Insurance Journal West 2016-10-24

WEST REGION Calif. Comp in IE and OC Silver Best Agency to Work for – Bolton & Co. Low Benes for Injured Workers

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Contents October 24, 2016 • Vol. 94 No. 20 • West

West

National 8 Placing Bets on the Insurance Industry of Tomorrow

W1 California Comp Report Shows High Medical and Indemnity Payments for IE and OC

14 Insurance Agent, Industry Leader Bolton Remembered as Friend and Mentor

W2 SILVER Best Agency to Work For 2016 - West

Bolton & Co

W1 CALIFORNIA COMP REPORT SHOWS

Idea Exchange 33 Why Agency Owners Must Drive Producer Growth: Randy Schwantz

10

HIGH MEDICAL AND INDEMNITY PAYMENTS FOR IE AND OC

16 Workers’ Comp Benefits for Injured Workers Reach Historic Lows 18 P/C Direct Premium Written Up 3.6 Percent 20 Closer Look: Top 50 Commercial Lines Leaders

BETTING ON THE INSURANCE INDUSTRY OF TOMORROW

22 M&A Review: Deal Activity Continues Strong Pace 24 Special Report: 6 Cyber Security Trends to Watch in 2017

34 Is Training the Key to Unlocking Analytics Talent?

26 Special Report: Wrongful Collection of Data: How Much Is Too Much?

36 Minding Your Business:

Catherine Oak & Rachel Schoeffler

30 Spotlight: How Analyzing Workers’ Comp Claims Helps Both Clients and Their Brokers

38 Closing Quote: Untapped Opportunity for Sustainable Insurance Growth

Departments W4 People

38 STAKEHOLDER ENGAGEMENT:

AN UNTAPPED OPPORTUNITY FOR SUSTAINABLE INSURANCE GROWTH

4 | INSURANCE JOURNAL | WEST OCTOBER 24, 2016

12 Declarations 12 Figures 15 Business Moves 32 MyNewMarkets INSURANCEJOURNAL.COM

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Graduated Licensing Laws

W Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

Sales Manager Lauren Knapp (800) 897-9965 X161 lknapp@insurancejournal.com

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

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

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Catherine Oak, Rachel Schoeffler, Randy Schwantz

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

Advertising Coordinator Contributing Writers Erin Burns (619) 584-1100 X120 Evan Bundschuh, Christopher Darst, eburns@insurancejournal.com Josh Fagin, Kelly P. Kissel, Douglas Powell, Jennifer Shorr Insurance Markets Manager Kristine Honey (619) 584-1100 X132 IJ ACADEMY OF INSURANCE khoney@insurancejournal.com V.P. of Education Chris Boggs Social Media Manager cboggs@ijacademy.com Ly Short (619) 890-7735 Lshort@insurancejournal.com Online Training Coordinator Barbara Whiffen Classifieds, Jobs, bwhiffen@ijacademy.com Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator ADMINISTRATION Kelly De La Mora (800) 897-9965 X125 Chief Financial Officer kdelamora@insurancejournal.com Mark Wooster mwooster@wellsmedia.com DESIGN/WEB Chief Technology Officer/ MARKETING Chief Innovation Officer Marketing Director Joshua Carlson Derence Walk jcarlson@insurancejournal.com dwalk@insurancejournal.com V.P. of Design Marketing Administrator Guy Boccia Gayle Wells gboccia@insurancejournal.com gwells@insurancejournal.com Senior Web Developer NEW MEDIA Chris Thompson New Media Producer cthompson@insurancejournal.com Bobbie Dodge bdodge@insurancejournal.com Web Developer Jeff Cardrant Videographer/Editor jcardrant@insurancejournal.com Ashley Waldrop awaldrop@insurancejournal.com Web Developer Tim Layer CIRCULATION tlayer@wellsmedia.com Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

6 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

hile states have made progress in reducing teen driver-involved traffic crashes and deaths over the past decade, teen drivers are still 1.6 times more likely to be involved in a fatal crash than their adult counterparts, and teen-involved crash deaths spiked 10 percent in 2015.

A new report from the Governors Highway Safety Association (GHSA) shows that the improvement in fatal crash rates among 18- to 20-year-old drivers was considerably less than for their 15- to 17-year-old counterparts, and that older teen drivers are involved in more fatal crashes than younger teens.

The report, Mission Not Accomplished: Teen Safe Driving, the Next Chapter, funded by a grant from the Ford Motor Company Fund, calls on state highway safety offices and teen driving advocates to carefully monitor what is happening with teen-involved motor vehicle fatalities while expanding their focus to address the heightened crash risk for older teens.

The 2015 data from the National Highway Traffic Safety Administration (NHTSA) showing the jump in teen-involved crash deaths is the first uptick since 2006, countering the downward trend seen over the past 10 years.

“This data shows that smart programs that focus on teen driving behavior have been very successful in helping novice and younger drivers be safer on the roads, but that we still have more to do,” said Jim Graham, global manager for the Ford Driving Skills for Life program. “We also need to make sure older teens benefit from these efforts.”

In place in all 50 states, Graduated Driver Licensing (GDL) is a three-stage licensing system that has reduced teen crash risk by as much as 30 percent, according to the group. In most states, teens age out of GDL requirements at age 18. However, it’s estimated that one in three teens are not licensed by 18, according to Pam Fischer, principal of Pam Fischer Consulting, the author of the report. “That means that once they do FOR QUESTIONS obtain a driver’s license, they’re not reaping REGARDING SUBSCRIPTIONS: Call: 855-814-9547 the benefits of graduated driver licensing.”

Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: As 18- to 20-year olds are still at a high crash insurancejournal.com/subscribe risk, “policy makers need to understand that Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media reaching age 18 doesn’t necessarily equate to Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: $7.95 per copy, $12.95 mental maturity — which is critical for safe per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubdriving,” she said. lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional GHSA’s report calls for an expansion of GDL advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2016 Wells to include all drivers younger than 21 years of Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. age, and provides recommendations for states Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, on increased training of older teen drivers, Circulation Department, PO Box 708, Northbrook, IL 60065-9967 high visibility enforcement, continued parenARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or kdelamora@wellsmedia.com tal involvement, and safe driving programs at Visit insurancejournal.com/reprints/ for more information. colleges.

As 18- to 20-year olds are still at a high crash risk, ‘policy makers need to understand that reaching age 18 doesn’t necessarily equate to mental maturity — which is critical for safe driving.’

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National

Placing Bets on the Insurance Industry of Tomorrow

By Andrew G. Simpson

T

here was a great turnout for the future of the insurance industry early this month in Las Vegas. The occasion was the first InsureTech Connect Conference, which brought together an estimated 1,500 tech entrepreneurs, investors and insurance executives from around the world.

Technology entrepreneurs shared their ideas for transforming the industry. They were expressing respect for the importance of insurance even while pointing out where they think the industry is doing a poor job. The young upstarts shook hands and sipped cocktails with check-writing executives of major insurance carriers and venture capital firms.

Meanwhile, the investors tried to figure

out which technologies might be good bets and which might be crap shoots.

The overflow attendance reflected the fact that insurance is the darling of the tech investment crowd right now. The insurance tech space has seen 75 deals thus far this year, 50 percent more than in all of 2015, according to Matthew Wong, senior analyst CBInsights and author of the Insurance Tech Insights blog.

According to the “Pulse of Fintech” report, a quarterly global update on fintech venture capital trends published jointly by KPMG International and CB Insights, venture capital-backed insurtech investments hit the $1 billion mark across 47 deals in the first half of 2016. That compared with $2.5 billion of investments in 74 deals for all of 2015, the report says.

