Insurance Journal West 2016-09-06

WEST REGION $600M in Liens From Convicts Agents Grade on Cyber Insurance Reductions on State Farm Policies

APPLIED PROTECTS THE TITANS OF INDUSTRY. ®

IT PAYS TO GET A QUOTE FROM APPLIED® ©2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.

Accepting large workers’ compensation risks. Most classes. All states, all areas, including New York City, Boston, and Chicago. Few capacity and concentration restrictions.

Simplified financial structure covers all exposures.

EXPECT THE WINNING DEAL ON LARGE WORKERS’ COMPENSATION. Call (877) 234-4450 or visit auw.com to get a quote.

Fifty percent of small businesses are likely to experience a workers' compensation claim in the next 10 years1, costing potentially tens of thousands of dollars.

Yet, startlingly, many employers shop for coverage based on price, regardless of whether a policy fits their risks and needs.

And because prices among policies may be similar, employers need to understand the differences among coverage types offered by insurers. For example, some insurance companies may offer coverage features that go beyond standard policy requirements or programs that promote workplace safety.

Others do a far better job at managing injured worker care, helping small business owners control claims and premium costs.

Given these differences, it makes sense for agents to consider the level of service and extra features provided by each insurer and policy they’re considering. This is a win-win for agents: it helps ensure they’re offering customers the greatest value for their insurance dollar and, in turn, can help them sell more workers’ compensation policies.

WHY IT’S IMPORTANT TO FIND THE RIGHT WORKERS’ COMPENSATION POLICY FOR YOUR CUSTOMER.

50% of small businesses will likely experience a workers' comp claim in the next 10 years.

Yet only

1 IN 3

small business owners worry about employee workplace injuries.2

TOP 3 MOST COSTLY CLAIMS1

Internal organs $37,000

Multiple body parts $34,000

Neck & back $32,000

WORKERS' COMP CLAIMS HAVE BECOME COMMON, BUT YOU CAN OFFER A POLICY THAT’S EXCEPTIONAL.

Prepare. Protect. Prevail.®

1 According to an analysis of The Hartford’s workers’ comp claims data with dates of loss between Jan. 1, 2010 – Dec. 31, 2014.

2 According to The Hartford’s 2015 Small Business Success Study.

ASK. UNDERSTAND. DELIVER VALUE. Here are three steps that can help agents find the right fit for their small business clients:

1. Agents should seek to understand each employer’s unique culture and what’s important to it when it comes to protecting its business and employees. For example, some small employers may want to demonstrate their commitment to a healthy and safe workforce. Having a workers’ compensation policy that makes wellness and safety programs available to employees can help them do that.

2. Once they understand the employer, agents should present information about policy features that meet (or address) the business’ culture. That may include focusing on the price—if price is most important—or explaining the various extra features a policy offers. However, business owners should understand that the cheapest policy may end up costing them more money in the long run if it doesn’t provide the necessary protection and services.

3. Finally, agents should reinforce how workers’ compensation coverage can be an investment in the well-being of their small business’ employees and how coverage can help employees control claims costs and improve employee safety.

WHAT BEST-IN-CLASS SMALL BUSINESS COVERAGE LOOKS LIKE. For over a century, The Hartford’s workers’ compensation program has set the standard for value, innovation and injured worker care.

Its unique approach to claim management helps control costs and return employees back to work quickly, which could positively impact a customer’s future premiums.

Customers of The Hartford also have access to valuable, cost-saving programs that help promote workplace safety and employee wellness. These programs include:

.

.

.

Shoes for Crews®, which offers a 15 – 25 percent discount on slip-resistant footwear, ideal for industries where slips, trips and falls are common The Naturally Slim Program®, a wellness and weight-loss program to help employees reduce risk factors for metabolic syndrome, offered at a volume-based discount Herman Miller®, which provides customers with discounts of 30 – 60 percent on high quality, ergonomic Herman Miller office furniture

With more than one million small business customers, The Hartford can help agents offer a workers’ compensation policy that meets their customers’ needs and helps grow their business.

Visit THEHARTFORD.COM/WC to learn more and see why our customers give us 4.8 out of 5 stars for their claims rating.3 Property 3 Customer reviews were collected and tabulated by The Hartford and reviews are not representative of all customers.

63141A

Herman Miller® is a registered trademark of Herman Miller, Inc. Certain coverages and features may vary and may not be available in all states. Applicants are individually underwritten and some may not qualify. This insurance is underwritten by Hartford Fire Insurance Company, Inc., and its property and casualty affiliates, Hartford, CT. In TX, this insurance is written by Sentinel Insurance Company, Ltd., Twin City Fire Insurance Company, Hartford Accident and Indemnity Company, Hartford Fire Insurance Company, Hartford Insurance Company of the Midwest and Trumbull Insurance Company. In CA, this insurance is written by Hartford Fire Insurance Company (CA license #7268) and its property and casualty insurance affiliates. © 2016 The Hartford Financial Services Group, Inc. All Rights Reserved.

Liability Workers’ Comp Business Auto

Contents September 6, 2016 • Vol. 94 No. 17 • West

West

National 10 AIG, Chubb, XL Group Lead in U.S. Cyber Market: Fitch

W1 Bill Adding Ridesharing Restrictions in Honolulu Becomes Law

12 Consumers Rely Too Much on Homeowners Insurance: Survey

W2 Study: Bike Helmets Lower Risk of Brain Injuries, Death W6 California Saw $600M in Workers’ Comp Liens Filed

by Convicted Providers W8 Executive Bonuses for Peabody W10 Expert Gives Agents C- on Understanding of Cyber Insurance W12 Family of Arizona Instructor Killed by Girl with Uzi Sues Gun Range

W8 U.S. COURT APPROVES

10

CLEAN-UP DEALS, EXECUTIVE BONUSES FOR PEABODY

18 Finding Clues to Spot Violence in the Workplace 22 Special Report: Top Workers’ Comp Writers

by Growth 24 The Future of Climate Change Modeling

AIG, CHUBB, XL GROUP LEAD IN U.S. CYBER COVERAGE MARKET SHARE: FITCH RATINGS

26 Special Report: Trucking Through Cost, Talent & Regulatory Obstacles

Idea Exchange 30 Academy Journal:

Contractors Professional & Pollution Liability Coverage 33 Getting More Bang for Your Buck: Cyber Insurance in the Wake of P.F. Chang’s vs. Chubb 35 Workers’ Comp Crossword 36 The Competitive Advantage: Chris Burand

12

CONSUMERS RELY TOO MUCH ON HOMEOWNERS INSURANCE: SURVEY

38 Closing Quote: Flood Insurance Belongs in the Hands of the Private Market

Departments W4 People 14 Declarations 14 Figures 15 Business Moves 20 MyNewMarkets

6 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

INSURANCEJOURNAL.COM

AT LAST, A PRODUCT THAT GIVES YOU LESS TIME. Online quotes and orders take just 3 minutes. And with only 4 questions for a $5 MM standalone personal umbrella from an Admitted carrier rated A+ by A.M. Best, you’ll get more time with those you love the most.

Family-owned and operated. Proudly dog-friendly. Available nationally. Underwriting criteria varies by state. Visit us online for guidelines.

California Insurance License 0D08438 A.M. Best rating effective August 2016. For the latest rating, visit ambest.com.

OPENING NOTE

Write the Editor: awells@insurancejournal.com

Self-Driving Trucks

S

elf-driving cars, and trucks, could hit the roadways soon. Or maybe not that soon. If Uber has its way it may be sooner than you think.

Last month ride service Uber Technologies Inc. acquired the self-driving truck startup Otto, while also entering into a $300 million alliance with the Volvo Car Group to develop self-driving cars.

So far Otto has tested self-driving trucks for highway use only. Uber developers hope for further productivity gains with new technology that will enable trucks to drive around the clock, leaving humans to rest, do paperwork and take controls only while going on and off highways.

How would self-driving trucks change the market for truckers? Some insurance experts remain skeptical and say implementation is years away.

“I think everybody is interested in learning more about the concept of self-driving vehicles and trucks but the trucking industry is skeptical. There is so much handson stuff that happens in trucking,” said Courtney M. Wilson, president, First Guard Insurance Co./1st Guard Corp. “Humans are an important part of the puzzle.”

From an insurance standpoint, there’s no clear answer on who’s insuring what, Wilson added. “We don’t know if the driverless truck would require commercial auto coverage or would it be product liability? There’s still plenty of unknowns.”

Right now Wilson’s trucking customers do not seem to embrace the idea of using driverless vehicles in their trucking fleets. “I don’t think they like the idea because it could potentially put them out of business.”

Steve Bojan, vice president of HUB International’s transportation risk services, says that even if the industry moves to using driverless trucks, the truck would still need an operator.

But Matt Domitrovich, senior vice president and transportation team leader at Worldwide Facilities LLC, thinks jobs will be lost if driverless trucks do hit the roads.

“It would be a huge change to the industry and other industries,” he said.

Domitrovich doesn’t expect any change soon, however. “It could happen but certainly not in the next five years.”

Brenda Watson, president of TIP National FOR QUESTIONS based in Oklahoma City, Okla., says the possiREGARDING SUBSCRIPTIONS: Call: 855-814-9547 ble benefits of driverless trucks have yet to be Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: determined. That’s not to say technology isn’t insurancejournal.com/subscribe improving the trucking industry already.

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Technology, such as vehicle tracking, vidGroup, 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 eo monitoring systems and speed limiting per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubdevices, do make much better and safer fleets, lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended Watson said. “Those trucking lines that are 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 profitable are doing well because they know Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. what they are doing and are using IT solutions Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, to help their botCirculation Department, PO Box 708, Northbrook, IL 60065-9967 tom line.”

ARTICLE REPRINTS: For reprints of articles in this issue,

‘There’s still plenty of unknowns from a coverage perspective.’

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

Romeo Valdez (800) 897-9965 X172 rvaldez@insurancejournal.com

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@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

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

South Central Sales Mindy Trammell (800) 897-9965 X149 mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA and CT) Howard Simkin (800) 897-9965 X162 hsimkin@insurancejournal.com Midwest Sales Lisa Whalen (800) 897-9965 X180 lwhalen@insurancejournal.com East Sales (NY, PA and CT only) Dave Molchan (800) 897-9965 X145 dmolchan@insurancejournal.com

Columnists Chris Burand

Advertising Coordinator Erin Burns (619) 584-1100 X120 eburns@insurancejournal.com

Contributing Writers Mike Baukes, Jim Gallagher, Steven Groeschen, Denise Johnson, Craig Poulton

Insurance Markets Manager Kristine Honey (619) 584-1100 X132 khoney@insurancejournal.com

IJ ACADEMY OF INSURANCE V.P. of Education Chris Boggs cboggs@ijacademy.com

Social Media Manager Ly Short (619) 890-7735 Lshort@insurancejournal.com

Online Training Coordinator Barbara Whiffen bwhiffen@ijacademy.com

Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.com

ADMINISTRATION

DESIGN/WEB

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com

Marketing Director Derence Walk dwalk@insurancejournal.com

V.P. of Design Guy Boccia gboccia@insurancejournal.com

Marketing Administrator Gayle Wells gwells@insurancejournal.com

Senior Web Developer Chris Thompson cthompson@insurancejournal.com

NEW MEDIA

Web Developer Jeff Cardrant jcardrant@insurancejournal.com

New Media Producer Bobbie Dodge bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com

Web Developer Tim Layer tlayer@wellsmedia.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or kdelamora@wellsmedia.com Visit insurancejournal.com/reprints/ for more information.

INSURANCEJOURNAL.COM

BROKERAGE IS OUR MIDDLE NAME. As economies and industries evolve, so do brokerage challenges.

Our success confirms how easy we make it to cover large, interconnected risks. We have the expertise and access needed to develop the sophisticated solutions required. Turn to the partner that’s built for the biggest challenges – Burns & Wilcox Brokerage.

Brokerage | Binding | Commercial | Professional | Personal | Risk Management Services

National

AIG, Chubb, XL Group Lead in U.S. Cyber Coverage Market Share: Fitch Ratings

T

he U.S. property/casualty insurance industry generated $1 billion in direct written premium volume for cyber insurance in 2015. American International Group (AIG), Chubb and XL Group led the market, according to Fitch Ratings.

AIG carried about 22 percent of the cyber insurance market, Fitch said, followed by Chubb at 12 percent and then XL Group (XL Catlin) at 11 percent.

Cyber insurance has been a fast-evolving market as the risks change. But Fitch said the coverage “represents a significant growth opportunity for P/C insurers.” Even so, knowledge gaps remain in terms of the risks and adequate coverage needs/design, noted Managing Director James Auden.

“Industry estimates suggest that the global cyber insurance business could increase to $20 billion by 2020, but the lack of information on cyber insurance is a challenge for

insurance companies, policyholders, regulators and investors to evaluate and price risk,” Auden said.

“Challenges in isolating cyber-related premiums and exposures from other risks within a package policy creates limitations in analyzing the supplemental filing as total cyber insurance premiums are (Editor’s Note: The Fitch report aggregates statutory data for the U.S. P/C insurance industry from a special likely understated.” annual statement supplement called the “Cybersecurity And Identity Theft Insurance Coverage Supplement.”

Industry estimates of future growth cited in the report refer to the global cyber insurance market.)

What also remains unknown is the profitability of cyber insurance. “The ultimate Fitch will track premium volume and profitability of the P/C industry’s cyber loss ratios to gauge cyber insurance market insurance efforts will take some time to performance and company activity. assess as the market matures and future cyber-related loss events emerge,” said Share this article with a colleague.

Gerry Glombicki, director, Fitch Ratings.

IJMAG.COM/96KH

10 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

INSURANCEJOURNAL.COM

I am your data.

Protect me.

I sit in the cloud.

I am in your databases and devices.

I grow by 100 terabytes every day.

I am millions of confidential records.

Names, addresses, Social Security numbers.

I want a particular kind of protection and level of service that comes from decades of experience insuring companies against the risk of network breaches and compromised data.

Not just coverage. Craftsmanship.SM Not just insured.

Chubb. Insured.

SM

Š2016 Chubb. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. ChubbŽ, its logo, Not just coverage.

Craftsmanship.SM and all its translations, and Chubb.

Insured.SM are protected trademarks of Chubb.

new.chubb.com

NATIONAL | News & Markets

Consumers Rely Too Much on Homeowners Insurance: Survey

T

oo few Americans take steps to prepare for disasters, and too many assume their home insurance policies will bail them out if one strikes.

As disaster season peaks, a new national consumer survey commissioned by Trusted Choice and the Independent Insurance Agents & Brokers of America (the Big “I”), reveals that many homeowners lack adequate insurance coverage, do not fully understand their homeowners policies and do not have enough savings to support their households in the event of a disaster.

At least 73 percent of respondents don’t have a flood insurance policy that is separate from their homeowners coverage and more than 40 percent of those surveyed don’t have or don’t know if they have coverage that will fully replace their belongings and home in the event of a disaster.

At least 28 percent of homeowners polled do not have enough savings to support their households for even one month after a disaster if they had to leave their home. Only one-third said they could support their household for more than three months in this circumstance.

According to the August 2016 survey, less than onethird of respondents have an up-to-date and complete home inventory stored away from their premises.

“Most people think that a basic homeowners policy will cover them in the event of a disaster. However, these new findings highlight that a startling number of homeowners have not taken some of the most basic steps to adequately prepare for a disaster such as a hurricane, flood or fire,” says Robert Rusbuldt, Trusted Choice president and Big “I” president and CEO. “This is dis-

12 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

turbing as hurricane and wildfire seasons are about to peak, affecting many parts of the country.”

