophic event.

First, we assessed our exposures: Are we in an area that is prone to natural disasters such as those mentioned here?

Are we potentially a target for a terrorist attack? Do we do anything that would attract the interest of those types of individuals? Are we located in a large metropolitan area such as New York or Boston? What are the ramifications if our computer systems are hacked and our data is disseminated and/or our technology systems are inaccessible? Do we have industry-specific exposures?

Then, we asked the following questions, reproduced with credit to FCCI: 1. What are the essential functions of my business that need to continue or resume rapidly after a catastrophic event?

2. How do I continue to provide service to my customers during and after a catastrophic event?

3. Who should I call upon to assist me if my business is affected directly or indirectly by a catastrophic event?

4. Where would I go to continue providing my customers with my business services?

5. Who are my community emergency departments and contacts?

6. What other important contacts can help reduce the time of recovery and allow my business to more rapidly resume normal operations?

7. What protections are in place to minimize the impact of a catastrophe on my business operations, my people, and my customers?

38 | INSURANCE JOURNAL | NATIONAL JULY 11, 2016

While you cannot necessarily predict or prevent a disaster, proper planning and pre-assessments will assist with minimizing the disruption and allow for resumption of operations.

8. Are my vital records, doc-

uments, and files — including legal contracts, tax returns, accounting statements and customized computer files — protected?

9. Are my vital records quickly and easily accessible to assist in the recovery of my business?

10. Have I done everything I can do to prepare?

Next we formulated a business continuity and disaster preparedness plan that includes: • Emergency planning team; • Analyze/itemize your critical operations; • Primary and secondary emergency contacts; • Identify an emergency response team; • Alternative location from which to operate; • List of suppliers and contractors with whom you would partner with after a disaster; • Evacuation plan with information on area shelters; • Communication plan;

• Cyber security plan; • Data and record back-up plan; • Employee emergency contact information; • Annual review.

Lastly, we reviewed our insurance program with our risk management team to determine which exposures are insurable, and which are not.

We complied with best practices whenever possible, which allowed for the most comprehensive and competitive coverage.

While you cannot necessarily predict or prevent a disaster, proper planning and pre-assessments will assist with minimizing the disruption and allow for resumption of operations as soon as possible so you can help your clients also get back on their feet.

Schwartz is the CEO of Corporate Insurance Advisors, a commercial insurance agency located in Ft. Lauderdale, Fla. Montgomery is vice president at Corporate Insurance Advisors.

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