Highlighting 2015 as the year that

8 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

“insurtech came into its own,” and characterizing the jump to $2.5 billion as a “massive leap” compared to the previous four years, the KPMG/CB Insights report notes that insurtech investment in 2016 include “tremendous activity by many traditional insurers that are increasingly creating their own venture capital funds.”

The Las Vegas conference upset the widely held notions that insurance is not sexy and the industry can’t attract young people. While still heavily white and male, the crowd was more diverse racially and by gender than the audience at a typical insurance conference. It appears that young people are indeed entering the industry; they are entering it via technology and at least the ones speaking at this conference think what they are doing is cool.

continued on Page 10

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NATIONAL | News & Markets continued from page 8 Youth and diversity were not the only contrasts with a typical insurance meeting.

At InsureTech Connect, there wasn’t a necktie in sight and at least one male panelist wore no socks.

Silicon Valley

The conference was the brainchild of Caribou Honig, founder and partner with the Virginia-based venture capital firm QED Investors, who began focusing on insurance the past few years after years investing in banking and lending.

“Silicon Valley is coming,” Honig declared to the insurance traditionalists in the crowd, letting them know that entrepreneurs are attacking every link in the insurance value chain from products and sales to underwriting and claims.

However, before identifying where he thinks change is coming, Honig undermined another somewhat widely-held assumption, the one that holds that insuretech entrepreneurs do not understand or appreciate insurance.

Insurance, Honig said, is “a pure good thing” and is “something that affects real people.”

Everyone seeking to change the industry should be reminded of how important insurance is to people and the economy, he said.

The venture capitalist told the story of his own recent experience after a fire at a condo he owns in Virginia Beach.

The fire damaged both his and his neighbor’s beach condos.

Because he had adequate insurance, Honig was able to repair his place without a lot of hassle. But his neighbor did

not have adequate insurance.

Now his neighbor’s place is a concrete slab and Honig has an ocean view he did not have before the fire.

‘Interest in capital in the insurance space is abundant.’

Honig said the hallmarks of tech-driven change include increased transparency and reduced friction, which can mean lessening human involvement in some aspects.

He said insuretech will lead to disintermediation, but that there will also be change that will strengthen agents and brokers.

He cast doubt on the idea of insuretechs becoming carriers, suggesting they are better off starting out as managing general agencies (MGAs) than as risk-bearing entities. On the other hand, he is impressed with the insurance carriers that have become tech investors.

Judging by those speaking at the conference, insuretech entrepreneurs are more excited about transforming the customer experience by making buying insurance and settling claims easier, faster and more transparent than they are excited about transforming insurance products (although a few including TROV and Slice have engineered new coverages).

For the coming year, Honig predicts that capital will continue to flow to insurance startups and that some of the insuretech winners will begin to expand across country borders. He also thinks risk bearing ventures will go beyond peer-to-peer arrangements and parametrics, where third-party

10 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

data is used to trigger claims, removing the costs and delays of adjusting, will catch on.

He said “entrepreneurs overestimate the amount of change coming while insurance executives underestimate the amount of change coming.”

But, he stressed, change is coming.

Interest Cycle

Wong of CB Insights agreed that the investor interest in insurance is likely to continue at least for awhile. Funding did slow a bit in the second quarter from the record set in the first but that was true in other sectors as well.

Wong is impressed that the number of investors is going up along with the dollars. In 2012, there were 55 insuretech investors; thus far in 2016 there have been more than 140.

“Interest in capital in the insurance space is abundant,” Wong said.

Small commercial lines, as well as homeowners and renters insurance lines, are attracting the most interest.

Half of the insuretech startups are just getting started, with insurers more willing than other investors to take a chance on those in seed stage.

Wong suggested a trend to watch is the sideways movement of fintech firms like SoFI, Nerdwallet and CreditKarma into the insurance space.

He said some wonder if the slowdown in the second quarter signals an end to the tech cycle and means investors are looking for the next wave.

But insuretch is young. None have yet succeeded to the point of an initial public offering (IPO) or being acquired. “This is the early innings of insure-

tech,” Wong said.

Even if none make it big, they will still bring change to the industry, he added.

Attendees

Some of the startups in attendance at the conference were CoverHound, Lemonade, Embroker, Friendsurance, TROV, Insurify, The Zebra, Driveway, WeGoLook, CNinsure, ClaimBot, Insureon, Bunker and PolicyGenius. The conference included opportunities for startups to meet with investors.

A few entrepreneurial ventures including CoverHound, Slice, Bunker and Denim used the occasion to announce beta launches of new products.

Investors in attendance included venture capitalists, insurers and accelerators. QED Investors, F-Prime Capital, Anthemis Group, Index Ventures, IA Capital, Oak HC/ FT, Lightbank, Thayer Street Partners, Balderton Capital, and Canaan and Partners were among the VCs. Insurer-affiliated strategic funds attending included Allianz Group, AXA Strategic Ventures, Liberty Mutual Strategic Ventures, American Family Ventures, State Auto Labs, and the Global Insurance Accelerator out of Iowa.

Insurers with a presence as panelists or exhibitors included Axa, Allianz, Chubb, Munich Re, Hiscox, Markel, MetLife, Hamilton, Zhing An, Aviva, AmTrust, Erie, CRC Insurance, QBE, Mass Mutual, Mutual of Omaha, XL, Generali and Farmers.

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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 more than insurance.

I want the kind of insight that comes from decades of experience insuring companies against the risk of network breaches and compromised data.

A level of protection and personal service that only Chubb provides.

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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.

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

Figures

78.2

The percentage of Massachusetts drivers and front-seat passengers found to be properly wearing seatbelts according to a University of Massachusetts Traffic Safety Research Program study. More than one in five Massachusetts motorists does not buckle up, a ratio below the national average.

23,500

The approximate square footage of a hands-on, heavy equipment safety training facility being built in Bismarck by the North Dakota Safety Council.

North Dakota companies have had to send workers to other states, such as Texas, for such training. More than 20 donors have contributed to what will be a $6 million.

89%

The increase in the number of deaths in Tennessee from crashes with drug-impaired drivers from 2010 to 2015. Tennessee Highway Patrol data showed that 174 people died in crashes last year in which a driver either tested positive for drugs or an officer determined drugs contributed to the crash. Experts attribute the increase to a rising prevalence of prescription drug abuse.

$60 MILLION

Declarations

Cyber Disaster Management

“You need to think of [cybersecurity] like disaster management — similar to your plan for an event like Hurricane Katrina — where everybody is on the same page.”

— Cari Toneck, chief compliance and risk officer at Methodist Hospital of Southern California, explaining the importance of having a unified cybersecurity plan within an organization.

Opioid Abuse, Deaths

“This is certainly not a list Louisiana wants to top.”

— Louisiana Insurance Commissioner Jim Donelon on Louisiana’s high rate of overdose deaths and longterm opioid use. The state’s drug overdose death rate exceeds the national average, according to the Centers for Disease Control and Prevention.

‘Transportational’ Use

“I heard something go ‘pow’ and I fell to the ground.”

— Michigan truck driver Daniel Kemp, who tore a calf muscle while stretching on his tiptoes to grab a thermos, briefcase and overnight bag, just 30 seconds after parking his truck at home. He sued Farm Bureau Insurance after the insurer denied the claim on his no-fault policy.