With almost three-quarters of respondents lacking proper flood insurance coverage, they are completely vulnerable and have no protection from damage caused by rising water or flooding including common problems such as seepage of underground water into a home, leaky roofs and toppled trees from saturated soil. According to FEMA, floods are the leading disaster in the United States, and people outside high-risk flood areas file more than one-fifth of all National Flood Insurance Program (NFIP) flood insurance claims.

“It is very troubling — with flooding being so pervasive and hurricane season in full swing — that this large majority of homeowners is risking everything,” said Madelyn Flannagan, Big “I” vice president of agent development, research and education. “A little planning and knowledge can go a long way.”

The survey also showed a lack of basic understanding regarding standard homeowners insurance coverage.

More than one-fifth of survey respondents didn’t know whether they have replacement cost coverage for their belongings and home (which allows them to replace lost possessions with new items) or if they have actual cash value coverage (which takes depreciation of the structure and per-

sonal items into consideration).

In most standard homeowners policies actual cash value is the default coverage.

“The risk of financial ruin in the event of a major disaster is significantly higher for those homeowners who have only actual cash value coverage because they cannot fully recoup their losses,” Flannagan continued.

The survey shows that only 58 percent have replacement cost coverage.

More than half of those surveyed (56 percent) have just enough savings to support their households for three months or less if they had to temporarily move away as a result of a disaster to their property. Twenty-eight percent said they couldn’t sustain for even a month.

For off-premises living expenses in these cases, a standard homeowners policy provides only limited protection (usually 10 percent of the coverage on your home) and a flood policy provides no coverage for these expenses.

The survey was conducted for Trusted Choice and the Big “I” by MFour Mobile Research Inc. using MFour’s Surveys on the Go Smartphone Application Panel. MFour is an independent research company headquartered in Irvine, Calif. Interviews of a nationally representative sample of 1,000 U.S. homeowners were conducted in August 2016 and weighted by age and gender to represent the general U.S. population over age 18.

Share this article with a colleague.

IJMAG.COM/62ZR

INSURANCEJOURNAL.COM

I am a CEO. Protect me.

I have thousands of employees worldwide, working in dozens of offices.

I have a C-suite of talented executives and my company’s reputation and profitability to protect.

I have a broad range of risks facing me, my business and my employees.

I want a particular kind of protection and level of service that comes from decades of experience insuring large corporations and their unique assets.

Not just coverage. Craftsmanship.SM Not just insured.

Chubb. Insured.

SM

©2016 Chubb. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. Chubb®, its logo, Not just coverage. Craftsmanship.SM and all its translations, and Chubb. Insured.SM are protected trademarks of Chubb.

See related articles at: ij.com/riskmanagers new.chubb.com

Figures

48

The number of vehicles at the Peltier Chevrolet dealership in East Texas from which the wheels were stolen on Aug 21.

An estimated $250,000 worth of tires and wheels were taken. Investigators believe the thieves may be part of a ring.

2

The number of years in prison to which southeast Missouri farmer, Bobby David Lowrey, was sentenced for making false statements about crop insurance benefits, theft of government property and wire fraud.

Lowrey pleaded guilty in May to charges of illegally obtaining crop insurance indemnities and subsidies worth about $240,000.

$112,000

How much Amtrak will pay, and provide other relief, to settle a federal disability discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission on behalf of a Seattle-based Amtrak job applicant. The EEOC suit states Amtrak withdrew its job offer of a machinist journeyman at its Seattle yard when it learned he had a history of epileptic seizures.

$30 MILLION

Declarations Insurance-Free Practice

“Ninety-nine percent of other doctors said, ‘I don’t blame you.’ … One hundred percent said, ‘You are crazy.”’

— Dr. Todd Johnson of Lincoln, Neb., on the reaction of his colleagues to his opening the first membership-based, insurance-free medical practice in Nebraska. His fees are age-based — $50 a month for younger adults, $75 for middle-aged adults and $100 for seniors. There are no co-pays, no deductibles and unlimited consultations and office visits at his Access Family Medicine practice. Added plus: no insurance paperwork.

Children and Guns

“People are much more likely to hurt themselves or other members of their family if they have a gun in the home than they are to injure or stop some intruder.”

— Texas Children’s Hospital trauma surgeon Dr. David Wesson, who has expressed concern about the number of children who are victims of gun accidents annually. The Houston Chronicle reports that in Texas’ Harris County an average of 27 children a year were killed in gun accidents from 2011 through 2014.

Whistleblower Pilot

The amount FEMA says it won’t repay Mississippi for retrofitting homes after Hurricane Katrina, unless the state can prove the money was well spent. The government agency says the state failed to provide documentation, overspent and had lax oversight on money spent through a program to retrofit 2,000 homes.

In actuality, the state only repaired 985 homes and spent $30.5 million instead of the approved amount of $29.9 million.

$307,000 The amount Summit Natural Gas of Maine agreed to pay the state in fines for safety violations, including a potentially catastrophic gas leak in Augusta. The state Public Utilities Commission said the violations stem from construction work performed by the company and subcontractors beginning in 2013. CEO Kurt Adams said the company has strengthened pipeline safety standards and will focus on providing “safe, reliable and clean-burning natural gas.”

14 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

“The ultimate goal is to bring about quicker resolution for whistleblowers and their employers regarding claims of retaliation for reporting safety and other concerns on the job.”

— Barbara Goto, OSHA’s regional administrator in San Francisco, praised a pilot program by the U.S. Department of Labor in its Western region called the “Expedited Case Processing Pilot,” which enables a complainant covered by certain statutes to ask OSHA to cease its investigation and issue findings for the department’s Office of Administrative Law Judges to consider.

No Mosquito Zone

“Between our efforts and the county’s spraying efforts, the last thing I’d ever want to be on Miami Beach is a mosquito.”

— Miami Beach Mayor Philip Levine, speaking of the city’s efforts combatting the spread of Zika virus in the area. As of Aug. 23, five new cases of the virus had been found in the state, including in the Tampa Bay area.

InsuranceJournal.com

Poll

If the presidential election were held today, which candidate would get your vote?

Hillary Clinton, Democratic Party

31.86% (202 votes) Gary Johnson, Libertarian Party 13.56% (86 votes) Evan McMullin, Independent Candidate 1.58% (10 votes) Jill Stein, Green Party 3.15% (20 votes) Donald Trump, Republican Party

42.43% (269 votes) I’m voting for another candidate not listed 1.74% (11 votes) I’m NOT voting for president this election

4.42% (28 votes) Other: 1.26% (8 votes) Total Votes: 634

INSURANCEJOURNAL.COM

West

Bill Adding Ridesharing Restrictions in Honolulu Becomes Law

K

irk Caldwell is allowing a bill placing stricter regulations on ridesharing companies such as Uber and Lyft to become law.

Caldwell returned the bill to the City Council and cited logistical concerns in allowing it to become law without his signature. The council approved the measure Aug. 3, The Honolulu Star-Advertiser reported.

Caldwell says in a letter that he supports having the council establish regulations for INSURANCEJOURNAL.COM

both taxi cab and transportation network companies so there is a “level playing field” of competition.

The bill requires both taxi and ride-hailing drivers to pay a fee to obtain a city-issued certificate to operate. Drivers will also be subject to background checks every two years.

While Caldwell has shown support for some parts of the measure, he did take issue with the Jan. 15 start date for the new law.

“It is not possible to complete the rules

in this time frame, even if there are no challenges to the proposed rules,” Caldwell said. It “does not give the Department of Customer Services adequate time to draft well thought out administrative rules,” including a public hearing process required under state law.

Caldwell said he wants his administration to work with council members to make changes to the bill and draft administrative rules.

Copyright 2016 Associated Press.

SEPTEMBER 6, 2016 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

Study: Bike Helmets Lower Risk of Brain Injuries, Death

By Linda Thrasybule

D

espite some criticism of bike helmets for not being protective enough, they do cut the risk of severe traumatic brain injury by half when riders suffer a head injury, a U.S. study suggests.

Riders with helmets were also less likely to die from their injuries, and less likely to break facial bones, than those not wearing a helmet, researchers report in American Journal of Surgery.

“It’s similar to wearing a seat belt, said Dr. Jerri Rose, a pediatric emergency physician at University Hospitals’ Rainbow Babies and Children’s Hospital in Cleveland, Ohio, who was not involved in the study.

“Wearing one doesn’t ensure that you’re not going to get in a car accident, but it lowers the risk of injury and of dying in a

car accident.”

Millions of Americans ride bicycles, but less than half wear bicycle helmets, according to the Centers for Disease Control and Prevention.

In the U.S., there were 900 deaths and an estimated 494,000 emergency room visits due to bicycle-related injuries in 2013, the study authors write.

Using the American College of Surgeons’ National Trauma Data Bank, the researchers analyzed records of 6,267 people treated in 2012 for bleeding inside the skull after a bicycle accident.

One quarter of patients had been wearing a bicycle helmet at the time of their accident. Just over half of the patients had severe traumatic brain injuries and 3 percent died.

Researchers found that people wearing

‘Wearing one doesn’t ensure that you’re not going to get in a car accident, but it lowers the risk of injury and of dying in a car accident.’

“There is little success where there is little laughter.”

-Andrew Carnagie

Get to know us at mjhallandcompany.com M.J. Hall & Company, Inc. States Covered: AK, AZ, CA, NV, & HI

MJHALLCO16811.indd 1

MJHALLCO16815.indd 1

W2 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

License #0488901

10/2/15 4:10 PM

helmets had 52 percent lower risk of severe TBI, compared to unhelmeted riders, and a 44 percent lower risk of death.

Riders with helmets also had 31 percent lower odds of facial fractures. The upper part of the face, particularly around the eyes, was most protected. Helmets offered less protection against fractures to the lower part of the face, such as the nose and jaw.

Moreover, people who wore helmets reduced their likelihood of having brain surgery, further confirming a certain level of protection with helmet use, the study team writes.

“Using helmets has always been controversial,” said study coauthor Dr. Asad Azim, a research fellow in the department of Surgery at the University of Arizona in Tucson. “Critics argue that due to its incomplete design bicycle helmets are of no use and do not protect riders when it comes to severe injuries.”

But “the results of the study say different,” he told Reuters Health by email.

Helmeted riders were more likely to be white, female and insured compared to non-helmeted riders. Riders aged 10 to 20 were among the least likely to wear a helmet, while those aged 60 to 70 were most likely to wear one.

“About 75 percent of people in this study weren’t wearing helmets so we have a long way to go in terms of making sure that people wear helmets when cycling,” Rose said.

“Especially teens,” she added, “they perceive it as not cool.”

The key is to start them early, Rose said. “Starting early is really important.

As soon as they start riding their bikes, they should be taught to wear a helmet.

It has to become a routine.”

Copyright 2016 Reuters.

4/5/16 3:05 PM

INSURANCEJOURNAL.COM

Chivalry is Alive!

As the manager of the Simi Valley office, Matt invites you to come remember the days of old. When knights were bold, fearless and would gallantly offer their assistance.

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

• Property • Builders Risk / COC • Manufacturers • Product Liability • Umbrella & Excess • Contractors – Artisans & Generals • Restaurants • Apartments • Inland Marine • Distributors • BOPS • Lessor’s Risk

One Who Serves Matt Merkle Vice President / Branch Manager Simi Valley Office x2226 mattm@monarchexcess.com

Matt Merkle is ready to serve and ready to show you that chivalry in insurance is alive and well.

You’ll Get the Royal Treatment

Watch our videos at MonarchExcess.com La Crescenta 818-249-0100 • Simi Valley 805-577-6800 • San Diego 619-521-2170 • Rancho Mirage 760-779-5555 Fresno 559-549-6537 • San Marcos 760-891-2811 • Arizona 877-406-8026 • Hawaii 818-425-9847 • License 0697233

WEST | PEOPLE

Tina Perchetti

Peter Enos

Deanna Mallette

Andrew McClave

Reno, Nev.-based LP Insurance Services Inc. has named Tina Perchetti vice president and shareholder.

Perchetti provides clients in northeastern Nevada with commercial insurance products and risk management services.

She worked in financial services before insurance.

LP Insurance is a risk management and insurance brokerage firm.

Restaurant Programs of America LLC named Peter M. Enos vice president of sales in the firm’s Los Angeles office.

Enos has for 25 years provided risk management solutions to clients in a variety of specialties including restaurants, hospitality, health and fitness, construction, real estate and manufacturing.

Enos was a broker with B&B Premier Insurance Solutions Inc. in southern California prior to RPA. He was also an insurance agent with Automobile Club of Southern California and Prudential Insurance.

RPA is a national restaurant insurance agency focused on providing business insurance products and services to restaurants throughout the U.S. Grass Valley, Calif.-based Networked Insurance Agents has named Deanna Mallette director of personal Lines.

Mallette will continue to report to Scott Smith, vice president.

Mallette joined Networked in 1993, working her way up to manager of personal lines. She left for two years, then was rehired in 2006 to help support the service team. She was again promoted to manager of personal lines in 2014.

Newtorked has offices in Northern and Southern California.

Lockton Insurance Brokers opened a new commercial insurance operation in Portland, Ore. and named Andrew McClave producer the office.

He has been advising clients on risk management and property/casualty insurance issues for a decade, including for the past year with Lockton.

He also has been a national accounts executive with Zurich. Early in his career, he coached as a graduate assistant for the Oregon State Beavers.

Lockton said it will start with temporary office space and expand to permanent offices in 2017. The Lockton Portland office is located at 5 Centerpointe Dr., Suite 400, Lake Oswego.

W4 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

Kansas City, Mo.-based Lockton is a privately held, independent insurance broker.

Hub International Ltd. has named Liliana Salazar chief compliance officer in its Hub West region. She is based in Los Angeles.

Salazar will be a part of HUB’s national compliance team, responsible for identifying and implementing national solutions, developing client advisories, and interacting with other members of its national practice to provide oversight and assistance on matters impacting the administration of employee benefit plans.

Salazar has more than 20 years of experience as a compliance officer. Most recently, she served as senior vice president of compliance, national practice leader employee benefits compliance with Wells Fargo Insurance, where she was responsible for addressing employers’ health and welfare responsibilities under federal, state and local laws.

The Navigators Group Inc. has restructured its leadership team for its global claims organization.

Glen Bronstein has been promoted to the newly created role of global chief claims officer.

Bronstein will now have oversight of the global claims organization, encompassing the claims operations of the company’s three global underwriting segments.

Bronstein joined Navigators to lead the U.S. claims organization in May 2013. Bronstein worked at American International Group prior to joining Navigators.

In the U.S. Insurance segment, Marina Barg has been promoted to chief claims officer for U.S. Insurance, succeeding Bronstein. Barg joined Navigators in January 2014 as the leader of the U.S. casualty claims unit, overseeing the claims of the largest U.S. underwriting division.

Within the international insurance segment, Ruth Roberts continues to be the chief claims officer for claims arising out of the company’s London market business. Roberts has been with Navigators since 2011.

Also in the international segment, Michael Phipps joined Navigators as claims manager for Navigators International Insurance Co., the company’s recently authorized U.K.-domiciled insurance company. Phipps previously worked at Chubb in a variety of claims management roles in the United Kingdom, Australia and Asia. He is based in London.

INSURANCEJOURNAL.COM

WEST | News & Markets

California Saw $600M in Workers’ Comp Liens Filed by Convicted Providers

T

he California Department of Industrial Relations announced in late August that $600 million in liens were filed against injured employees’ claims for workers’ compensation benefits by convicted or criminally indicted parties from 2011 through 2015.

California’s workers’ comp law allows certain claims for payment of services or benefits provided to or on behalf of injured workers to be filed as a lien against an employer in an employee’s workers’ comp claim. The lien generates collateral litigation between the lien filer and defendant over the validity of the claim and the necessity, extent and value of any services provided. The parties may then settle on an amount due or adjudicate the dispute in a lien trial before the Workers’ Compensation Appeals Board.

Senate Bill 863, the state’s sweeping workers’ comp law that took effect in 2013, included a number of provisions to reduce costs by reducing the volume of lien claims and lien claim litigation in the workers’ comp system, including the

reestablishment of lien filing fees to preclude frivolous lien filings, creation of an independent bill review and restrictions on the ability of third parties to collect on assigned lien claims.

Despite these efforts, the 68 businesses comprising the top one percent of lien filers filed more than 273,000 liens totaling $2.5 billion in accounts receivable on adjudicated cases between 2013 and 2015, according to DIR. Two of the business owners are indicted and three others have pled guilty.

Legislation is underway to stay liens of physicians or providers who are criminally charged with workers’ compensation fraud, medical billing fraud, insurance fraud, and Medicare or Medi-Cal fraud, according to DIR. The assignment of liens by service providers to those who file and collect on liens are essentially buying and selling injured workers’ treatments.

DIR’s review of filing dates indicates that lien claimants tend to wait until after the

primary case is settled rather than seeking early resolution of medical necessity. Even if lien claimants only make pennies on the dollar, returns can still be high, according to DIR. DIR said it is leading an effort to identify and address strategies for improved antifraud efforts in the workers’ compensation system. DIR and the California Department of Insurance convened working groups in June to gather stakeholder input and evidence of fraudulent activity in the system. At the direction of the Secretary of the

California Labor and Workforce Development Agency, DIR will be preparing a report on further recommendations to the Governor and the Legislature by no later than Fall of 2016.

“While California has made great strides in increasing benefits to injured workers, improving appropriate care and reducing employers’ costs, we are pursuing legislation to prohibit criminal and indicted providers from lining their pockets through liens and to address the assignment of liens,” Christine Baker, DIR director, said in a statement.

Washington Commissioner Fines Pet Insurer for Violating State Laws

W

ashington Insurance Commissioner Mike Kreidler has fined a pet insurance company $150,000 for violating state laws.

Kreidler said his agency issued fines in July against American Pet

Insurance, which goes under the name Trupanion. It’s based in New York.

W6 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

Most of the violations were related to charging rates that the commissioner did not approve, as required by law.

The violations include a failure to cancel policies in a timely manner after a pet’s deaths, after a customer no longer owned a

pet, and when the pet owner canceled a policy.

The agency suspended an additional $100,000 fine that American Pet Insurance must pay if it commits the same violations in two years or fails to develop a plan to fix the violations.

Copyright 2016 Associated Press.

INSURANCEJOURNAL.COM

Dec

line

e

Nop

Pass

h?

Hu rry

So

PACIFIC GATEWAY INSURANCE AGENCY

27200 Tourney Rd Suite 360 Valencia, CA 91355

Phone: (800) 354-4844 - Fax (661) 257-5988 www.pgiainsurance.com - License #: 0C04869

We offer a wide variety of commercial auto, garage, property, package and general liability products.

All backed by an A++ financial rating by AM Best.

WEST | News & Markets California Commissioner Approves Rate Reductions on State Farm Commercial Policies

C U.S. Court Approves Clean-Up Deals, Executive Bonuses for Peabody

By Jim Christie and Tracy Rucinski

B

ankrupt coal company Peabody Energy late last month won U.S. court approval for agreements with three states to partially cover $1.14 billion in potential environmental liabilities and for a bonus plan for its six top executives.

Under the agreements, Wyoming can receive $127 million in cash if Peabody walks away from its mine cleanup obligations in the state while in bankruptcy, while New Mexico would receive $32 million and Indiana would get $17 million.

Until now those liabilities were covered by a federal program known as self-bonding. It allows the largest miners to extract coal without setting aside cash or collateral.

The program is currently under review.

Peabody’s agreements with Wyoming, New Mexico and Indiana are similar to deals reached by bankrupt coal miners Arch Coal and Alpha Natural Resources on selfbonds in Wyoming and West Virginia.

Peabody also overcame objections by funds affiliated with the United Mine Workers of America to its executive bonus plan.

The plan and another incentive plan for non-insider employees proposed setting aside up to $16.2 million in bonuses.

Peabody’s executive leadership team would be eligible for the bonuses if they hit performance targets through the end of next year.

The funds had argued the bonuses for the executives were unfair and retentive in nature.

Bonus plans in bankruptcies routinely come under scrutiny, especially by the U.S. trustee, over concerns they are mainly intended to keep insiders from quitting.

Bonus plans emerged as an alternative way to reward company leaders after changes to the U.S. bankruptcy code in 2005 essentially abolished retention payments for top executives while companies were slashing payrolls.

To win court approval, debtors must prove the plans pay for performance rather than simply substitute for retention payments.

Hurt by weak prices for coal and unable to service $10.1 billion in debt, much of it incurred to finance expansion into Australia, Peabody filed for bankruptcy in April.

The case is In re Peabody Energy Corp., in U.S. Bankruptcy Court, Eastern District of Missouri.

Copyright 2016 Reuters.

W8 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

alifornia Insurance Commissioner Dave Jones approved rate reductions for several State Farm commercial policies that he said will bring millions of dollars in premium savings for tens of thousands of small businesses, farm owners, apartment owners, and condo associations across the state.

The California Department of Insurance’s actuaries reviewed the rate filings and the data State Farm submitted to justify State Farm commercial rate filings after Consumer Watchdog intervened in three of the six filings.

The actuaries found that several of the company’s requested rate increases should actually be reductions. The carrier lowered rates on those insurance products where the department found the data supported a reduction.

“These State Farm commercial rate reductions are a big win for California’s small businesses and farm owners,” Jones said in a statement.

Following are the reductions called for: • Apartment owner programs get a 7.1 percent reduction as of April, with estimated premium savings for 38,885 policyholders is $7.4 million.

• Condominium homeowner association program gets a 6.0 percent reduction as of April, with estimated premium savings for 11,451 policyholders is $3.7 million.

• Mercantile/ services (small business owners) get a 4.0 percent reduction on as of Aug. 10, with estimated premium savings for 42,318 policyholders is $2.3 million.

• Personal Farm owners get a 29.9 percent as April 14, with estimated savings for 4,871 policyholders is $3.6 million.

INSURANCEJOURNAL.COM

WEST | News & Markets

Expert Gives Agents C- on Understanding of Cyber Insurance

By Don Jergler

E

and far between right now, so I think the mass of folks selling general commercial insurance out there, if I had to test their knowledge of that, I’d say maybe they’d get a C‑.

duard Goodman, chief privacy officer of Scottsdale, Ariz.-based IDT911, an identity theft protection firm, isn’t too high on the industry’s knowledge of cyber IJ: Do agents need to offer this insurance, cybercrime and data type of insurance to stay comtheft. petitive?

Goodman assigned a grade Goodman: I think absolutely of C- when asked to assess they do. I think what’s being the average insurance agent’s lost on lots of brokers and knowledge in agents now, this area. though, is that He also disthis is such a cussed what common risk. questions agents So many need to ask — more carriers, both of clients on a day‑to‑day and providers basis even, now — to ensure are adding it, they are making or are covering the best cyber these types of insurance recrisks in different ommendations, manners, that in as well as pricing some respects, and other topics, Eduard Goodman frankly not with Insurance offering it, not Journal. This interview was mentioning it, and bringing edited for brevity. it up with your commercial clients, it doesn’t just put you Insurance Journal: Cyber insur- at a competitive disadvantage, ance is growing in popularity, it probably puts you at some but do you think independent risk of professional liability for agents have a good handle on failing to recommend covers, this topic? and restricting strategies to deal Goodman: I think, generally with what frankly, unfortunatespeaking, no. I think generally, is a very, very common risk ly, your average agent broker that hits businesses of all sizes doesn’t truly understand what and all types, on operational, the risks are, and what’s availand administrative, legal and able out there in the market to other levels. address those risks.

I think it’s more than com I do think, specifically, there petitive advantage, frankly. I are lots of agents out there, and think it’s one of self‑preservabrokers, that are very well‑edtion, at least from their own ucated in this area, and are professional liability, and any becoming more educated as potential errors or omissions time goes by, but they are fewer they might face, and things of W10 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

that nature as a broker who is a professional, who supposed to be helping manage risk insurance.

IJ: What are some of the advan-

tages of offering it?

Goodman: I think that there’s so many different advantages. I’ll start out with the fact that I think most folks don’t recognize how some of these different cyber events really hit a business. I think the first advantage is, if you want to have a recurring customer next year, to sell insurance products to, you want to make sure they’re still in business.

The advantage primary, to focusing on offering these types of coverages, is frankly in ensuring the continuity of your own clients. We’ve seen scenarios where an event like this turns out not to be covered — we could talk different events — and it sinks a company, and of course they just shut down, or it creates liabilities they just can’t bear.

I think that’s one of the prime ones, but I think all the other things, really it’s just when you do offer these types of coverages, I think what’s lost on most folks is that cyber coverage — we won’t credit this — there was a reinsurance provider that we work with, that when it clicked with them, they understood, real cyber insurance isn’t just about writing a check to make you whole, like when your building burns down.

It’s really more of a conduit to services, because you don’t know what you’re dealing with.

You need the professionals, you

need the right legal counsel, different folks in the right positions to help you work through what’s a very murky situation, because it’s not a traditional tangible loss or experience.

‘I think what’s being lost on lots of brokers and agents now, though, is that this is such a common risk.’

Most of the time, when that’s handled right, when you take a client really from panic to peace of mind around an incident like that, it always invariably translates back to the broker or agent who offered the policy to begin with, sometimes with the client saying, ‘Do I really need that?’

Yeah, you do.

IJ: Name some factors, beyond

revenue, that are taken into consideration when determining price.

Goodman: Revenue aside, I think the thing that is also a bit of a misnomer in cyber is that revenue corresponds to risk, and that’s not always the case, especially with mandated responses around data breaches, for instance, and things like that.

Some of the factors that are considered is obviously going to be your industry type. Most notably would be professional services, with medical standing out, but also legal and CPAs. They deal with a lot of data, a lot of data on consumers.

Again, they’re going to tend to be on a higher price, or different type of offering, when it comes to what’s available.

Financial services in general are higher risk.

INSURANCEJOURNAL.COM

I think certain industry, and industry segments, most of them know and wouldn’t be surprised when they find out they’re in a higher risk class and are going to pay a little bit more. Size, also is going to benefit it. Not just revenue, but the amount of transactions.

I give people the example that you could be a small business owner who owns a kiosk that sells bubblegum at LAX, but you might have 100,000, 200,000 transactions in the course of a couple months, just from people buying 75 cent bubblegum. That’s still a lot of data, as far as card information and things like that.

Revenue wouldn’t correspond with the potential risk they might have, as an easy example. The amount of transactions, the type of business they’re in, and the industry again, like I said — are they specifically targeted? — and those types of risks.

Those are the other factors that go in, besides simply looking at revenue, revenue streams, and that type of issue.

IJ: Can you give

riers cover and exclude different things, which does make it tricky.

I think they need to go to their carriers and they need to get a clear answer to, “What exactly is being covered? Is this just going to cover my clients in the event of a data breach? Is this going to cover them if they don’t deal with information on people, but maybe make software products or things like that,” and maybe network liability, which is an older type of cyber coverage might be more apropos?

I think it’s trying to understand the coverages that are being offered by the carriers that they work with, whether it’s stand‑alone coverages, which there’s plenty of them out there, more specialized and even pricier, or even add‑ons to BOPs and CCP packages that have been out there for years, as well.

clients as a broker or an agent, I think getting to understand the nature of the business is really important, and one of those key questions that people don’t really talk about, that I think comes into play, is trying to discern right off the bat, are they a B2B business, or B2C? B2C is going to really tend to cause you, when it’s business to consumer, to focus very heavily on data breach related coverages. Those are coverages that respond to a lot of your own costs as an entity, to have to comply with regulatory notifications, and notifications to the public, which can be very costly. Sometimes defending lawsuits as well, but mostly the first‑party costs.

If you work with consumers, those are the types of coverages you should be looking to offer.

Those types of businesses that are retail, or physicians’ offices, law firms, or any business that’s going to deal with that.

If you make widgets for other companies that make widgets, you’re going to want to concentrate on other issues. Business

‘I think that’s a big issue, and a bit of a difficulty for brokers right now, to understand that not all cyber coverages are created equal.’

me three or four good questions that agents need to ask their clients, as well as providers?

Goodman: Yeah, I think starting on the provider side, it’s really trying to figure out what the carrier itself is actually covering. I think that’s a big issue, and a bit of a difficulty for brokers right now, to understand that not all cyber coverages are created equal. It’s not a very well‑defined area. Different carINSURANCEJOURNAL.COM

Really knowing what’s covered, what’s not, how they address things like payment card‑related issues, which has been a sticky issue, as well.

Those are the things to clarify with your carriers that you’re working with, to understand the products, frankly.

I think the other side, in dealing with who you’re selling those products to, your actual

continuity is going to be very big. Cyber ransom and those types of coverages would also be very important to look at, but you want to have a good understanding of where the risk is.

I think that’s one of the things to understand primarily — What do your businesses do, how do you do it? It sounds like a fairly obvious question, but it’s not always, when people think about it from cyber.

I think that’s one of them. I think understanding size and scope, meaning obviously transaction amounts, not just dollar amounts, but also understanding where they do business. Is it global? Is it only in the U.S.? Those are the things, as we’re seeing more and more privacy risks, and other types of risks expand outside of the U.S., are really, really important.

Podcast Visit Insurancejournal.tv to hear the full podcast of this interview.

SEPTEMBER 6, 2016 INSURANCE JOURNAL | WEST | W11

WEST | News & Markets

Lawyers for Washington Landslide Family of Arizona Instructor Killed Victims Accuse State of Fraud

by Girl with Uzi Sues Gun Range

A

ttorneys for victims and family members in the deadly 2014 landslide in Washington state have accused state lawyers of orchestrating a fraud to hide the truth by deleting emails between defense expert witnesses.

In a motion filed in late August, the attorneys say the state has spent over $3 million in taxpayer dollars developing the opinions of its seven-person expert team.

They claim that undertaking, however, was started with a pact approved by the attorney general to destroy emails and deceive about what they were doing.

The plaintiffs say they obtained some of the emails sent among the state’s expert

witnesses that were mistakenly spared from deletion. They allege the emails show that the experts were “constantly shifting their story in service of the state’s defense.”

A total of 43 people were killed in the March 22, 2014, slide in Oso. The plaintiffs are requesting sanctions ranging from instructing a jury to draw a “negative inference” from the email deletions to a liability judgment against the state.

The suit set for trial this fall is expected to involve one of the largest tort claims in Washington history with the state as a defendant.

Copyright 2016 Associated Press.