Benefits Fraud

“Everyone is dreading that AOB (assignment of benefits) fraud is about to be unleashed from the heavy claim volume that is about to be experienced.”

How much survivors and family members of people killed in the nation’s deadliest landslide have reached in settlements with the state of Washington and a timber company that logged an area above the site of the collapse.

— Jeff Grady, executive director of the Florida Association of Insurance Agents, comments on the insurance industry’s concern that Hurricane Matthew will lead to an increase in assignment of benefits claims. The problem has been deemed an insurance crisis in the state.

InsuranceJournal.com

Poll

Would you pay $200,000 for a one-way ticket to Mars to help Elon Musk colonize the Red Planet?

$200,000

12.14% Yes, absolutely, sign me up. (42 votes)

The amount for which former NFL and University of Texas running back Cedric Benson is being sued by Lynn Comegys, who claims she was walking past Benson’s Austin home when his two dogs knocked her down and attacked her Maltese. Benson’s attorney says he sent an apology letter but Comegys declined his offer to pay medical expenses.

6.65% Yes, but only if I can bring my dog. (23 votes)

12 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

49.42% No, I’d rather spend the money on real estate here on earth. (171 votes)

8.09% No, I prefer to wait for ticket prices to drop. (28 votes) 15.9% It depends on who else is going. (55 votes) 7.8% Other: (27 votes) Total Votes: 346

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 more than insurance.

I want the kind of insight that comes from decades of experience insuring large corporations and their unique assets.

A level of protection and personal service that only Chubb provides.

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.

chubb.com

NATIONAL | News & Markets

Insurance Agent, Industry Leader Bolton Remembered as Friend and Mentor

By Don Jergler

W

illiam Bolton, head of a large national brokerage, leader of a regional brokers group and chairman of Assurex Global, died on Oct. 5 at age 77 following a long battle with squamous cell carcinoma and a bilateral lung transplant more than five years ago.

Bolton, a veteran of the U.S. Marine Corps, helped build Bolton & Co. into the ranks of top privately held brokers nationwide and also sat on numerous boards of directors for various insurance carriers.

Steve Brockmeyer, president and CEO of Pasadena, Calif.based Bolton & Co., said Bolton made an impact locally, nationally and personally.

“Beyond his contribu-

tions to our industry, Bill was an incredible mentor,” Brockmeyer said. “He taught me the importance of strong industry relationships built on solid ethics and values, and that’s something I live by today.”

Mike Morey, chief operating officer of Bolton & Co., remembers his charitable nature.

“He recognized how fortunate we were, and he really encouraged us to help support others, whether it was the insurance industry, the communities we called home or local organizations that made a positive impact,” Morey said.

“This sentiment of giving is one that has since defined our organization’s culture, and it’s a guiding principal for how our firm does business today. He was an incredible leader and

14 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

wonderful person, and he will be missed.”

Bolton was born in Huntington Park, Calif. He was raised in San Marino, Calif., and graduated from San Marino High School and the University of California, Berkeley, Haas School of Business, with an emphasis in risk management.

He and his first wife, the late Mary Susan Powell, raised their two children in San Marino, where he was active in youth and CIF sports, and civic groups.

He married Linda Britton in 1991 and moved to Pasadena.

The couple had a second home in Hayden Lake, Idaho, where they enjoyed boating, playing golf, entertaining and hosting their eight grandchildren, who adoringly called him “Bumpie.”

‘He recognized how fortunate we were, and he really encouraged us to help support others, whether it was the insurance industry, the communities we called home or local organizations that made a positive impact.’

Bolton began his insurance career in 1961 at Industrial Indemnity Co. By 1970, he and his brother, Jim, took over Bolton & Company Insurance Brokers from their father, growing it into one of the top 100 largest insurance brokerages in the U.S.

Bolton was president of the Western Association of Insurance Brokers (now IBA West), and served on

the California Insurance Commissioner’s Fair Practices Commission, board of directors of the Western Compensation Insurance Co. and board of the Professional Agents Reinsurance.

In 1986, he was elected chairman of Assurex International.

He also served on the advisory committees of The Travelers Insurance Co., Atlantic Mutual Insurance Co., St. Paul Fire & Marine Co. and Industrial Indemnity Co. He authored numerous articles on insurance and risk management, and sat on the board of directors of Wells Media Group, publisher of Insurance Journal.

In 1999, he received the Ramsden/Sullivan Memorial Award, the highest individual honor given by IBA West.

He is survived by his wife, Linda; mother, Helen; brother, James; and children Lisa Singelyn and Patrick; stepson Michael Britton; and grandchildren Michael, Matthew and Ashlyn Singelyn, Lauren and Luke Bolton, and Miranda, Steven and Nicholas Britton.

In lieu of flowers, donations can be made to St. Joseph’s Hospital and Medical Center Transplantation Institute, 500 West Thomas Road, Suite 300, Phoenix, AZ 85013. Share

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West

California Comp Report Shows High Medical and Indemnity Payments for IE and OC

A

verage medical and indemnity payments on claims were much higher in San Bernardino, Riverside, Orange and Imperial counties than the rest of the state, according to the latest Regional Score Card issued by the California Workers’ Compensation Institute.

The score card is based on data from more than 360,000 claims that resulted in $6.2 billion in payments for medical and indemnity (lost-time) benefits.

It shows that for the 11-year span ending in 2015, Inland Empire/Orange County residents accounted for 19 percent of California job injury claims, but average INSURANCEJOURNAL.COM

medical and indemnity payments on the claims accounted for 21 percent of total paid benefits.

The leading injury diagnosis for Inland Empire/Orange County injured workers was minor wounds and injuries to the skin, noted in nearly one out of four claims, but those accounted for only 2.4 percent of the loss payments, as they tend to be relatively inexpensive cases in which the worker is treated quickly and returns to work with no lost time, according to the report.

In contrast, medical back problems without spinal cord involvement, such as sprains and strains, comprised one-in-five claims in the region, but because they

often required extended treatment and resulted in lost time from work, they had a much higher average cost and consumed nearly 28 percent of paid losses in the region, the report shows.

Since accident year 2005, average benefit payments on Inland Empire/Orange County claims have exceeded those in other parts of California, whether measured at 12, 24 or 36 months post injury, with the biggest reason being medical payments, which averaged as much as 19 percent higher at 36 months, though indemnity payments also averaged as much as 10.9 percent higher at the three-year benchmark, according to the report.

OCTOBER 24, 2016 INSURANCE JOURNAL | WEST | W1

WEST

| Special Report

Best Agency to Work For - SILVER Pasadena, California

Bolton & Co.

An annual Bolton Foundation event, Granting Holiday Wishes, features a luncheon and matinee performance of “A Christmas Carol” hosted for those served by the selected nonprofits that the foundation is supporting that year.

Agency for the People, by the People

By Don Jergler “

T

he people.”

That succinct answer came from an employee at Bolton & Co. who was prompted to explain “Why your agency is one of the best to work for” on a nomination form for the Insurance Journal annual Best Agency contest.

Among the myriad comments from employees who took the time to go online and answer survey questions about their firm, that short, insightful answer is really about all one needs to know about the employee-owned independent agency.

The Pasadena, Calif.-based firm of 120-plus employees won Silver for Best Agency in the West.

The ranking was based on a number of factors, but among the assets that put Bolton so high were the quality of employee comments, as well as its high score on IJ’s grading scale.

The “people” theme was recurring throughout employee comments.

“Great people, great environment with growth opportunities,” wrote another employee.