T

he family of an Arizona shooting range instructor accidentally killed by a 9-year-old girl with an Uzi has sued the business, alleging it should not have allowed a child to use the high-powered weapon.

The wrongful-death lawsuit seeks a jury trial in Mohave County Superior Court to determine damages for Charles Vacca’s widow and three children, as well as his ex-wife and mother.

It claims the Nevada-based owners and operators of the Last Stop shooting range in White Hills were negligent in Vacca’s death in 2014. The filing says an Uzi was not a safe or appropriate weapon to entrust to a young girl and caused her to

lose control of it.

The shooting led to a debate over youngsters and guns, with many people wondering why parents would let a child handle a submachine gun. The range’s owner previously said the parents had signed waivers saying they understood the rules and were standing nearby. Prosecutors declined to file charges.

Vacca showed the girl how to fire the gun, showed her a shooting stance and helped her fire a few rounds, according to police reports.

He then stepped back and let her fire the gun, and its recoil wrenched it upward, killing Vacca with a shot to the head.

Copyright 2016 Associated Press.

3 California Entities Get FEMA Preparedness Awards

T

hree California entities were named by the Federal Emergency Management Agency as winners of its annual preparedness awards.

The FEMA Individual and Community Preparedness Awards recognize the outstanding efforts of individuals, programs and organizations throughout the nation that are working to prepare their communities for emergencies.

The 2016 award recipients developed innovative practices and programs that contributed to or helped make mak-

ing communities safer, better prepared and more resilient, according to FEMA. The 11 FEMA Individual and Community Preparedness Award recipients will be recognized in a ceremony on Sept. 13, 2016, in Washington, D.C. This year’s winners of FEMA’s Individual and Community Preparedness Awards are:

Action: Serenity Hospice

(Texas)

• Outstanding Citizen Corps Council Award: Delaware

State Citizen Corps Council

• Community Preparedness Champions Award: Jamie

D. Aten, Ph.D.

• Awareness to Action Award:

The HALTER Project (California) and Jenny Novak of California State University, Northridge Emergency Management

• Outstanding Inclusive Initiatives in Emergency Management: Notify NYC

• Technological Innovation Award: SUNRNR of

• America’s PrepareAthon! in

• Outstanding Achievement in

(New York)

W12 | INSURANCE JOURNAL | WEST SEPTEMBER 6, 2016

Virginia Inc.

Youth Preparedness Award:

Mart High School Teen CERT (Texas)

• Sixth Annual Recipient of the John D. Solomon Whole Community Preparedness Award: San Francisco

Neighborhood Emergency Response Team (California)

• Outstanding Community Emergency Response Team Initiatives Award:

CaliforniaVolunteers

• Outstanding Citizen Corps Partner Program Award: Burleigh County

Snowmobile Community Emergency Response Team (CERT) (North Dakota) INSURANCEJOURNAL.COM

Discover the Difference Helping employers achieve long-term workers’ comp cost savings.

Learn more about what sets us apart at CompWestInsurance.com

CompWest Insurance Company is a member of AF Group. All policies are underwritten by a licensed insurer subsidiary of AF Group.

Get full admission to all upcoming live webinars, plus unlimited access to our entire catalog of 200+ course recordings for only $99/mo. ijacademy.com

Not a complex point of view.

At UFG, we have a national footprint, but operate with the service-oriented personality of a hands-on regional carrier.

Our people know your region, and are empowered to make decisions specific to your area.

We know your space. It’s that simple.

Visit UFGsolutions.com or call 800-877-5002.

Get full admission to all upcoming live webinars, plus unlimited access to our entire catalog of 200+ course recordings for only $99/mo. ijacademy.com

Business Moves | NATIONAL World Insurance, AIV Group

World Insurance Associates has acquired AIV Group.

Terms of the deal were not disclosed.

World Insurance is an independent insurance agency headquartered in Tinton Falls, N.J., that specializes in insurance for transportation companies, the hospitality industry, coastal properties and high-net-worth individuals and commercial clients.

AIV Group is an Avenel, N.J.based insurance agency specializing in insurance for hospitality, real estate, professional services and retail sectors in the Asian community.

Cobbs Allen, First Insurance

Risk management firm Cobbs Allen has opened an office in New Orleans. The company is partnering with First Insurance in opening the office under the Cobbs Allen name.

This will be the fourth office for the firm specializing in commercial insurance, employee benefits, personal insurance and alternative risk financing services. It recently opened an office in Houston.

The First Insurance and Cobbs Allen partnership will include a focus on marine and sea-based operations.

Burnett Tappel, CEO of First Insurance, becomes a partner at Cobbs Allen.

Cobbs Allen said it plans further expansion across the United States. Founded in 1887, the firm is headquartered in Birmingham, Ala.

Arthur J. Gallagher, Victory Insurance Agency, Gabor Insurance Services Arthur J. Gallagher &

INSURANCEJOURNAL.COM

Co. (AJG) acquired Victory Insurance Agency Inc., based in Pearland, Texas. Terms of the transaction were not disclosed.

Founded in 1983, Victory Insurance Agency (Victory) is a retail insurance broker providing commercial property/ casualty, employee benefits, risk management consulting and personal lines insurance services to clients throughout the south central United States. The firm specializes in coverages for public entities and school districts as well as the real estate, manufacturing, distribution, energy, marine, technology, transportation and construction industries.

Roger Montemayor and his associates will continue to operate from their Pearland and Lake Jackson, Texas, locations.

In another deal, AJG acquired Gabor Insurance Services Inc., as well as its subsidiary, American Professional Liability Underwriters, headquartered in Miami, Fla. Terms of the transaction were not disclosed.

Founded in 1992, Gabor Insurance Services is a managing general agency and excess and surplus lines insurance broker that specializes in commercial property and professional liability.

Ronald Gabor, Michael Gabor, Robert Kenney and their associates will operate from their Miami, Sebastian, Boca Raton and Tampa, Fla., locations under the direction of Joel Cavaness, president of Risk Placement Services Inc., a subsidiary of AJG. Arthur J. Gallagher & Co., an international insurance brokerage and risk management

services firm, is headquartered in Itasca, Ill.

USI, MVB Insurance

MVB Financial Corp. has sold all of the assets of its wholly-owned subsidiary, MVB Insurance LLC in Fairmont, W. Va., to USI Insurance Services LLC. MVB Insurance will retain the assets related to, and continue to operate, its title insurance business.

MVB Insurance CEO L. Randall “Randy” Cober, President Kenneth Juskowich, and all employees have been extended offers to remain with USI as part of the acquisition.

According to Larry F. Mazza, MVB President and CEO, “Recognizing the high level of competition and the rapid pace of consolidation within the insurance industry presented challenges to further develop our insurance services offering.”

Headquartered in Valhalla, N.Y., USI has more than $1 billion in revenue, employs more than 4,400 professionals and operates out of 140 local offices serving every state.

MVB Financial Corp. is a financial holding company in Fairmont, W.Va.

Hub International, KeenanSuggs Insurance

Hub International Ltd. has agreed to acquire the assets of KeenanSuggs Insurance Inc. based in South Carolina. Terms of the acquisition were not disclosed.

With offices in Columbia, Greenville and Charleston, S.C., and Raleigh, N.C., KeenanSuggs is a provider of multiline insurance including property and casualty, personal lines, employee benefits and risk services throughout the Southeast.

Tommy Suggs, president and CEO of KeenanSuggs, will join HUB as president and CEO of the Carolinas region for Hub Southeast, and Mitch Watson, CFO and COO of KeenanSuggs, will also join Hub Southeast’s Carolinas region as COO. Mike Chapman, CEO, Hub Southeast, described the addition of KeenanSuggs as a “game-changing event” for

continued on page 16

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Business Moves continued from page 15 Hub Southeast and its Carolina presence.

Headquartered in Chicago, Hub International Ltd. is a global insurance brokerage.

quartered in Foster City, Calif.

FirstBest Systems is a Bedford, Mass., based provider of underwriting management systems for property and casualty insurers.

Holman Insurance Services LLC, Risk Partners Inc.

ICBUSA, The Landy Insurance Agency

Holman Insurance Services LLC has acquired Risk Partners Inc. Following the acquisition, Risk Partners will continue to operate under its current name as a subsidiary of Holman Insurance Services. The acquisition will mark the official launch of the commercial division for Risk Partners and further Holman Insurance’s efforts to expand its platform of personal and commercial insurance product and service lines.

Holman Insurance Services is a subsidiary of Maple Shade, N.J., based Holman Automotive Group Inc. Risk Partners is a Medford, N.J., based commercial insurance brokerage and managing general underwriter.

Guidewire Software Inc., FirstBest Systems Inc.

Guidewire Software Inc. has entered into an agreement to acquire FirstBest Systems Inc. Neil Betteridge, vice president of strategy at Guidewire Software, stated in a company release that expanding its focus on the underwriter has been a major theme for the company. Through this acquisition, Guidewire Software will be able to improve its underwriting management support for complex commercial, specialty and workers’ compensation lines.

Guidewire Software is a property and casualty insurance software provider head-

ICBUSA and The Landy Insurance Agency have formed a strategic partnership in which ICBUSA members will be offered professional insurance services, including professional liability insurance, privacy and cyber crime coverage and risk management and educational programs.

The aim of the partnership is to allow ICBUSA members to obtain needed insurance coverage while reducing risk in their accounting and bookkeeping practices.

ICBUSA is a Scottsdale, Ariz., based member of the Institute of Certified Bookkeepers, a London-headquartered professional membership organization for bookkeepers. The Landy Insurance Agency is a Needham, Mass., based provider of professional liability and errors and omissions insurance.

Aspen U.S. Insurance

Aspen U.S. Insurance, part of the insurance segment of Aspen Insurance Holdings Limited has opened an office in Dallas.

The new Dallas office will serve as a hub to offer products and services to regional customers and brokers. Initially focusing on excess casualty products across the wholesale and retail channels, the office eventually will expand to offer other products.

Aspen provides reinsurance

16 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

and insurance coverage to clients in various domestic and global markets through wholly-owned subsidiaries and offices in Australia, Bermuda, Canada, France, Germany, Ireland, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States.

U.S. Risk, Continental Marine

U.S. Risk L.L.C. has acquired Continental Marine Insurance Services.

Continental is a Lodi, Calif.based wholesale insurance broker.

Continental has specialized in placing marine insurance for both commercial and personal marine-related risks such as marinas, boat dealers, boat manufacturers, boat repairers and yacht brokers.

U.S. Risk is an international specialty lines underwriting manager and wholesale broker headquartered in Dallas.

Gateway-Acentria, Insurance Center

Gateway-Acentria Insurance has formed a merged partnership with Insurance Center of South Florida, an established agency based out of Coral Springs, Fla. Insurance Center of Florida specializes in working with employers to design and service group benefit programs. Additionally, they provide Medicare health plans, individual health benefits as well as general personal and business insurance coverages.

Effective, Aug. 1, the staff has relocated to the GatewayAcentria Insurance main office in Fort Lauderdale, Fla. Gateway-Acentria Insurance, a subsidiary company of Acentria Insurance, is a full-ser-

vice independent insurance agency working with locations in Fort Lauderdale and West Palm Beach.

UPC Insurance, American Coastal Insurance

United Insurance Holdings Corp., a property/casualty insurance holding company, has entered into a merger agreement with RDX Holding LLC, the parent of American Coastal Insurance Co. (ACIC), to combine the companies in an all-stock merger meant to qualify as a tax-free reorganization.

The combined entity will have more than $1 billion of premium in force.

Under the terms of the transaction, RDX members will receive UPC Insurance common stock based on an exchange ratio providing for RDX members to own 49 percent of the outstanding UPC common stock as of the signing.

Dan Peed, CEO of ACIC and majority stock owner of RDX, will become non-executive vice-chair of UPC’s Board of Directors and will nominate two additional independent directors to join the UPC Board, which will be expanded to 10 as part of the transaction. John Forney, UPC’s president and CEO, will assume the role of CEO of the combined entity.

UPC Insurance is an insurance holding company that sources, writes and services residential property/casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries.

ACIC is a specialty underwriter focused primarily on the commercial residential property insurance market in Florida.

INSURANCEJOURNAL.COM

THE RIGHT EQUIPMENT IS EVERYTHING NOT EVERY E&S CARRIER UNDERSTANDS THE UNIQUE RISKS YOUR CONTRACTOR AND CONSTRUCTION CUSTOMERS FACE. We and our wholesale general agents can help make sure the focus stays on getting the job done by offering the right coverage at the right value.

Visit our website to find a wholesale general agent near you.

www.music-ins.com ©2016 Selective Ins. Group, Inc. Products provided are underwritten by Mesa Underwriters Specialty Insurance Company (MUSIC). Products available vary by jurisdiction. These descriptions are summaries and not offers to sell insurance; the actual policies show complete coverage, exclusions and limitations details. Policy issuance is subject to underwriting approval.

NATIONAL | Closer Look | Workplace Violence

Finding Clues to Spot Violence in the Workplace

By Denise Johnson

I

n most incidents involving violence in the workplace, there are warning signs that precede an event, according to Jim Satterfield, president, COO and founder of crisis coaching firm Firestorm.

According to a Firestorm survey, more than 90 percent of employees are concerned about workplace violence, while only about 50 percent have had any formal training related to it.

During a recent University of Alabama/Firestorm webinar on the subject, he offered potential warning signs for employers and a template to identify and address potentially violent behavior.

Violence prevention starts by identifying behaviors of concern, he explained. Employers need to focus on identifying behavioral warning signs and actions in advance in

order to intervene prior to a violent act taking place, he said.

Many employers have no formal structure to address observations beforehand.

Satterfield explained the value in having a central data repository because it can assist in

connecting the dots of what may appear to be unrelated behavior. Documentation of what co-workers and employers see and hear, as well as documentation of an employee’s actions, are to be included in the repository.

Violence prevention starts by identifying behaviors of concern.

Satterfield offered the hypothetical example of employee Fred Rogers who receives a poor work performance review and is visibly not happy. Rogers argues with security personnel at his workplace and the incident is documented in a securi-

ty log. A co-worker says Rogers made threatening statements and his absenteeism increases abruptly. Rogers’ social media posts say that he has been treated badly at work and that he will make them sorry.

If there is no central data repository, then all of Roger’s

18 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

potential warning signs might be missed or shrugged off.

Often a person planning to commit a violent act will tell at least one person, according to Satterfield, and 60 percent of the time he or she will tell two or more people.

Employees can help identify potential coworkers at highest risk by noting whether an employee has experienced multiple pressures, such as a divorce or change in job performance, made specific threats, been mocked by co-workers or has brought a weapon to work.

Satterfield said that a breakdown in support factors, personal factors and workplace factors can lead to violence.

Some behavioral red flags of employees at risk may include: • Suicidal thoughts; • Has weapons; • Makes intimidating comments about hurting someone else; • Destroys property; • Displays fits of rage; • Blames others for problems; • Files many grievances/ complaints; • Has frequent bouts of depression; • Has had bouts of substance abuse; • Exhibits major changes in behavior; • Appears paranoid; • Takes criticism poorly; • Is a loner; • Obsessed with the military, police or criminals.

Even if red flags are identified, Satterfield said that protective factors like community involvement, positive coping skills, family and friends can reduce the threat.

Employers that develop a program to identify red flags develop a behavior snapshot

over time. This snapshot encompasses psychological and biological, social and peer, family, workplace and threat-related behavior.

He identified four key assessment program components: 1. Awareness – Satterfield suggests management and workers look, listen and report.

2. Intelligence – Prescreening with background check, social media monitoring, offer an anonymous reporting tool.

3. Central Repository – All tips go into a central repository.

Human Resources is notified.

A threat monitoring team made up of at least three people, one each from Human Resources, security and operations.

4. BeRThA Plan – (Behavioral Risk Threat Assessment) Threat monitoring team screens reports, categorizes risk, actively monitors situation to resolution.

According to Satterfield, some ways employers can reduce the threat of workplace violence are by: • Developing a workplace culture of dignity and respect; • Having up-to-date policies and procedures; • Training all employees on the warning signs; • Developing a reporting tool; • Making sure physical security, such as fences, locks and cameras are in place.

• Monitoring social media.

• Ensuring response protocols are in place.

Share this article.

IJMAG.COM/96JC

INSURANCEJOURNAL.COM

Sharing the Vision for Our Bold New Future

Western World’s bold new future combines our experience and established leadership position in the surplus lines industry with the resources, expertise and capital of the Validus Group.

We are expanding our underwriting and marketing operations and enhancing our products to offer our agents and brokers new opportunities to build upon our strong, long-term business relationships in each of the three underwriting divisions: Contract, Brokerage and Programs.

We will continue to be a premier business partner with ease-of-use technology, service excellence and our commitment to supporting wholesale distribution.

• General Liability • Products Liability • Commercial Property • Professional Liability

westernworld.com Parsippany, New Jersey T 201.847.8600

See related articles at: ij.com/riskmanagers

Scottsdale, Arizona T 480.659.2724

NATIONAL | MyNewMarkets

Monoline Commercial Auto & Regional Short Haul Trucking Market Detail: QEO Group

(www.QEO.com) writes monoline commercial auto liability & physical damage. QEO’s commercial automobile insurance products are distributed through independent agents.

Commercial transportation insurance coverages are distinctively designed for companies whose principal risks are transportation centered.

Available limits: Minimum $100,000, maximum $1 million Carrier: Unable to disclose, admitted and non-admitted available States: Fla. and Texas Contact: Appointments QEO Marketing at 214-296-5350 or e-mail: appointment@qeo.com

Monoline Flood

Market Detail: Arlington/Roe

& Co. (www.arlingtonroe.com) offers coverage for monoline flood. Primary-residential up to $250,000; commercial up to $500,000; excess-residential and commercial up to $10 million and non-participating residential & commercial up to $250,000 available.

Available limits: As needed Carrier: Unable to disclose

admitted and non-admitted available States: Ill., Ind., Ky., Mich., Ohio, and Tenn.

Contact: Jim Eades at 800878-9891 ext. 8626 or e-mail: jreades@arlingtonroe.com

Home Inspectors

Market Detail: Insurance

Noodle (www.insurancenoodle.com) offers coverage options for home inspector risks. With the addition of new construction and contracting markets, Insurance Noodle is able to offer access to even more carriers. Online application available.

Available limits: Minimum $1 million, maximum $3 million Carrier: Unable to disclose, nonadmitted States: All states except Alaska, Fla., Hawaii, and La. Contact: Customer service at 888-466-8868

al agent, program underwriter or program administrator.

Available limits: Minimum $500,000, maximum $3 million Carrier: Unable to disclose, nonadmitted and admitted available States: All states Contact: Customer service at 212-796-6109

Transportation

Market Detail: Norman-

Spencer Agency, Inc. (www. norman-spencer.com) offers coverage to auto transporters, specialty haulers, towing, collateral recovery, and auto dismantlers. In business 35 years with more than $250 million in premium written annually.

Available limits: Minimum $100,000, maximum $1 million Carrier: Unable to disclose, admitted and non-admitted available States: All states Contact: Customer service at 800-543-3248

Condo Associations

Motor Truck Cargo

Company LLC (www.vilageco. com) offers CGL and umbrella coverage as well as other options as an E&S wholesaler, intermediary, managing gener-

Insurance Wholesalers Inc., (www.guardian-ins.com) offers a nationwide program with an unlimited radius and is welcoming new ventures (driv-

Market Detail: Vilage &

20 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

Market Detail: Guardian

ers must be 28 years or older with three years CDL experience) and experienced risks for motor truck cargo. Limits are available up to $250,000.

Excess coverage also available.

Desirable risks: dry van, reefer, flatbed, doubles, and intermodal or container haulers. For refrigerated risks the trailers must be 15 years or newer and the driver must be 25 years or older. Ineligible commodities: livestock, hazmat, mobile home and household goods.

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

Technology

Market Detail: Atlantic

Specialty Lines (www.atlanticspecial.com) offers a MicroTek small technology business errors and omissions and professional office package.

Available limits: As needed Carrier: Various, admitted and nonadmitted States: Colo., Dela., Fla., Ga., Md., Tenn., and Va. Contact: Eliza De Vera at 727540-2100 or e-mail: elizad@ atlanticspecial.com

This section brought to you by Insurance Journal’s sister website: www.mynewmarkets.com

Need a Market?

Find it.

FAST INSURANCEJOURNAL.COM

It takes a hard shell to protect you from the world’s environmental hazards.

Environmental accidents cause damage to wildlife, plants, water, and can also damage your assets. That’s why manufacturers, real estate developers, healthcare facilities, contractors, and other businesses turn to Tokio Marine Specialty Environmental, which combines the expertise from Philadelphia Insurance Companies with the financial strength of the Tokio Marine Group. Our broad range of Environmental Impairment Liability coverage programs include: Contractor Environmental Coverage (CEC), Contractor Environmental & Professional Coverage (CEPC) and Premises Environmental Coverage (PEC). Why is our Environmental coverage so comprehensive? Because when properly protected, your business can safely weather any environmental storm.

Environmental Impairment Liability A.M.Best A++ Rating S&P A+ Rating Underwriters Nationwide

Call 855.411.0797 or visit TMSIC.com/Environmental Tokio Marine Specialty Environmental is a promotional name for the Enironmental Specialty division of Tokio Marine Specialty Insurance Company, a member of the Tokio Marine Group, an authorized Excess and Surplus lines insurance carrier in all states and D.C. Tokio Marine Specialty Insurance Company is not licensed or admitted in any jurisdiction except Delaware where it is a domestic insurer licensed to write surplus lines. Surplus lines companies do not participate in state guaranty funds in any jurisdiction, except New Jersey, and thus, surplus lines insureds are not protected by those funds. © 2016 Tokio Marine Specialty Insurance Company, All Rights Reserved.

NATIONAL | Special Report | Top Workers’ Comp Writers by Growth

Workers’ Comp Premiums Up 2.3% in First Half of 2016

By Steven J. Groeschen

D

emotech’s review of second quarter 2016 data, as recently reported by insurers to the National Association of Insurance Commissioners, shows that workers’ compensation insurers reported a 2.3 percent increase in direct written premiums during the first six months of 2016 versus the same period in 2015.

Workers’ compensation direct written premiums have increased for six straight years.

Written premiums at mid-year 2016 of $27.5 billion are at an all-time high from the midyear 2010 low of $18.8 billion.

However, the growth rate has consistently slowed over the period, from a 9.5 percent change in 2011 to a 2.3 percent change in 2016.

The top 25 workers’ compensation insurers, ranked by the highest dollar amount of direct written premium growth, reported an 18.9 percent premium increase during the first six months of 2016 versus the same period in 2015. For all other workers’ comp insurers combined, reported premium decreased by 0.7 percent.

Eleven of the insurers in this year’s top 25 were also in last year’s top 25. Texas Mutual Insurance Co., which had been in the top 25 for five consecutive years, is no longer in the top 25; its premium decreased as a result of rate reductions and lower payrolls reported by its insureds.

Insurer groups having three

or more insurers in the top 25 include AmTrust, Berkshire Hathaway and Chubb. AmTrust has three insurers in the top 25 this year; these were also in last year’s top 25. Berkshire Hathaway has four insurers in the top 25, three of which were in last year’s top 25. Chubb Group, which merged with ACE earlier this year, has three insurers which are all newcomers to the top 25. Several of the other top 25 insurers are members of large national and international insurer groups.

Two of the top 25 insurers are not part of an insurer group. Benchmark Insurance Co. is a multiline insurer which specializes in fronting arrangements and program business.

LCTA Casualty Insurance Co., which writes only in Louisiana,

22 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

is a group self-insured fund that converted to a stock insurance company earlier this year.

Five of the top 25 insurers wrote more than 80 percent of their total workers’ compensation premium in California: Insurance Co. of the West, Redwood Fire and Casualty Insurance Co., Security National Insurance Co., Pacific Compensation Insurance Co. and StarStone National Insurance Co. Premium growth from these insurers is notable since the Workers’ Compensation Insurance Rating Bureau of California has been reducing its advisory pure premium rates since July 1, 2015, and the Bureau had expected premiums to flatten or decrease accordingly.

Interest rates remain at historically low levels and investment income continues to decline. Premiums will need to continue growing in order to offset this loss in investment income so insurers can hope to achieve profitability targets.

Challenges to premium growth include changes in the workforce and opt-out legislation. The labor participation rate is near a 38-year low. Companies are using more part-time employees (lower payrolls), and independent contractors (generally not insured under workers’ compensation). The opt-out legislation, which has been proposed in several states, would permit employers to use an employee benefit program to cover work-related accidents instead of the workers’ comp system.

Society and technology are rapidly changing what, how, and where work is done.

Workers’ comp insurers and insurance legislators will need to respond to these changes.

Groeschen is chief consulting actuary and risk analyst with Demotech Inc., a Columbus, Ohio-based financial analysis firm that provides services to regional insurers, title underwriters and specialty insurance markets.

Website: www.demotech.com.

INSURANCEJOURNAL.COM

Industry Workers’ Compensation Direct Premium Written (DPW) Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

DPW Through 6/30 $24,643,713,527 $22,329,033,136 $19,814,884,938 $18,878,244,754 $20,678,849,275 $22,561,250,145 $24,313,870,696 $25,601,218,834 $26,912,083,552 $27,538,413,961

Growth (Loss) ($529,834,596) ($2,314,680,391) ($2,514,148,198) ($936,640,184) $1,800,604,521 $1,882,400,870 $1,752,620,551 $1,287,348,138 $1,310,864,718 $626,330,409

% Change -2.1% -9.4% -11.3% -4.7% 9.5% 9.1% 7.8% 5.3% 5.1% 2.3%

DPW Through 12/31 $46,159,814,518 $41,465,519,939 $37,175,187,786 $36,393,231,471 $39,888,283,517 $43,887,443,549 $46,992,986,871 $49,304,907,985 $51,351,606,218 --

Growth (Loss) ($846,208,258) ($4,694,294,579) ($4,290,332,153) ($781,956,315) $3,495,052,046 $3,999,160,032 $3,105,543,322 $2,311,921,114 $2,046,698,233 --

% Change -1.8% -10.2% -10.3% -2.1% 9.6% 10.0% 7.1% 4.9% 4.2% --

Data Source: The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., by permission.

Information derived from an SNL Financial product. The NAIC and SNL Financial do not endorse any analysis or conclusion based upon the use of this data. This exhibit is based upon the initial reporting of second quarter 2016 data, estimated to be more than 95 percent of the companies that report quarterly. It excludes several large state funds (e.g. California, New York, Pennsylvania) which have not always reported second quarter data.

Top 25 Property/Casualty Companies

Based Upon Dollar Amount of Direct Premium Written (DPW) Growth

Rank Company Name Group Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Wesco Insurance Co. Old Republic Insurance Co. Insurance Co. of the West Redwood Fire & Casualty Insurance Co. NorGUARD Insurance Co. Starr Indemnity & Liability Co. Technology Insurance Co. Security National Insurance Co. ACE American Insurance Co. Benchmark Insurance Co. Midwest Employers Casualty Co. Arch Insurance Co. Chubb Indemnity Insurance Co. Ohio Security Insurance Co. New Jersey Manufacturers Insurance Co. Accident Fund National Insurance Co. Pacific Compensation Insurance Co. National Liability & Fire Insurance Co. AmGUARD Insurance Co. Accident Fund Insurance Co. of America StarStone National Insurance Co. Employers Insurance Co. of Wausau LCTA Casualty Insurance Co. Safety National Casualty Corp.

Indemnity Insurance Co. of North America

AmTrust Group Old Republic Group American Assets Group Berkshire Hathaway Group Berkshire Hathaway Group Starr Group AmTrust Group AmTrust Group Chubb Group N/A WR Berkley Group Arch Insurance Group Chubb Group Liberty Mutual Group New Jersey Manufacturers Group BCBS of Michigan Group Alleghany Group Berkshire Hathaway Group Berkshire Hathaway Group BCBS of Michigan Group Enstar Group Liberty Mutual Group N/A Tokio Marine Holdings Group Chubb Group

Top 25 All others Total

Year to Date Year to Date 6/30/2016 6/30/2015 $428,465,137 $343,446,318 $453,295,830 $134,938,241 $234,060,351 $208,797,489 $542,657,116 $366,668,024 $408,530,162 $67,719,867 $42,612,545 $255,404,414 $160,848,099 $87,555,604 $248,652,590 $78,256,111 $68,121,374 $56,219,254 $162,040,622 $217,745,336 $64,651,664 $82,568,810 $18,474,445 $85,250,937 $158,433,295

$360,226,399 $282,824,159 $394,276,380 $80,742,971 $189,993,874 $164,945,575 $502,774,195 $331,953,295 $379,861,204 $39,401,202 $14,384,489 $228,954,232 $135,899,799 $63,345,165 $224,467,038 $54,786,105 $45,623,154 $34,417,902 $141,825,317 $198,555,980 $45,536,502 $63,565,814 $0 $67,177,386 $140,757,400

Growth (Loss) $68,238,738 $60,622,159 $59,019,450 $54,195,270 $44,066,477 $43,851,914 $39,882,921 $34,714,729 $28,668,958 $28,318,665 $28,228,056 $26,450,182 $24,948,300 $24,210,439 $24,185,552 $23,470,006 $22,498,220 $21,801,352 $20,215,305 $19,189,356 $19,115,162 $19,002,996 $18,474,445 $18,073,551 $17,675,895

% Change 18.9% 21.4% 15.0% 67.1% 23.2% 26.6% 7.9% 10.5% 7.5% 71.9% 196.2% 11.6% 18.4% 38.2% 10.8% 42.8% 49.3% 63.3% 14.3% 9.7% 42.0% 29.9% 999.9% 26.9% 12.6%

$4,975,413,635 $4,186,295,537 $789,118,098 18.9% $22,563,000,326 $22,725,788,015 ($162,787,689) -0.7% $27,538,413,961 $26,912,083,552 $626,330,409 2.3%

Data Source: The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., by permission.

Information derived from an SNL Financial product. The NAIC and SNL Financial do not endorse any analysis or conclusion based upon the use of this data. This exhibit is based upon the initial reporting of second quarter 2016 data, estimated to be more than 95 percent of the companies that report quarterly. It excludes several large state funds (e.g. California, New York, Pennsylvania) which have not always reported second quarter data.

INSURANCEJOURNAL.COM

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 23

NATIONAL | News & Markets

The Future of Climate Change Modeling

By Don Jergler

F

or the last few years there’s been a common response from catastrophe modelers who advise the property/casualty industry when asked about including the effects of climate change in modeling.

It went something like: “The industry isn’t interested in what the weather will look like in 30, 50 or 100 years, it’s focused on what extreme weather will look like next year.”