Not all respondents were so concise with their descriptions of Bolton’s work environment.

Some offered anecdotes to help paint a picture of what goes on there.

“My company truly treats every employee like an individual rather than a number,” was one employee’s comment. “I am pretty new to the company

W2 | INSURANCE JOURNAL | WEST OCTOBER 24, 2016

and the president already knows my name. He also walks around the office and says ‘Hi’ to the employees or treats us to coffee sometimes.

The company has so many perks to recognize our hard work and treat us to special events.”

Mike Morey, Bolton’s chief operating officer, turned things around when told the firm’s employees ranked it so highly.

Morey credited the employees themselves for creating a workplace worthy of an award.

“Our entire leadership team is humbled by this recognition, and we really appreciate all of our employees and their continued commitment to Bolton & Co.,” he said. “Ultimately, it’s these very people that help make our firm such a great place to work.”

The resulting office culture, Morey said, is what drives the success of a firm that reports placing in excess of $150 million in annual premiums, and helps set them apart.

“Simply put, we don’t want to be like everyone else. That’s what I like about Bolton,” he said. “We will always work to make this organization stronger. We constantly ask ourselves, ‘What does the broker of the future look like?’ and ‘How do we get there?’ When clients and prospects come into our office and see it, feel the energy and meet the people, we frequently hear that we do not look like other brokers.”

Of course, good pay no doubt also helps foster good employee attitudes.

“Competitive but fair,” wrote one employee while rating the firm’s performance/salary reviews.

Another employee liked the review process because it goes beyond discussing an employee’s value in the past.

“The performance reviews are done in a manner to ensure all staff and managers set goals and are held accountable to those goals,” wrote the employee.

Numerous employees took the survey, and there was no shortage of impassioned responses.

“As a Hispanic single mom, building a professional career in leadership can be challenging in our industry,” wrote one employee. “Bolton has provided me with the opportunity to build a career that enables me to make a difference in the lives of others and to support my family. Never once in my 12 years at Bolton was I ever treated like a second class citizen or told I could not achieve my goals of leadership. My execs consistently provided encouragement, inspiration, feedback and the education to pursue my goals.”

See related story on the life of William Bolton on page 14.

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WEST | PEOPLE

Judith Provencher

Stafford Jacobs III

Topa Insurance Group has named Judith Provencher senior vice president in claims in its Calabasas, Calif., office.

Provencher Oversees all claims operations within the Topa group.

She has more than 25 years of experience. She was previously vice president in claims at Topa Insurance Group, regional claims manager at The Doctors Insurance Co. and a senior reinsurance claims manager at Renaissance Re Insurance.

Topa is a property/casualty insurer offering business and personal insurance, as well as specialty program insurance.

San Francisco, Calif.-based CAL Insurance & Associates Inc. has named Stafford Jacobs III assistant vice president and property/casualty insurance advisor.

Jacobs has nearly 20 years of experience.

He previously was a broker, account manager and spent time on the carrier side of the industry.

He’s held positions with Sweet and Baker Insurance Brokers and Hub International.

CAL Insurance is an independent insurance agency.

RIC Insurance General Agency Inc. has named Garett Kaneko senior vice president of sales and marketing and Tom Clansen vice president of commercial lines.

Both will be based in California. Garett will work out of RIC’s headquarters in Santa Rosa. Clansen will be based at RIC’s Tustin office.

Garett has 12 years of underwriting, sales and sales management experience. He was most recently regional sales director for Travelers.

Clansen has more than 20 years of excess and surplus lines experience. He was vice president of the Western region for Chubb’s E&S lines operation prior to joining RIC. He has also worked for AIG, Bliss & Glennon and General Star.

RIC is a managing general agency and surplus lines broker.

Bart Schaffer will now be leading U.S. commercial programs at Argo Group. Schaffer is located in Denver, Colo.

He was previously head of binding operations within Argo Group’s Colony Specialty company.

Schaffer joined Colony Specialty as regional vice president of marketing. During his time at Colony, he also held positions including national vice president of marketing, and senior vice president of mar-

W4 | INSURANCE JOURNAL | WEST OCTOBER 24, 2016

keting and underwriting. Schaffer was with Grocers Insurance prior to joining Colony.

Argo Group, is a Bermuda-based underwriter of specialty insurance and reinsurance products.

JLT Re has named John Brodsky a senior vice president in Seattle, Wash.

Brodsky will be part of the workers’ compensation unit, and will focus on the expansion and development of JLT Re’s casualty practice.

He was previously with Guy Carpenter in the workers’ comp specialty. He worked at Sedgwick Re before it became part of Guy Carpenter in 1999.

Jardine Lloyd Thompson is a provider of insurance, reinsurance and employee benefits services.

Walnut Creek, Calif.-based Heffernan Insurance Brokers has named James Taylor assistant vice president in Heffernan’s benefits advisory services department.

Taylor joined Heffernan in 2014 as an account executive after having worked at Liberty Mutual Insurance and ADP. Heffernan has offices in San Francisco, Petaluma, Menlo Park, Los Angeles and Orange County, as well as offices in Portland, Ore., and St. Louis, Mo. EPIC Insurance Brokers and Consultants has named Gerrad Newton a producer within its auto dealer specialty program team in Sacramento, Calif.

Newton will be focused on workers’ compensation and garage liability for auto and motorcycle dealers.

Newton has 16 years of experience on both the carrier and brokerage sides. Newton was an account executive with Zurich Financial prior to EPIC. Newton wsd previously with Gallagher Bassett Services, Intracorp and Corvel Corp.

EPIC is a retail property/casualty and employee benefits insurance brokerage and consulting firm.

The Insurance Industry Charitable Foundation has named Alisa Breese director of marketing and communications.

Breese has more than 15 years of experience developing marketing and communications strategies within the insurance industry.

She previously worked at Laguna Pacific Consulting, ACE Group and INAMAR. Since 1998, IICF supporters have provided nearly 200,000 volunteer hours, serving over 150 nonprofits nationwide, and involving over 200 industry companies and offices.

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Business Moves | NATIONAL Markel, EMC, Global Insurance Accelerator

Markel and EMC Insurance Companies have invested in the Global Insurance Accelerator (GIA), a business accelerator focused on developing innovative insurancecentric startups.

The GIA launched in 2013 modeled on technology accelerators where seed funding and business assistance is provided to startups in exchange for equity, but GIA is focused just on the insurance industry.

Eight insurers from health and property markets are already members: Delta Dental, American Equity, Farm Bureau Financial Services, Farmers Mutual Hail, Grinnell Mutual Reinsurance, IMT Insurance Co., Mutual of Omaha and Principal.

As new members, Markel and EMC will be making annual investments in the GIA, which helps fund insurtech startups accepted into the GIA program.

Aon Risk Solutions, Stroz Friedberg Inc.

Aon Risk Solutions has entered into an agreement to acquire Stroz Friedberg Inc. Financial terms of the deal were not disclosed, and the acquisition is subject to customary closing conditions.

Aon Risk Solutions is the global risk management business of Aon plc, and Stroz Friedberg Inc. is a New Yorkbased global risk management firm. The acquisition will extend Aon’s cyber risk brokerage business and create a comprehensive Cyber Risk Management Advisory Group that offers standards-based cyber assessments and risk transfer solutions for clients.

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Following the acquisition, Stroz Friedberg’s more than 550 employees will join Aon’s Cyber Solutions Group. Michael Patsalos-Fox, Stroz Friedberg’s CEO, will become the CEO and co-chair of Aon’s Cyber Solutions Group. John Bruno, Aon’s executive vice president of enterprise innovation and chief information officer, will join Patsalos-Fox as co-chair of this new group.