But lately it seems that more cat modelers are being asked if they can include the effects of climate change in their models, and at least one modeling firm is now gearing up to offer just that.

Boston-based AIR Worldwide is developing better tools to help its clients understand the risks of climate change.

The firm says its scientists are collaborating with organizations like The Met Office, Geosciences Australia and the Association of British Insurers to quantify the financial impacts of climate change.

“Findings have indicated correlations between environmental factors such as sea levels and sea surface temperatures,

and the intensity and frequency of natural disasters, including windstorms, floods, and coastal storm surge,” the AIR website states.

No, the P/C industry hasn’t suddenly switched its focus to what’s going to happen 30-plus years from now, said Peter Sousounis, assistant vice president and director of meteorology in AIR’s research and modeling division.

Climate change continues to occur on a relatively slow time scale — slow relative to one-year renewal periods on property — but this doesn’t mean a warming world isn’t having effects in the here-and-now.

Though that is still up for debate.

Sousounis and other modelers say the industry, and particularly the public sector, is coming to them for more information on impacts from climate change — Are rising sea levels putting more properties at risk?

Are droughts being made worse? Can we expect more tornadoes?

“An aspect of climate change that we don’t understand is how it’s impacting the year-to year variability,” he said.

In other words, variability over the last five-to-10 years may be much different than 50 to 60 years ago, and this is among

24 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

the important questions firms like AIR and their clients want answered.

One of the questions Sousounis believes should be tackled sooner than later is how climate change will affect the variability of hurricanes and their forward wind speed.

If a hurricane’s forward speed slows, it could increase its time spent over, say, a city on the Eastern Seaboard, thereby increasing precipitation and exposure to high winds for the city’s inhabitants and all of its structures.

Just what does climate change have to do with the forward wind speed of hurricanes?

“The poles are warming at a rate that is faster than equatorial regions,” Sousounis explained.

This means the pole-to-equatorial temperature gradient is changing, and that in turn can alter the world’s atmospheric circulation.

That’s the brief version of a much longer tutorial he gave, which held that the frequency of the wave-shaped currents that circle the globe could change, slowing hurricanes down as well as creating other issues.

More severe damages from hurricanes could result, and particular regions may be more consistently exposed to the same weather — more heavy precipitation day after day in some areas, while other areas INSURANCEJOURNAL.COM

are plagued by prolonged heatwaves.

Including climate change in modeling may be easier said than done.

Multiple conditions are already factored into modeling, and the potential impacts of climate change add yet another dimension to the mix, according to Tom Larsen, a product architect for Irvine, Calif.-based CoreLogic.

Larsen kicked it into mathematical mode, as modelers often do, explaining this in terms of X and Y dimensions, plus the depth of the atmosphere, and the time element. He thankfully didn’t assign lettering to the last two dimensions, effectively dumbing things down.

“You’ve got four dimensions that you’re dealing with,” he said.

Attempting to factor in the impacts of climate change effectively doubles that.

“It’s a 16-fold increase in analytics,” he added — or rather multiplied.

This isn’t to say the task is impossible.

The academic world is increasingly developing their own models and adding to a growing set of research on climate, which AIR and other modelers can seize upon in their efforts to make better products.

If nothing else, the availability of more data is always attractive to P/C insurers, Larsen said. “The market is becoming more accepting of these models,” he said.

“We are getting more requests at different levels. It’s certainly not on the top five list for many of our clients, but it is on the important list.”

Most in this field say the biggest interest in modeling for the impacts of climate change is coming from the public sector, which must think about planning on a far longer scale.

Silicon Valley-based Risk Management Solutions has already begun offering its services to the public sector. RMS recently performed a future climate modeling

scenario for San Francisco, which found in May that $77 billion worth of property could be at risk of storm surge/flooding as a result of sea level rise.

Most of the climate change-related questions Steve Bowen hears from his clients relates to just how this is going to be done.

“The industry as a whole in trying to figure out how the cat modeler is going to take the whole topic of climate change and model it into their climate solutions,” said Bowen, who is a director and meteorologist at London–based Aon Benfield analytics and impact forecasting.

This may be more than mere curiosity about the future. It could be that some people in the industry think the climate change is already affecting the weather.

“The fact of the matter is we’re already seeing this impact today,” he said.

Share this article with a colleague.

IJMAG.COM/96EM

LegaL Notice

If you paid or reimbursed others for the purchase of certain Aftermarket Automotive Sheet Metal Products between January 1, 2003 and September 7, 2015, you may be entitled to another cash payment from a class action settlement.

A Settlement has been reached with Jui Li Enterprise Co., Ltd. (“Settling Defendant”) in a class action lawsuit about whether it, together with Auto Parts Industrial, Ltd., and Cornerstone Auto Parts, LLC (“Non-Settling Defendants”) and Tong Yang Industry Co., Ltd., as successor-in-interest to Taiwan Kai Yih Industrial Co., Ltd., TYG Products, L.P., and Gordon Auto Body Parts Co., Ltd. (collectively, “First Settling Defendants”) violated state and federal antitrust laws and other state laws by agreeing to fix prices and limit the supply of Aftermarket Automotive Sheet Metal (“AMSM”) Products. AMSM Products include any and all aftermarket automotive parts made of any kind of sheet metal including, but not limited to, hoods, doors, bumpers, fenders, bonnets, floor panels, trunk assemblies, trunk lids, tailgates, roof panels, and reinforcement parts. Defendants deny each and all of the claims, as well as all charges of wrongdoing or liability. The Court has not decided who is right.

Who is included? The Settlement includes all third-party payors who indirectly paid or reimbursed others for the purchase of AMSM Products for end use and not sale or resale, purchased anywhere in the United States between January 1, 2003 and September 7, 2015 (“Settlement Class members”).

What can you get? The Settling Defendant has agreed to pay USD $650,000 in settlement of the claims against it. Due to a requirement of Taiwan law that applies to the fund because it will originate from a Taiwan bank account, twenty percent will be withheld as taxes, resulting in a total deposit in the amount of USD $520,000 (“Settlement Fund”) in an escrow account in the United States. Each Settlement Class member that submitted a valid Claim Form during the prior settlements with First Settling Defendants will receive a pro rata share of the Net Settlement Fund based on their volume of qualifying AMSM Product purchases, as compared to the total volume of all Settlement Class members’ qualifying AMSM Product purchases.

What are my options? If you do not want to be legally bound by this Settlement or the continued litigation, you must exclude yourself by October 10, 2016. Unless you exclude yourself, you will not be able to sue the Settling Defendant or any Non-Settling Defendant for any claim that was or could have been asserted in this lawsuit or is released by the Settlement Agreement. If you did not exclude yourself from the settlements with First Settling Defendants and do not exclude yourself from this Settlement and continued litigation, you may object and notify the Court that you or your lawyer intends to appear at the Court’s final approval hearing. Objections are due October 10, 2016. For more information, including the Long Form Notice and Settlement Agreement, and the ability to register your name and address to receive future notices in the mail as there might be future settlements or judgments in this litigation, go to www.AftermarketSheetmetalIndirectPurchaserSettlement.com.

The Final Approval Hearing. The Court will hold a hearing in these cases (Fireman’s Fund Insurance Co. v. Jui Li Enterprise Co., Ltd. et al., 2:13-cv00987, and National Trucking Financial Reclamation Services, LLC v. Jui Li Enterprise Co., Ltd. et al., 2:14-cv-01061, which were consolidated with the lead case Fond du Lac Bumper Exchange Inc. v. Jui Li Enterprise Co. Ltd., et al., 2:09-cv-00852) on November 8, 2016, at 10:30 a.m. CST, at the United States District Court for the Eastern District of Wisconsin. At the hearing, the Court will consider whether to approve: the Settlement; attorneys’ fees of up to $216,667; reasonable costs and expenses; $2,500 payments to each Representative Plaintiff (Fireman’s Fund Insurance Company and National Trucking Financial Reclamation Services, LLC); and the plan of allocation. You or your own lawyer may appear at the hearing at your own expense.

1-866-858-6088 KCCLLC003.indd 1

INSURANCEJOURNAL.COM

www.AftermarketSheetmetalIndirectPurchaserSettlement.com 8/2/16 5:16 PM

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 25

NATIONAL | Special Report | Trucking

By Andrea Wells

I

t’s been a rough ride, full of twists, turns and a few roadblocks for truckers and their insurance specialists.

Truckers today face a number of obstacles that have raised the cost of doing business, including tough federal oversight, driver shortages, high turnover rates, driver misclassification, a sluggish economy, increased competition, severe losses and rising overhead costs.

Insurance brokers specializing in this sector say these challenges add up to a

complicated insurance market.

The unique risks of trucking firms make this specialty segment one of the P/C market’s most difficult to manage and it’s becoming more challenging every year, according to Steven Bojan, vice president of transportation risk services for HUB International in Chicago.

Yet the U.S. trucking industry means big business with big opportunities with more than 3.5 million truckers on America’s roadways, hauling 70 percent of all freight transport in the U.S. — roughly 10.5 billion

26 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

tons — and generating some $726.4 billion in revenue for 2015, according to the American Trucking Association (ATA).

The trucking insurance sector is a compet-

INSURANCEJOURNAL.COM

itive market despite what specialists call a “hardening class” — at least for the best risks.

“There are trucking clients that we write where carriers fight over because they are such good risks,” said Bojan. “And then there are others that are seeing significant rate increases because of their previous losses or their overall risk profile is not very good.”

Bojan and others agree that capacity exists in most P/C lines for trucking even though a few carriers have exited some trucking business or greatly reduced their appetite for the class.

“Our markets are having a tough time deciding how much to put on their books, where it should be priced and what type of truckers they are looking for,” said Matt Domitrovich, senior vice president, transportation team leader, Worldwide Facilities LLC.

Insurance specialists cite changing market conditions in recent years that have put pressure on trucking insurance portfolios.

One of the biggest issues facing the trucking sector today is the lack of quality drivers. “The pool of qualified drivers is diminishing each year,” Bojan said. “It’s an aging workforce.”

The average age of today’s truck

driver is 49 years old, according to ATA, versus an average age of 42 years old for U.S. workers in general. The ATA estimates that the driver shortage ranges from 35,000 to 40,000 drivers nationwide.

Shortage of Drivers

The trucker lifestyle does not appeal to everyone. Job seekers often forgo a career in trucking because of the difficulty of the job: drivers must be away from home, living on the road, sometimes for weeks.

That lifestyle could help explain the high rate of driver turnover. The annualized turnover rate for large truckload fleets stood at 102 percent, while the rate for small truckloads stood at 89 percent in the fourth quarter of 2015, the ATA reported.

The industry faces a constant need to attract and retain drivers, which is a concern not only for trucking firms but also for their insurers.

“Anytime you have a new driver — regardless if they have driving experience — there are greater risks,” Bojan said. Those risks include learning the rules and ways of a new trucking company, learning new driving routes, learning the differences in the trucks. “In that initial six-month period there’s a greater risk of a crash, so for insurance carriers, a key safety metric is driver turnover rates.”

Brenda Watson, president of TIP National based in Oklahoma City, Okla., a managing general agency/program manager and a division of the Capacity Group, says driver turnover has been a challenge for years. “Drivers will move for two cents a mile more if they think it’s better somewhere else.”

Recruiting younger drivers is difficult, too, according to Watson. Federal regulations restrict hiring drivers under the age of 21 years old. “We endorse wholeheartedly that requirement with some experience, but as young people come out of high school and find out they can’t drive, they move on to college or whatever. Then we lose them.”

As the economy improved, the trucking sector faced increased competition from other industries such construction and energy.

“They are all competing for that same pool of drivers,” Bojan said. “Over the last 20 years you find fewer drivers willing to go over the road. Most energy and construction jobs drivers are home at night and most people prefer that.”

Employment practices liability has become a growing area of concern for trucking risks.

“There have been a number of class action lawsuits involving trucking companies and the truckers have lost,” Bojan said. Lawsuits have centered on the Fair Credit Reporting Act and employee misclassification.

Insurance brokers for truckers must make their insureds aware of these liability issues. They need to be business consultants as well as insurance placement people, Bojan said. “They need to know which coverages and at what levels a trucker needs and they need to give them additional advice on industry best practices.”

HUB has focused particular attention on employee misclassification. “We are talking to our folks to make sure that if we have clients who are owner operators with independent contractors that they are treating them in a way that they can sustain the model,” Bojan said. “Because if a company is found to have misclassification issues it opens up not only pay issues but also a work comp audit, which can be devastating.”

More Demands

Trucking firms say their customers are demanding more from them while government is imposing new

continued on page 28

INSURANCEJOURNAL.COM

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 27

NATIONAL | Special Report | Trucking continued from page 27

regulatory requirements, both of which are adding to the cost of operations.

Bojan said that rates for transportation services do not always keep up with the increasing demands and risks, just as insurance rates sometimes fall short.

“If you were to look at driver wages, they are not increasing. They are increasing lately but not (proportionate) to the demands of their job so it’s hard to attract new people to the industry,” Bojan added.

Trucking is one of the most highly regulated industries in the U.S. “The government regulates drivers probably more closely than almost any other industry,” Bojan said.

That’s because safety is paramount when it comes to big trucks on U.S. highways.

“It’s a class that unfortunately will always have losses and when they do there’s a higher probability that the losses will be more severe than other lines of P/C business,” said Worldwide Facilities’ Domitrovich. Some trucks run in excess of 50,000 pounds. “A vehicle that size will cause severe damage if it hits somebody or something.”

Heavy and tractor-trailer truck drivers have the highest number of

nonfatal injuries and illnesses that require days off from work across all occupations, according to Bureau of Labor Statistics data. One out of every six American workers killed on the job is a tractor-trailer truck driver. In 2014 alone, 761 tractor-trailer truck drivers were killed while working, which also marks the fifth year in a row that the number of truck driver fatalities has increased.

Truckers and their insurers must cope with the high cost of their equipment.

“The cost of a truck has gone up greatly with all the additional regulatory emissions requirements in place and safety equipment requirements,” Bojan said. Today a tractor can run $140,000 and a trailer is $30,000 and up. “The capital alone could push small trucking companies out of business.”

“It’s one of the most difficult lines to write and make an underwriting profit so you really have to understand it and know it well,” said TIP National’s Watson.

Changing Market

The insurance market has reacted to the obstacles facing the trucking sector.

“The capacity is adequate, however we do have people leaving the industry,” Watson said.

While the property/casualty industry has reported three consecutive years of signif-

icant underwriting profits, the commercial auto market as a whole, of which trucking is a part, reported an underwriting loss for the fifth consecutive year in 2015.

Watson says that while the overall commercial auto market received attention for “being a very unprofitable line of business” most stories didn’t dig deep enough to show that there were still some specialists writing profitable business — even in trucking.

“We believed they (markets) became frightened about the potential long term” outcomes in commercial auto, she said. “There was a lot of innocent capacity writing this business and treating it like a contractor program but there’s so many additional exposures in this class.”

Despite a sluggish economy, Watson says some truck lines have managed to grow, especially the better managed firms.

“But even those sometimes fail to hit projections,” she said. “If they projected they were going to do 100,000,000 miles but end up with may be 80 to 90 percent of that they were fortunate.” She says it’s been “a mixed bag” this year but the better managed ones are doing well.

The mixed-bag has changed some carriers’ risk appetite.

“Lexington, for example, an AIG company, was the largest writer of excess insurance over the first $1 million. They were the largest writer for many,

many years and they completely stopped writing it,” according to Watson. On the primary liability side, AIG 28 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

INSURANCEJOURNAL.COM

has been re-underwriting their book; how they select risk and price risk.

In general, “prices are going up,” Watson said.

Zurich is another market that has changed its appetite in the trucking sector, said Courtney M. Wilson, president of First Guard Insurance Co./1st Guard Corp., a direct writer for truck insurance for leased owner and operators.

“In commercial auto there have been other markets that have experienced poor underwriting profits due to providing competitive pricing, which is always good, but you can price yourself right out of the market at the end of the day,” Wilson said. “Higher volume of claims, a lot more severity, more frequency, and the cost of fixing trucks today for physical damage has increased — all of that plays into the underwriting profitability. Whether big trucks or small trucks — there are only a few markets that have posted profits.”

Today’s environment makes writing trucking firms a challenge for agents, Watson said.

Most of the time when the market hardens and prices go up, the insured will likely never see those lower pricing levels again, she said. “For the agent trying to find a market — that can be difficult.”

Trucking is always going to be a high pressure market, Wilson added. “It’s an ever-changing industry that is very important to the movement of America.”

How Carriers Can Help

HUB’s Bojan says trucking is a specialty market and carriers should be more INSURANCEJOURNAL.COM

selective when it comes to broker be more of a safety partner rather than appointments. just a safety inspector. “Make sure that “We end up competing with some risk consultants go beyond ‘Hector the other brokers that don’t know the Inspector’ and really become safety partindustry well, especially in areas ners. I spend a lot of time on the broker like comp, cargo or physical side mending fences.” damage,” Bojan said. That ends He also hopes that carriers will spend up hurting profitability of the the time investigating safety practices of line. “A key part of our job is his trucking clientele. Online safety data not just placing coverage; it’s analysis tools do not always provide the servicing the client when something complete story about a company, Bojan bad happens. If you are not experienced or said. It’s important that carriers “dig a little well-versed you can often do a disservice deeper” when evaluating a trucking firm’s to your client.” safety practices.

Another area where carriers can help Like his clients, Bojan says, agents must agents is by clearly stating their risk appesell more than their service and products. tite. “Some carriers get in and out of the “Trucking firms don’t just sell transportamarket.” That can be burdensome for an tion; they sell peace of mind.” The same is agent and a trucking firm. “Carrier apps true for a good insurance broker, he said. can be incredibly long and time consum“We are not just selling insurance.” ing. Let agents know (the risk appetite) so we place2016 coverage with the right carrier.”

Share article with a colleague.

I/J Sept Trucking.qxp_Layout 1 8/12/16 11:00 AMthis Page 1 Bojan would also like to see his carriers IJMAG.COM/96ZN EIL Environmental Impairment Liability

HMA Hazardous Materials Trucking

O&G Oil & Gas

FFX Follow Form Excess

PPL Products Pollution Liability

ECC Engineers Consultants & Contractors

HMA

Hazardous Materials Trucking A&E Architects & Engineers

EIL Environmental Impairment Liability Need environmental coverage?

O&G

At Freberg Environmental all you have to do is pick your program. From Architects & Engineers, to Environmental Contractors, to Products Pollution, we have the environmental insurance program you need.

FFX Follow Form Excess

Oil & Gas

PPL

With over 25 years of environmental expertise, we are not the new kid on the block. Freberg underwriters are among the best in the business and they get things done. Quickly.

Products Pollution Liability

Over the years, Freberg Environmental has become the “go-to” environmental market for innovative solutions to all kinds of environmental risk. We have earned our reputation by providing the fast, friendly and knowledgeable service you have come to expect. Pick your program.

EIL Environmental Impairment Liability

Call Freberg Environmental.

FREBERG16631.indd 1

ECC Engineers Consultants & Contractors

Freberg Environmental Insurance

2000 South Colorado Boulevard Tower II • Suite 800 • Denver, CO 80222 Toll Free: 800.377.4152 • Fax: 303/623-8101 FEIinsurance.com In CA dba: FEI, Insurance Services

8/12/16 5:46 PM

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 29

Idea Exchange

Academy Journal

Contractors Professional and Pollution Liability Coverage: A Gap-Filling Necessity!

By Christopher Boggs

C

overage Part A of the Commercial General Liability (CGL) policy is limited in scope, extending coverage to claims arising out of only bodily injury (BI) and/or property damage (PD). Couple Part A’s limited scope with the CGL form’s absolute pollution exclusion (“f.”) and expensive coverage gaps are created for most contractor risks.

Contractors’ Professional and Pollution Liability is the contractor’s coverage solution. Often referred to as either the Contractors Pollution and Professional Insurance, the Contractor’s Protective Professional Indemnity coverage, or simply CPPI, this multi-peril form addresses and closes most of the coverage gaps created by the combination of the limited breadth of protection provided by Coverage Part A and the pollution exclusion.

Coverage Part A’s Bodily Injury and Property Damage Coverage Gap

Every CGL extends protection when the insured contractor’s actions result in bodily injury or property damage to a third party — subject to specific exclusions. Many insurance practitioners stop here, believing the insured is adequately protected simply because it is not a “professional” (such as an architect or engineer). However, financial losses can be and often are caused by the actions (or inactions) of a “non-profes-

sional” contractor that do not arise out of or result from either bodily injury or property damage.

Consider the example of an HVAC contractor hired to design and install a heating and cooling system for a specialty manufacturing operation. Because of the product manufactured, a specialized ventilating system is required. During testing it is discovered that the system is not adequate and must be removed and replaced, delaying the opening and use of the facility — costing the manufacturer hundreds of thousands of dollars.

Construction projects are not neat and tidy operations with a clear delineation of duties between professional services and construction duties.

Because there is no bodily injury or property damage the cost to remove and replace the system is not covered by the CGL. Likewise, the loss of production income resulting from the delay is excluded by the CGL. This loss is solely the result of a design error. All costs associated with this incident are paid from the HVAC contractor’s financial resources.

Construction projects are not neat and tidy operations with a clear delineation of duties between professional services and construction duties (“non-professional” duties). As the project progresses and evolves, subcontractors may advise upper tier contractors regarding unexpected changes or how to solve unexpected prob-

30 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

lems. Such advising may cause financial loss that is not the result of bodily injury or property damage, but the result of an error in judgement.

The Pollution Exclusion Gap

Exclusion “f.,” referred to as the absolute pollution exclusion, removes coverage for most pollution losses. However, the exclusion contains exceptions that make it far less than absolute (unless the Total Pollution Exclusion (CG 21 49) is attached).

Several contractor-specific exceptions to the absolute pollution exclusion are found within Insurance Services Office’s exclusionary wording, but the protection is limited. These exceptions (giving back coverage) include: • Coverage for BI or PD caused by the unintentional escape of fuels or lubricants from mobile equipment; • Coverage for BI or PD sustained within a building caused by the release of gases, fumes or vapors from materials brought into the building by the contractor if in connection with the operations being performed; • Coverage for BI or PD arising out of a hostile fire; • BI and PD protection is extended to the contractor if the owner or lessee of the premises is an additional insured on the contractor’s policy and is sued for the actions of the contractor (a contractual risk transfer protection); • BI and PD coverage is provided if the pollutant was not brought to the site by the contractor; and • Coverage is provided for some completed operations claims.

INSURANCEJOURNAL.COM

Remember, these pollution-related coverage grants apply only if: 1) the exclusionary wording mimics ISO wording; or 2) the Total Pollution Exclusion endorsement his not attached. If proprietary wording is used, these coverage exceptions cannot be assumed; and if the CG 21 49 is attached, there is no pollution coverage granted by exception.

Even if the insured has this limited pollution coverage, important losses and costs are still excluded.

• No coverage is extended for pollution released outside of a building; • No coverage exists to cover most clean- up costs; • No coverage is available for pollution that escapes from the insured’s place of business; • The CGL does not cover the pollution transportation risk; • The business auto policy (BAP) excludes transportation of pollutants; and • The CGL does not cover the storage or disposal of any pollutants.

Too many gaps exist for the contractor to depend on the CGL for protection.

The One Policy That Fills These Gaps

Contractors’ Professional and Pollution Liability (CPPI) coverage fills most of the gaps created by the limited breadth of Coverage Part A and the application of the INSURANCEJOURNAL.COM

pollution exclusion (even with the “giveback” exceptions). Four key coverages are combined into CPPI forms: 1. Professional liability; 2. Protective liability; 3. Mitigation expense; and 4. Pollution liability.

Professional Liability Coverage

Financial harm arising out of professional services conducted by or on behalf of the insured is covered by this policy section. “Professional service” can include design work, engineering work, construction management operations, or even services performed as part of the construction process such as shoring or dewatering.

Key provisions related to professional liability coverage include: • The carrier generally pays on behalf of the insured; • Coverage is subject to a self-insured retention (SIR); • Protection is generally extended on a “claims made and reported” basis; • Coverage applies only if an error or omission occurs after the retroactive date and before the end of the policy period; • Coverage exists only if no “responsible party” (i.e. officer, director, owner, manager, insurance manager) had knowledge of the incident prior to the policy period; and • The insured is protected for its own

actions and for its vicarious liability for the actions of a contracted professional.

Protective Liability Coverage

Protective liability is vicarious liability coverage that protects the insured by: • Providing excess coverage over the contracted design professional’s policy if its policy limits are insufficient; • “Dropping down” to protect the insured if the design professional’s coverage is no longer available for any reason; and • Acting as a difference-in-condition (DIC) coverage if the CPPI is broader than the underlying professional’s policy.

Mitigation Expense Mitigation expense, or mistake cover-

age, is just what it sounds like — coverage for the cost of fixing a problem before it becomes a claim. The impetus for this coverage — cost. It is much cheaper to fix the problem during construction upon discovery of the “mistake” than when the construction is complete. Some policies use the term “rectification,” but the concept is the same.

Key components of this coverage include: • The mitigation expense must arise out of professional services; • The services must have occurred after the retroactive date and during the policy period;

continued on page 32

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

Academy Journal

continued from page 31 •

•

The insured must notify the carrier immediately; and All expenses must be approved by the carrier prior to being incurred.

Pollution Liability

Contractors’ pollution liability in the CPPI extends coverage for two types of pollution claims: 1) job site or operations pollution coverage; and 2) pollution damage emanating from the insured’s location.

Job Site/Operations Pollution Coverage Unlike the limited pollution protection

extended by the unendorsed CGL, the job site pollution coverage is rather comprehensive. Claims covered include: • BI or PD resulting from the release of a pollutant; • Damage to soil, water, air, animal life, and plant life caused by a pollutant; • Release from a “non-owned” site used

by the insured to treat, store, dispose of, recycle or process waste (pollutant) provided the site is licensed or approved for such use; • Transportation coverage protecting the insured from pollution losses related to the transportation of a pollutant; and • The cost to clean up, treat and restore damaged resources as a result of the release. Emergency clean-up costs are included. Protection for clean-up costs are limited and are covered only if: • The pollution incident occurs on or after the effective date of the policy; • The pollution incident is discovered during the policy period; and • The pollution incident is reported to the carrier in writing during the policy period or extended period.

In addition to protection while operations are in process, the policy covers a

Your 360o Insurance Solution

360

o

Atlas’ success is the result of relationships built on trust, products that win, and responsive, dedicated employees.

We offer a comprehensive range of services:  Exclusive programs  Custom marketing  Expert business consultants  Innovative technology  Competitive pricing & commissions

Workers’ Compensation  Commercial Insurance Specialty Property  Custom Programs A full service program administrator

ATLASLLC14206.indd 1

Insured’s Location Pollution Coverage Pollution claims emanating from the

insured’s location are totally excluded by the CGL. However, these claims are covered by the CPPI. Claims covered by this section essentially mirror the types of releases extended protection under the job site pollution coverage with two key differences: • The release must originate at the insured’s business location; and • The release must cease within a certain number of days (varies by carrier).

Both job site and the insured’s location coverages are subject to the same specific provisions which include: 1) The BI, PD, or environmental damage must occur during the policy period; and 2) The claim must be made during the policy period.

Some carriers extend pollution coverage on an occurrence basis, but a few provide coverage on a claims-made and reported basis. When the form extends coverage on an occurrence basis, wording in the policy limits coverage to just one policy period to avoid the possibility that multiple policies could be called upon to respond (avoiding stacking of limits).

Coverage forms extending pollution coverage on a claims made basis follow the “normal” claims made protocol: 1) The claim must be made against the insured during the policy period or any extended reporting period; 2) The release must occur on or after the retroactive date; and 3) Prior to the effective date of the policy, the incident could not have been known to have occurred.

Although a contractor may not appear to provide “professional services” or have a significant pollution exposure, the gaps in the CGL and the realities of a construction project make the CPPI policy necessary.

Share this article with a colleague.

IJMAG.COM/96TK

(855) 309-3310 l atlas.us.com

32 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

release that occurs after the work is complete — completed operations pollution coverage.

Boggs is vice president of education for the Academy of Insurance. Phone: 800-897-9965 ext. 173. Email: cboggs@ijacademy.com.

8/22/16 4:54 PM

INSURANCEJOURNAL.COM

Idea Exchange

Cyber

Getting More Bang for Your Buck

Rebuilding Cyber Insurance in the Wake of P.F. Chang’s vs Chubb Ltd.

By Mike Baukes

I

f the cyber insurance landscape seems like a confusing mess, you are not alone. In fact, the recent case of P.F. Changs v. Federal Insurance Co. (Chubb), in which P.F. Chang’s filed suit after being denied a claim following a data breach, suggests no one can be certain how policies will fare in the event of a breach. But this case doesn’t mean cyber insurance is useless; far from it. Rather, the case should be a rallying cry for industry lead-

INSURANCEJOURNAL.COM

ers to patch problems that can no longer be ignored. Now is the time for insurers, insureds, lawmakers and cybersecurity experts to come together to define this crucial vehicle for mitigating the fastest-growing risk to businesses.

To understand the significance of the Chubb ruling, it’s necessary to know exactly why they went to court.

As has previously reported, Chubb Ltd. sold P.F. Chang’s an insurance policy covering “direct loss, legal liability, and consequential loss resulting from cyber security breaches.” In 2014, P.F. Chang’s became aware that hackers had gained access to the payment systems in its restaurants, gathering 60,000 credit card numbers and posting them online. As a result, Chubb reimbursed Chang’s $1.7 million to cover costs from the breach. That transaction represents the ideal for cyber insurance: insured purchases a policy, suffers damages and is reimbursed. If that had been the end of it, everyone would be walking away with warm and fuzzies — or at least confidence in their policies.

In addition to the $1.7 million in direct

injuries, P.F. Chang’s got hit for another $1.9 million in fines levied against them by their credit card processing vendor for Payment Card Industry (PCI) assessments following the breach. P.F. Chang’s paid $1.9 million to Bank of America Merchant Services and was then denied reimbursement from Chubb. That’s when they filed suit. The court ruled with Chubb, leaving P.F. Chang’s with more than half the bill from their data breach.