Hub: Norton Insurance Agency; Sweet & Baker Insurance Brokers; Mayport Insurance & Realty

Hub International Ltd. has acquired the assets of Norton Insurance Agency and Norton Financial Services Inc. The Norton leadership team, including Norton Insurance President Jeff Begin and Norton Financial President Peter Fendler, will join Hub New England following the transaction. Both will report to Hub New England CEO Charles Brophy.

Norton Insurance is based in Cumberland Foreside, Maine, and is a provider of commercial property and casualty, and personal lines insurance. Norton Financial provides securities and advisory services and employee benefits insurance solutions.

Hub also has acquired San Francisco-based Sweet & Baker Insurance Brokers Inc. Bruce Callander, president of Sweet & Baker, will join Hub California and report to Kirk Christ, president of Hub California.

Sweet & Baker is a multiline insurance solutions provider.

Hub also acquired the assets of Mayport Insurance & Realty Inc. (Mayport) in North Dakota.

Based in Portland, N.D., Mayport specializes in providing property/casualty insurance products and services for the agriculture and crop industry.

Mayport has an additional location in Mayville, N.D., and agents located in Edmore, Hatton, Buxton and Mentor.

Mayport’s owners, Corey McGillis and Larry McGillis, will join Hub Mountain and report to Rene LeVeaux, president, Hub International Mountain States.

Terms of the acquisitions were not disclosed.

JenCap Holdings, M. J. Kelly

New York-based JenCap Holdings LLC has acquired privately held M.J. Kelly Co. (MJK), a managing general agency and wholesale insurance brokerage based in Springfield, Mo., with offices in nine states throughout the Midwest and Southeast.

Since 1986, MJK has been owned and operated by Jim Adams, who was joined by his sons Jon and Paul in 1987 and 1989. Today, the agency places

business with more than 200 admitted and nonadmitted markets through more than 5,000 agents in 26 states.

Jon Adams will become president of MJK, and Paul will take on the responsibility of branch manager of the Springfield office. Jim Adams will remain in an advisory capacity.

The Plexus Groupe, Ingensa

The Plexus Groupe LLC, a privately held national insurance brokerage and risk management consultancy headquartered in Deer Park, Illinois, has acquired Carol Stream, Ill.-based Ingensa Insurance Services, a diversified insurance and financial services firm offering expertise in property/ casualty, employee benefits, and mergers/acquisitions.

Dave Demas, who founded Ingensa in 2002, has joined Plexus as a vice president of business development.

Ingensa will be rebranded as Plexus. Headquartered in Deer Park, Plexus also has offices in Chicago (Loop), Dallas and Oklahoma City.

OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | News & Markets

Workers’ Comp Benefits for Injured Workers Reach Historic Lows: Report

W

orkers’ compensation benefits as a share of payroll have reached historically low levels, according to a new study.

Despite growth in employment during the economic recovery — and the corresponding uptick in employees covered by workers’ compensation — benefits per $100 of payroll fell from $0.97 in 2013 to $0.91 in 2014, the lowest level since 1980, reported the National Academy of Social Insurance (NASI).

Benefits as a percent of payroll declined in 46 states between 2010 and 2014, continuing a national trend in lower benefits relative to payroll that began in the 1990s, the study revealed.

Costs to

employers, on the other hand, continue to climb.

Between 2010 and 2014, employer costs associated with workers’ compensation — such as insurance premiums, reimbursement payments, and administrative costs — grew at a rate nearly five times faster than benefits. Nationally, employer costs exceeded total benefits in 2014 by $29.5 billion while costs per $100 of payroll reached $1.35, according to the report, “Workers’ Compensation: Benefits, Coverage, and Costs.”

“What we are seeing in these data are still the effects of the economy gradually coming out of the recession of 2008-10,” said Marjorie Baldwin, chair of NASI’s Study Panel on Workers’

16 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

Compensation Data. “As more workers are hired, employers immediately incur higher costs for workers’ compensation insurance — the increase in benefits paid comes with a lag, especially for the most costly, long-term injuries.”

The ratio of benefits paid per $1 of employer cost has varied over the past 20 years from a high of $0.82 in 1999 to a low of $0.63 in 2006. In recent years, the ratio has declined from $0.81 in 2010 to $0.68 in 2014, but it is still greater than in the five years leading up to the recession of 2008.

Due to growing health care costs during the past 30 years, medical benefits now account for an increasing share of total workers’ compensation benefits, rising from 29 percent in 1980 to more than 50 percent in 2014. In about 32 states, the majority of workers’ comp spending goes to medical care.

“Declining levels of workers’ compensation benefits could mean that workers are getting injured less frequently and/ or that they are returning to work sooner when they do get injured,” said Christopher McLaren, NASI’s workers’ compensation senior research associate. “But there have been a number of changes in state laws in recent years limiting access to workers’ compensation benefits, which may also be a factor.”

The new report details stateby-state changes in coverage, benefits, and employer costs over the past five years. The state-level results show that between 2010 and 2014: • The number of covered workers and the amount of covered wages increased in every state, with the largest

increases occurring in North Dakota and Utah.

• Benefits per $100 of payroll decreased in all but five states, with the biggest declines in West Virginia, Oklahoma, and Montana – three states that implement ed significant changes in their workers’ compensation systems during this period.

• Benefits were lowest as a share of payroll in 2014 in the District of Columbia ($0.24 per $100 of covered payroll), Texas ($0.33 per $100 of covered payroll), Arkansas and Indiana ($0.49 per $100 of covered payroll).

• Employer costs per $100 of covered payroll increased in 31 states, but decreased significantly in Montana, Ohio, Oklahoma, and West Virginia.

• Employer costs were highest as a share of payroll in 2014 in Montana ($2.25 per $100 of covered payroll), Alaska ($2.20 per $100 of covered payroll), and Wyoming ($2.01 per $100 of covered payroll).

Workers’ compensation, the nation’s first social insurance program, pays medical benefits to the providers of health care for injured workers, and cash benefits to workers who cannot work.

The “Workers’ Compensation: Benefits, Coverage, and Costs” report is the 19th in an annual series.

The report provides comprehensive data on workers’ compensation benefits, coverage, and employer costs for the nation, the states, the District of Columbia, and federal programs. Share this arti-

cle with a colleague. IJMAG. COM/124CC INSURANCEJOURNAL.COM

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NATIONAL | News & Markets

P/C Direct Premium Written Up 3.6 Percent

By Douglas A. Powell

D

irect premium written (DPW) for property/ casualty insurance companies continues to increase, albeit gradually. At year-end

2015, approximately $585 billion DPW was reported, a record-high. For 2015, total DPW for all P/C insurers aggregately increased 2.5 percent over 2014, an increase of nearly $14.4 billion. Through the second quarter (Q2) of 2016, the insurance industry’s growth trend has continued, as DPW for all P/C insurers aggregately increased 3.6 percent over 2015.

For the six months ended June 30, 2016, P/C companies comprising the top 25 insurers in terms of DPW increased their DPW 12.9 percent over the first six months of 2015.

This continues their impressive display of premium growth and

financial stability. The top 25 accounted for nearly 69 percent of the growth in the P/C industry’s DPW. The remainder of the industry reported an increase in DPW of 1.4 percent, or $3.3 billion year-over-year.

While increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS).

The DPW to PHS ratio is indicative of an insurer’s premium leverage on a direct basis, without consideration of the effect of reinsurance.

Since 2010, this ratio for P/C companies has remained stable at approximately 70 percent.

Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market. The double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery.

It is more realistic that expectations should relate to gradual, stable growth. If the industry holds to its 10-year historical pattern, growth in 2016 will result in the highest level of year-end DPW ever reported by the P/C industry.

Powell is a senior financial analyst with Demotech Inc. Email: dpowell@ demotech.com.

Top 25 Property/Casualty Companies Based upon dollar amount of direct premium written (DPW) growth Year-to-date results June 30, 2016, versus June 30, 2015

Company Name

State Farm Mutual Automobile Insurance Co. Liberty Insurance Underwriters Inc. Allstate Fire and Casualty Insurance Co. Evanston Insurance Co. GEICO General Insurance Co. LM General Insurance Co. XL Specialty Insurance Co. USAA Casualty Insurance Co. USAA General Indemnity Co. American Bankers Insurance Co. of Florida State Farm Fire and Casualty Co. Continental Casualty Co. Standard Fire Insurance Co. Allstate Vehicle and Property Insurance Co. GEICO County Mutual Insurance Co. GEICO Casualty Co. Farmers Insurance Exchange Bankers Standard Insurance Co. Garrison Property and Casualty Insurance Co. Wesco Insurance Co. Government Employees Insurance Co. Nationwide General Insurance Co. California Automobile Insurance Co. American Family Insurance Co. Ohio Security Insurance Co.

DPW 6/30/2016

$18,260,514,642 $1,342,546,644 $3,765,498,373 $623,909,727 $4,213,673,249 $1,454,308,540 $922,275,067 $2,788,118,193 $1,615,428,431 $1,773,126,261 $9,604,814,285 $3,353,169,419 $979,885,525 $867,659,980 $507,651,840 $1,783,811,175 $1,945,193,044 $422,537,626 $823,385,505 $1,226,554,980 $2,644,221,503 $564,149,933 $428,325,153 $315,701,635 $770,302,702

Top 25 P/C Companies by DPW Growth $62,996,763,432 All Other P/C Companies $238,600,853,277 Total $301,597,616,709

DPW 6/30/2015

$17,098,119,731 $612,324,924 $3,372,170,079 $254,073,817 $3,883,208,736 $1,147,111,092 $623,603,236 $2,489,918,848 $1,320,451,789 $1,541,535,767 $9,377,690,511 $3,126,170,732 $763,865,882 $652,707,019 $304,215,034 $1,580,776,254 $1,749,805,650 $246,668,930 $654,403,642 $1,060,884,461 $2,479,813,099 $405,302,285 $269,740,700 $162,543,072 $617,632,430

$55,794,737,720 $235,339,373,009 $291,134,110,729

$ Growth

$1,162,394,911 $730,221,720 $393,328,294 $369,835,910 $330,464,513 $307,197,448 $298,671,831 $298,199,345 $294,976,642 $231,590,494 $227,123,774 $226,998,687 $216,019,643 $214,952,961 $203,436,806 $203,034,921 $195,387,394 $175,868,696 $168,981,863 $165,670,519 $164,408,404 $158,847,648 $158,584,453 $153,158,563 $152,670,272

$7,202,025,712 $3,261,480,268 $10,463,505,980

% Growth

6.80% 119.25% 11.66% 145.56% 8.51% 26.78% 47.89% 11.98% 22.34% 15.02% 2.42% 7.26% 28.28% 32.93% 66.87% 12.84% 11.17% 71.30% 25.82% 15.62% 6.63% 39.19% 58.79% 94.23% 24.72%

12.91% 1.39% 3.59%

Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product. The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data.

18 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

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SPECIAL REPORT

NATIONAL | Closer Look | Top Commercial Lines Agencies

Commercial Lines Leaders

Top 50 Commercial Lines Agencies

About the Commercial Lines Leaders: The 2016 Commercial Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2015 commercial lines property/ casualty revenue numbers of the independent agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Ranked by Total 2015 Commercial Lines P/C Revenue

2016 2015 Rank Rank Agency 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 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

1 2 3 4 5 8 6 7 12 11 9 10 13 19 21 14 16 17 18 20 NEW 22 23 25 24 NEW 26 27 30 32 29 26 28 33 31 37 41 NEW 45 34 42 43 46 44 39 50 40 47 NEW 48

2015 Commercial Lines P/C Revenue

2015 Total P/C Revenue

2015 Other than P/C Revenue

2015 Total P/C Premium Written

Lockton Cos. $938,194,000 $947,343,000 $381,226,000 $8,627,519,000 HUB International $762,829,000 $1,007,636,000 $326,028,000 $6,721,541,337 Alliant Insurance Services Inc. $451,000,860 $553,560,874 $251,236,594 $3,772,152,076 USI Insurance Services $442,252,545 $514,562,044 $441,245,004 $4,714,624,598 AssuredPartners Inc. $357,641,194 $422,546,495 $134,462,724 $5,305,033,766 Acrisure LLC $274,900,582 $319,954,127 $91,697,750 $2,831,531,430 Integro Insurance Brokers $231,300,000 $257,000,000 $18,000,000 $1,500,000,000 BroadStreet Partners Inc. $207,000,000 $265,250,000 $44,350,000 $2,313,000,000 The IMA Financial Group Inc. $136,598,970 $111,890,430 $25,799,401 $1,259,694,354 Insurance Office of America Inc. $122,260,708 $123,944,033 $12,098,796 $1,269,333,541 Leavitt Group $115,096,404 $144,552,466 $67,831,600 $2,295,478,072 EPIC Insurance Brokers & Consultants $114,516,000 $119,683,837 $46,002,481 $967,272,000 Crystal & Co. $114,150,000 $137,170,000 $19,830,000 $1,483,620,000 Risk Strategies Co. $101,000,000 $121,000,000 $41,000,000 $905,000,000 NFP $94,715,771 $126,287,686 $1,153,911,862 $1,000,000,000 Wortham Insurance & Risk Management $89,723,369 $97,129,488 $21,853,051 $953,919,083 J. Smith Lanier & Co. $86,835,389 $86,835,389 $36,496,189 $1,040,000,000 Hays Cos. $85,500,000 $91,000,000 $92,300,000 $923,500,000 Heffernan Insurance Brokers $85,350,600 $90,094,600 $28,260,500 $639,948,000 Woodruff-Sawyer & Co. $74,300,000 $75,200,000 $30,000,000 $704,300,000 Cross Financial Corp., dba Cross Insurance $67,300,000 $94,600,000 $18,800,000 $770,000,000 Mesirow Insurance Services Inc. $65,023,358 $69,460,059 $39,766,499 $548,424,598 Hylant Group Inc. $64,133,302 $68,094,895 $35,574,855 $551,100,000 Higginbotham $63,938,000 $78,661,000 $53,346,000 $549,052,000 INSURICA Inc. $58,393,361 $65,483,893 $14,706,313 $540,341,307 Prime Risk Partners Inc. $57,079,000 $69,315,000 $15,452,000 $902,882,041 PayneWest Insurance Inc. $55,638,157 $71,490,327 $19,277,957 $566,244,927 Assurance $55,615,530 $55,615,530 $26,212,332 $506,537,390 The Graham Co. $43,529,853 $43,529,853 $5,644,067 $267,863,217 Propel Insurance $42,900,000 $47,000,000 $15,000,000 $405,000,000 Frenkel & Co. $40,129,676 $45,553,501 $22,055,276 $502,065,000 Marshall & Sterling Enterprises Inc. $39,673,583 $53,024,655 $10,847,988 $390,575,830 SterlingRisk $38,647,000 $43,551,000 $11,423,000 $362,929,000 Houchens Insurance Group $36,798,990 $40,247,252 $12,823,023 $435,928,688 Bowen, Miclette & Britt Insurance Agency LLC $36,713,954 $37,496,394 $10,831,054 $317,318,527 Andreini & Co. $34,113,000 $34,156,950 $11,425,300 $336,450,000 Parker Smith & Feek Inc. $33,104,000 $35,855,000 $9,446,000 $255,030,000 The Hilb Group $31,500,000 $38,000,000 $13,000,000 $284,000,000 TrueNorth $31,460,872 $33,021,612 $16,018,751 $361,682,014 The Mahoney Group $30,953,640 $32,964,422 $7,391,679 $248,966,438 The Horton Group Inc. $29,413,293 $33,299,411 $23,348,182 $332,284,446 LMC Insurance & Risk Management Inc. $29,205,301 $32,501,703 $11,296,513 $297,898,509 Lawley Insurance $27,783,633 $36,761,709 $17,433,984 $293,719,549 Riggs, Counselman, Michaels & Downes Inc. $27,265,595 $28,451,080 $13,866,355 $339,907,442 Starkweather & Shepley Insurance Brokerage Inc. $27,228,000 $37,418,000 $3,429,000 $282,000,000 Professional Insurance Associates Inc. $27,000,000 $40,000,000 $0 $300,000,000 Moreton & Co. $26,481,295 $28,032,588 $13,082,520 $361,478,394 James G. Parker Insurance Associates $26,233,000 $27,467,000 $6,110,000 $346,995,000 Rich & Cartmill Inc. $26,196,256 $29,316,529 $867,336 $205,500,000 Crane Agency $26,163,780 $30,996,092 $4,436,916 $209,898,594