‘Fining’ Retailers

This practice of payment processors “fining” retailers for PCI assessment following a data breach is common, but that doesn’t mean retailers like it or even agree that it is a legitimate cost. A spokesperson for the National Retail Federation has called it “a near scam.” In fact, there is currently a pending case in which a retailer, Genesco, is suing VISA for exactly this reason. Banks and card processors can unilaterally collect fines that are within the terms of service from retailers, putting the burden on retailers to lobby for reimbursement.

continued on page 34

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Cyber

continued from page 33 There are insurance policies that would cover the PCI assessment costs that left more of a sour than sweet taste in P.F. Chang’s mouth. At a minimum, this ruling is a reminder for insureds to understand their coverage. But in the context of the larger legal landscape, where crucial points of law are yet to be decided or even brought to court, it suggests that carefully reading your policies may not be enough.

There are disconnects between insurers and insureds on the meaning of words at the heart of current cyber insurance products.

To make matters worse, the technical complexity of modern businesses requires the concept of liability to be rebuilt from the ground up. As at P.F. Chang’s, retailers rely on third-party card processors through whom all their revenue flows.

Responsibility for the technical systems involved in a purchase transaction — that is, the things that are actually breached in a data breach — is spread across the multiple vendors involved in a credit transaction and may even involve additional managed service providers who administer the systems, but are not employed by either company.

Point-of-sale systems may be updated by the card processor, but physically located in a retailer, preventing either one from taking full responsibility for all breach vectors. For example, a machine may be breached due to unauthorized physical access allowing the exploit of an unpatched software vulnerability, but

because liability is not clear, retailers and card processors are left arguing over how to split the check.

Improving the Situation

Insurance is a vital social mechanism for distributing risk. Improving this situation is a responsibility for all parties involved. Legal experts need to clarify how today’s laws function and what changes are needed to protect digital businesses.

Lawmakers must unite to create a legal

Insurers are flying blind, relying on historical claims patterns that will change quickly as cases like this alert retailers to the risks they have unknowingly retained. environment in which claims are decided by adjusters instead of courts. Insurers and insureds need to work together early in the underwriting process to be clear on possible outcomes who is responsible for what.

Those are the feel-good solutions everyone can agree on, but there are harder truths ahead as well. Premiums based on a misunderstanding of the product are by definition underpriced. Premiums will rise; in this case P.F. Chang’s was expecting double the coverage than they actually had. As more insureds understand the coverage they need and purchase policies accordingly, the risk pool stands to

34 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

increase dramatically — and that’s not even accounting for the rising number of attacks.

Insurers and insureds both need to partner with technology providers to get information they are sorely missing. Good fences make good neighbors, and having visibility and accountability for IT systems is the only way for liability to be determined fairly and predictably. With that will come better models for IT risk and more accurate pricing of premiums. Currently, however, insurers are flying blind, relying on historical claims patterns that will change quickly as cases like this alert retailers to the risks they have unknowingly retained.

There is a tremendous opportunity for insurers and retailers to benefit from cyber insurance, but they can’t succeed alone.

The legal community needs to be engaged to clarify how the law will function in this new market, and cybersecurity experts must build data products that can generate actuarial tables. Together, we can blunt the threat cyber attacks pose to business. Until then, sadly, the cost of data breaches will include one more line item: lots and lots of lawyers.

Share this article with a colleague.

IJMAG.COM/96UJ Baukes is co-CEO and co-founder of UpGuard, the company behind CSTAR, a comprehensive and actionable cybersecurity preparedness score for enterprises. The score allows businesses to understand the risk of breaches and unplanned outages due to misconfigurations and software vulnerabilities.

INSURANCEJOURNAL.COM

Workers’ Comp | News & Markets | NATIONAL

Workers’ Comp Your Sole Source

1

2

3

5

4

Crossword Clues ACROSS 1. A “person” created by filing

7

legal papers

7. The ability to recover from the

DOWN 2. Only the upper tier’s vicarious

liability can be transferred 3. The first country to introduce workers’ compensation 4. Employer is responsible as both the employer and a product provider

9 10

11

13 14

15

DOWN 2. “Limited” 3. “Germany” 4. “Dual Capacity” 5. “Ghost” 6. “Combinable” 9. “Natural” 10. “DeJure”

at fault party 8. These benefits are “unlimited” 11. The first state with perpetual workers’ comp 12. This type of “employment” 12 scheme creates dual employment 13. The insurance carrier’s attempt to assure correct premium is collected 14. State to which employee travels recognizes WC policy 15. Worker’s comp coverage extends to other states from home state

8

5. A worker’s comp policy that doesn’t

extend coverage to anyone

common majority interest

6. When separate legal entities share 9. A flesh and blood “person” 10. An employee created by act of law

Crossword Answers ACROSS 1. “Legal” 7. “Subrogation” 8. “Medical” 11. “Wisconsin” 12. “PEO” 13. “Audit” 14. “Reciprocity” 15. “Extraterritoriality”

6

-

Get full admission to all upcoming live webinars, plus unlimited access to our entire catalog of 200+ course recordings for only $99/mo. ijacademy.com

IJACAD16650.indd 1

INSURANCEJOURNAL.COM

8/29/16 5:38 PM

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 35

Idea Exchange

The Competitive Advantage

Why Owners Employ Producers Who Cannot or Will Not Sell

By Chris Burand

I

have analyzed more than 700 data points specifying what producers generate in commissions versus what they are paid as a percentage of their commissions. I must emphasize that this is verified data. I did not take the agency owners’ word and I did not take the producer contracts at face value. This is their real compensation divided by their books per their producer codes. (An interesting side note to this is that approximately 50 percent of the producers were paid more than the owners stated they were paid.)

The National Alliance Research Academy’s book, “Producer Profiles, 4th edition,” also shows the worst producers are paid more than the best producers on a percentage basis (which is the only basis that matters from a management perspective). The results shown in the chart above actually make the situation look better than it is because some of the worst producers’ commissions are actually house commissions. They did not generate them but I could not separate their actual sales from house business because the agency owners used the same producer code for both!

Only someone outside the industry would ask, “Why would such a universally asinine situation exist?” I have never had an agency owner ask this question.

Instead, they ask, “What will it take to

get my producers to sell?” or they ask, “How do I hire better quality producers?”

These are the wrong questions. The far more important question is the outsider’s question, “Why would such a universally asinine situation exist?” It is a key, crucial question to ask and answer if the industry is to fix the problem, if the industry is finally able to create considerable success hiring and developing producers and therefore, generating organic growth.

The answers to the outsider’s question lies deep in the psyche of agency owners.

First, most agency owners do not actually want to hire a good producer. J.P. Morgan had a great quote, “A man generally has two reasons for doing a thing: one that sounds good and the real one.” It sounds good to say one’s goal is to hire a good producer but that is not the real goal quite often. Sounds incredulous, I know, but they do not and here is why: Their

36 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

subconscious goal, which is more powerful than a conscious goal, is protecting/ enhancing the ego.

Many agency owners feel much more successful, much more powerful employing many poor producers, regardless of cost, than the alternative of employing few or maybe no producers. Some even enjoy complaining about how their producers do not produce but they will not fire them. This may be an ego issue or it may be insecurity. They may want to feel more powerful but they may also be insecure if they do not have producers regardless of quality. Evidence that insecurity and ego are the true driving forces is shown in the graph below.

Owners continue to employ producers for years, sometimes decades. No good business reason exists for their decision to not fire these producers who do not produce. This may also be a fear factor

INSURANCEJOURNAL.COM

the vast majority of times.

Witch’s Brew

because the owner may fear, truly fear, not having producers even if he loses money on them. It may be the fear of looking too small to competitors and carriers. It may be the fear of not having backups. It could be fear of other items.

Some owners are so insecure they cannot stand employing producers who are better than they are.

Some owners do not mind employing better producers if the producer is not paid more than the owner. As the owner they believe they should be paid the most no matter what. I’ve seen more than one bank owned agency make this egotistic mistake.

Many agency owners are seriously conflict adverse. They cannot deal with firing bad producers. Emotionally, they would rather lose money year-after-year rather than fire a poor producer.

Most agency owners I have met — and I have met and worked with thousands of agency owners and “most” meaning 80 percent-plus — tell everyone they are a good judge of people. They are not. If they were, they would hire more successfully.

The fact is people are just not that good at judging people quickly. Google studied hiring and discovered that virtually no one can judge potential employees accurately (as to who will make the best employee). In other words, to hire successfully, eliminate hiring by your “gut.” Your gut is going to be wrong far, far too often. Google’s study found that four decision makers acting together can make the right hiring decision INSURANCEJOURNAL.COM

If one combines conflict aversion with deep ego/ insecurities, the result is a witch’s brew. Employing producers who do not produce is not a smart business decision. This issue has to be addressed before hiring good producers because the subconscious will continue to cause the owner to choose lesser candidates until resolution is achieved.

Nothing, absolutely nothing good will be realized without radical solutions.

Three possible radical solutions are: 1. Success is not about hiring smarter or managing smarter as long as the agency owner is the primary decision maker.

Eliminate the owner from the hiring process. Not only are they incapable but their goal may not be success. The radical solution is to make all producer hiring a team effort. The team can consist of people internally or using external sources.

A niche market has developed involving experts in interviewing, testing and collaboratively choosing the best candidates.

This is the true secret to hiring producers successfully.

2. Use tests and trust the tests. The best tests, and many imposters exist, are far more accurate than your gut. I have seen so many agency owners go against what the tests advised and almost never, and definitely not a majority of the time, have the owners proven they were better than the tests. This is ego again.

3. Outsource everything. Outsource the testing. Do not use your gut as the test.

Use the tests and live by them. Outsource the interview. Professional interviewers exist. Use them. Use multiple people.

No one interviewer is ever good enough.

Outsource the management because a third party will have the clarity, focus and sole purpose to have producers succeed.

When failure is so endemic to an industry for a position with the simplest mea-

sure of success possible, the issue cannot be candidates. The Chinese proverb comes to mind: When you point a finger, notice where the other three fingers are pointing.

To fix hiring and managing producers, either fix yourself or outsource the entire process. Period. Understand your real motives if you are strong enough to do so.

Success is awaiting those willing to work on their own psyche first and producers second.

Share this article with a colleague.

IJMAG.COM/96KE Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868.

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

Advertisers Index

Read, browse, contact, or do product searches on any of our full page advertisers at: www.insurancejournal.com/adshowcase/

Accident Fund www.accidentfund.com W13, SC6, SE5 Ace Limited www.chubb.com 11, 13 Amerisafe www.amerisafe.com SC2, SE3 Applied Underwriters, www.auw.com 2-3, 40 Atlas General LLC www.ATLAS.US.com 32 Burns & Wilcox Ltd. www.burnsandwilcox.com 9 City of Hope www.cityofhope.org 39 Freberg Environmental www.feiinsurance.com 29 KCC LLC www.kccllc.com 25 Lighthouse Holdings, LLC www.lighthousepropertyins.com SC5, SE5 Louisiana Commerce & Trade Assoc. www.lctacomp.com SC6 M.J. Hall & Company www.mjhallandcompany.com W2 Monarch E&S Insurance Services www.monarchexcess.com W3 MUSIC www.music-ins.com 17 Pacific Gateway Insurance Services www.pgiainsurance.com W7 PersonalUmbrella.Com www.personalumbrella.com 7 Philadelphia Insurance Companies www.phly.com 21 Siracusa Staffing & Leasing www.ssandlnow.com SE4 South & Western www.southandwestern.com SC3 State Compensation Insurance Fund www.statefundca.com cover tip, W5 State Fund First www.statefundfirst.com W9 Texas Mutual - Safety Group www.texasmutual.com SC4 The Hartford Insurance Group www.thehartford.com 5 United Fire Group www.ufgsolutions.com W13 Western World Insurance Group www.westernworld.com 19

SEPTEMBER 6, 2016 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Flood Insurance Belongs in the Hands of the Private Market

By Craig Poulton

W

ith thousands displaced due to massive flooding in Louisiana and too many other similar incidences, it is time to reexamine the flood insurance landscape. Unfortunately, many caught up in this disaster did not have flood insurance — which is a tragedy in and of itself. Adding to the misfortune is the fact that for Louisiana victims who have flood insurance from the National Flood Insurance Program (NFIP), their coverage will prove to be inadequate for their needs.

The current system of nationalized flood insurance has proven disastrous — in fact, it is a $23 billion, and counting, travesty. The NFIP is a monopoly, which has simply not been held accountable for its actions.

The National Association of Insurance Commissioners, along with many others, is working to persuade Congress to make changes that will deliver private market solutions to American flood insurance buyers. Our view differs from

their recent comments on this subject in only a few instances. For example, because the NFIP is currently a monopoly, the reauthorization period applicable to the NFIP should not be extended for a period that is longer than three years.

Unfortunately, the NFIP has demonstrated an inclination to respond to Congressional guidance only at or near renewal windows, especially on issues relating to the private market.

Similarly, write-your-own entities (WYOs), which are all controlled in many ways by the NFIP, that wish to participate in the private market should be required to create completely separate insurance carriers to write private flood insurance in order to guard against conflicts of interest. The many federally facilitated advantages enjoyed

by WYO companies should not be used to replace the NFIP monopoly with a WYO oligopoly.

In the early days, private carriers assumed about 25 percent of U.S. flood risk. Congress mandated early on that the federal flood insurance scheme should include the private market to the “maximum extent practicable” with the end goal being complete privatization once enough experience was obtained. However, in 1978, the federal entity that would become the NFIP unilaterally nationalized the flood insurance segment of the economy during a Congressional recess — creating the NFIP monopoly overnight.

38 | INSURANCE JOURNAL | NATIONAL SEPTEMBER 6, 2016

The pervasiveness of mobile devices has changed consumer expectations.

Since that time, many NFIP employees and contract workers have consistently operated to maintain a nationalized flood insurance monopoly. The most recent example of this effort is the NFIP’s refusal to cancel policies or return premium if consumers attempt to replace these policies prior to the policy’s expiration with flood coverage purchased from the private market. If undertaken in the same manner by a private insurer, this unethical practice would violate insurance statutes in all 50 states and would not be tolerated by any state insurance regulator.

The NFIP should be operating with the goal of transitioning to an insurer of last resort, covering only those risks that cannot be accommodated in the private market. The small fraction of U.S. flood risk left in the NFIP could then be mitigated or eliminated over time.

Congress should open the way for the private flood insurance market to access the worldwide financial community’s capacity to assume more U.S. flood risk.

The current system of nationalized flood insurance has proven disastrous.

This would transform the flood insurance landscape and unleash new innovative underwriting techniques and efficiencies never contemplated by the nationalized system.

Share this article with a colleague.

IJMAG.COM/96TG Poulton is CEO of Poulton Associates, which administers the Natural Catastrophe Insurance Program.

Website: www.CATcoverage.com.

INSURANCEJOURNAL.COM

Join the National Insurance Industry Council for the 2016 Spirit of LifeÂŽ Gala where we will honor Christopher J. Swift of The Hartford for his philanthropic achievements and his commitment to helping City of Hope deliver scientific miracles that make lives whole again.

City of Hope’s National Insurance Industry Council

Spirit of Life Gala October 29, 2016 Beverly Hilton, Beverly Hills

Honoring

Christopher J. Swift Chairman and CEO, The Hartford

To learn more about the event and contribution opportunities, visit www.cityofhope.org/niic.

Or contact Ariana Castellanos at 866-905-HOPE or acastellanos@coh.org

Event Sponsors:

Proudly featuring wine by Castello di Amorosa in the 2016 Mighty Big Harvest ®

Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide.

For information call (877) 234-4450 or visit auw.com/us. Follow us at bigdoghq.com. ©2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

Insurance plans protected U.S. Patent No. 7,908,157.