20 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

No. of Main Employees Office 6,000 8,453 2,329 4,406 3,600 2,064 1,087 2,000 605 800 1,420 785 406 610 3,400 501 603 699 409 405 700 359 599 756 477 468 649 428 169 297 164 403 225 272 234 185 200 570 280 185 330 252 338 239 197 50 194 200 168 245

Website

Kansas City, Mo. Chicago, Ill. Newport Beach, Calif.

Valhalla, N.Y. Lake Mary, Fla. Caledonia, Mich.

New York, N.Y. Columbus, Ohio Denver, Colo.

Longwood, Fla. Cedar City, Utah San Francisco, Calif.

New York, N.Y. Boston, Mass.

New York, N.Y. Houston, Texas West Point, Ga. Minneapolis, Minn.

Walnut Creek, Calif.

San Francisco, Calif.

Bangor, Maine Chicago, Ill. Toledo, Ohio Fort Worth, Texas Oklahoma City, Okla.

Alpharetta, Ga. Missoula, Mont.

Schaumburg, Ill. Philadelphia, Pa. Tacoma, Wash.

New York, N.Y. Poughkeepsie, N.Y. Woodbury, N.Y. Bowling Green, Ky. Houston, Texas San Mateo, Calif.

Bellevue, Wash.

Richmond, Va. Cedar Rapids, Iowa Mesa, Ariz.

Orland Park, Ill. West Des Moines , Iowa Buffalo, N.Y. Towson, Md. East Providence, R.I. San Carlos, Calif.

Salt Lake City, Utah Fresno, Calif.

Tulsa, Okla.

St. Louis, Mo.

www.lockton.com www.hubinternational.com www.alliant.com www.usi.biz www.assuredptr.com www.acrisure.com www.integrogroup.com www.broadstreetcorp.com www.imafg.com www.ioausa.com www.leavitt.com www.epicbrokers.com www.crystalco.com www.risk-strategies.com www.nfp.com www.worthaminsurance.com www.jsmithlanier.com www.hayscompanies.com www.heffins.com www.wsandco.com www.crossagency.com www.mesirowfinancial.com www.hylant.com www.higginbotham.net www.insurica.com www.primeriskpartners.com www.paynewest.com www.assuranceagency.com www.grahamco.com www.propelinsurance.com www.frenkel.com www.marshallsterling.com www.sterlingrisk.com www.houchensins.com www.bmbinc.com www.andreini.com www.psfinc.com www.hilbgroup.com www.truenorthcompanies.com www.mahoneygroup.com www.thehortongroup.com www.lmcins.com www.lawleyinsurance.com www.rcmd.com www.starshep.com www.piainc.com www.moreton.com www.jgparker.com www.rcins.com www.craneagency.com

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NATIONAL | M&A Review

Merger & Acquisition Deal Activity Continues Strong Pace

By Christopher Darst

D

eal count for the third quarter (Q3) of 2016 was down relative to the record-breaking Q3 of 2015, but was still the second-most active Q3 in the past 10 years. There were 90 announced transactions in Q3 2016 compared to 114 in Q3 2015 (a decrease of 26.7 percent). Forty-one deals closed in July, 19 in August, and 30 in September. By comparison, historical Q3 deal counts in the past five years were 59 in

2012, 62 in 2013, 76 in 2014, 114 in 2015, and 90 in 2016 (average of 78 per year).

For the first nine months of 2016, there were 311 announced transactions compared to 352 in the first nine months of 2015.

Some 46 percent of all acquired agencies were property/casualty (P/C) firms, 40 percent were multiline agencies and 14 percent were employee benefits firms. Specialty distributors made up 18 percent of the total deal activity year-to-date.

This is a decrease from 23 percent recorded in the first nine months of 2015.

Private-equity backed buyers were the most active acquirers with 157 closed transactions in the first three quarters of 2016 (compared to 158 in the first three quarters of 2015). This represented 50.5 percent of all deal activity in the first nine months of 2016. Independent agencies completed 76 trans-

actions, and public brokers accounted for 27 deals over the same period. Insurance companies, banks and other buyers closed 51 deals so far in 2016.

The top five buyers for the year represented 32.8 percent of total deal activity through Q3 2016 and the top 10 accounted for 47.3 percent.

BroadStreet Partners Inc. and AssuredPartners Inc. were the most active acquirers, closing 22 deals each.

BroadStreet is on pace to surpass its deal flow from last year of 26 closed transactions.

It typically applies a co-ownership structure to its acquisitions, where agency owners and key employees retain some ownership in the agency.

AssuredPartners was the second-most active acquirer in 2015 with 34 transactions.

Acrisure LLC was listed as the third-most active acquirer in the first nine months of 2016 with 20 announced deals.

Acrisure does not announce all of its deal closings, so it is difficult to discern the actual number closed so far in 2016,

Sources: SNL Financial, Insurance Journal, other publicly available sources and MarshBerry proprietary databases All transactions in chart/table are announced deals involving public company acquirers, banks, and private equity groups as well as private company acquirers. All targets are U.S. only. This data displays a snapshot at a particular point in time and has not been updated to reflect subsequent changes in prior years, if any. MarshBerry estimates that only 15 to 30 percent of all transactions are actually made public. Past performance is not necessarily indicative of future results.

22 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

but it is estimated to be more than 40.

Arthur J. Gallagher & Co. (AJG) and Hub International Ltd. closed 19 deals each through the first three quarters of 2016. Hub continued to expand internationally by aggressively acquiring agencies in Canada. AJG was the most active public broker in the marketplace during the first three quarters of 2016. Both Hub and AJG’s acquisitions were evenly spread throughout the country and consisted of both retail and wholesale agencies.

For the first three quarters of 2016, The Hilb Group and Confie Seguros Holdings each closed 13 deals, USI Insurance Services LLC and Risk Strategies Co. Inc. each closed seven deals, and Alliant Insurance Services Inc., OneDigital Health and Benefits, and Higginbotham Insurance & Financial Services closed five, four, and four deals, respectively.

Overall, acquisition activity is down from the record set in 2015, but we are seeing demand remaining strong.

Private equity-backed brokers continue to drive the market, and buyers continue to be aggressive in their search for growth and talent.

Securities offered through MarshBerry Capital Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co. Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440-354-3230). Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation.

Darst is senior vice president at MarshBerry. Phone: 949-234-9648. Email: Chris.Darst@MarshBerry.com.

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Merger Announced and Acquisition Activity Date Buyer Announced Date

Buyer

7/1/16 7/1/16 7/1/16 7/1/16 7/1/16 7/1/16 7/1/16 7/1/16 7/1/16 7/5/16 7/7/16 7/7/16 7/11/16 7/11/16 7/13/16 7/13/16 7/14/16 7/14/16 7/15/16 7/18/16 7/18/16 7/19/16 7/19/16 7/19/16 7/19/16 7/20/16 7/21/16 7/21/16 7/25/16 7/25/16 7/26/16 7/26/16 7/26/16 7/26/16 7/27/16 7/27/16 7/28/16 7/29/16 7/31/16 7/31/16 7/31/16 8/1/16 8/1/16 8/1/16 8/1/16 8/1/16 8/1/16 8/1/16 8/2/16 8/2/16 8/2/16 8/3/16 8/4/16 8/5/16 8/11/16 8/12/16 8/16/16 8/16/16 8/17/16 8/31/16 9/1/16 9/1/16 9/1/16 9/1/16 9/1/16 9/1/16 9/1/16 9/2/16 9/2/16 9/2/16 9/6/16 9/7/16 9/7/16 9/7/16 9/7/16 9/8/16 9/8/16 9/8/16 9/12/16 9/12/16 9/12/16 9/12/16 9/14/16 9/19/16 9/20/16 9/20/16 9/21/16 9/23/16 9/23/16 9/28/16

Acentria Insurance Acrisure LLC Acrisure LLC BroadStreet Partners Inc. BroadStreet Partners Inc. BroadStreet Partners Inc. CBIZ Inc. Hilb Group LLC Hilb Group LLC Hub International Ltd. Advantage Benefit Solutions Confie Seguros Insurance Services AssuredPartners Inc. Digital Insurance Inc. Alliant Insurance Services AssuredPartners Inc. AssuredPartners Inc. Kohlberg & Co. LLC BroadStreet Partners Inc. AssuredPartners Inc. Hub International Ltd. AssuredPartners Inc. HGGC Private Investor - Paul Bassman Triumph Insurance Group Inc. Cross Insurance AssuredPartners Inc. GoHealth LLC American Financial Group Inc. CGB Diversified Services Inc. Acrisure LLC Hub International Ltd. Undisclosed buyer World Insurance Associates LLC Arthur J. Gallagher & Co. Kinderhook Industries LLC Acentria Insurance Futurity First Financial Corp.

Acrisure LLC BroadStreet Partners Inc. BroadStreet Partners Inc. Acentria Insurance Arthur J. Gallagher & Co. BroadStreet Partners Inc. BroadStreet Partners Inc. BroadStreet Partners Inc. Quaint Oak Insurance Agency LLC World Insurance Associates LLC AmWINS Group Arthur J. Gallagher & Co. Element Group LLC U.S. Risk Insurance Group Inc. Sandy Spring Bancorp Inc. ABRY Partners MB & Associates LLC DSP Insurance Services Holman Insurance Services LLC Teachers Credit Union Community Development Insurance Services LLC Lake Michigan Credit Union AssuredPartners Inc. AssuredPartners Inc. Digital Insurance Inc. Hub International Ltd. Kraus-Anderson Insurance LP Insurance Services Inc. Starr International Co. Inc. Furman Co. Inc. Hub International Ltd. Integro, Ltd. Southwest Business Corp.

Andrew G. Gordon Insurance Inc. Eastern Bank Corp.

Evergreen P&C Insurance Agency Inc. Higginbotham & Associates Inc. Alliant Insurance Services BMS Intermediaries Inc. Digital Insurance Inc. Capacity Group Inc. Confie Seguros Insurance Services Confie Seguros Insurance Services Confie Seguros Insurance Services Brown & Brown Inc. JenCap Holdings Cross Insurance Risk Strategies Co. LLC NSI Insurance Group ELMC Group LLC J.C. Flowers & Co. LLC DTRT Insurance Group

July 1, 2016 to Sept. 30, 2016 Seller Seller Powell Agency Inc. Undisclosed Independent Agency (MI) Undisclosed Independent Agency (CA) Undisclosed Insurance Agency (AZ) Undisclosed Insurance Agency (IL) Undisclosed Insurance Agency (CO) Employee Benefits Consulting Business NPB Insurance Services, Inc Carrier Insurance Agency Inc. Gateway Financial Group Inc. Collins Benefits Solutions Inc. J.N. Mason Agency Inc. LegacyTexas Insurance Services Inc. USBC LLC Mesirow Insurance Services Inc. LJ Stein & Co. Inc. Gerrity, Baker, Williams Inc. U.S. Risk Insurance Group Inc. Book of business (WV) Florida Insurance Specialists LLC Parq Advisors Centennial Surety Associates Inc. Premier Companies Inc. Ascend Insurance Brokerage Southern Transportation Insurance Agency, Ltd. Sargent, Tyler & West National Healthcare Access Inc. 1SourceAdmin LLC National Interstate Heartland Crop Insurance Inc. Undisclosed Insurance Agency (CA) Keenan Suggs Inc. Assure Space LLC AIV Group LLC Gabor Insurance Services Inc. National Truck Protection Lighthouse Insurance Agency Inc. M3 Financial Inc. Undisclosed insurance agency (CA) Book of business Assets of division of undisclosed insurance agency (CA) Insurance Center of South Florida Inc. Blue Horizon Insurance Services Undisclosed Insurance Agency (TN) Undisclosed Insurance Agency (IL) Undisclosed Insurance Agency (MN) Signature Insurance Services LLC Harry Herbst & Associates Private Client Insurance Group LLC Victory Insurance Agency Inc. Singleton Insurance Agency Inc. Continental Risk Insurance Services Advantage Group Inc. NSM Insurance Group Inc. Olin Miller Insurance Inc. Sj Benefits Group Inc. Risk Partners Inc. Summit Insurance Agency Inc. Hoban Insurance Services Inc Minor-Field Insurance Agency Inc. Southern Risk Management LLC Benefit Specialists Inc. Strategic Employee Benefit Services - Minnesota Inc. Patterson Insurance Brokers Inc. Onyx Benefit Advisors LLC McMullen Insurance Agency Wright USA Morgan Insurance Agency Certain assets of Hickey & Associates Inc. Insurance Revolution Inc. Levy & Levy & Lefton Insurance Agency Atlantic Advisers Insurance Agency Inc. John E. Patterson Insurance Agency Inc. Sheridan’s assets Davis Insurance Agency Inc. Farmin Rothrock & Parrott Inc. Advocate Reinsurance Partners LLC Mann & Watters Insurance Inc. ARM-Capacity of New York LLC Osorio and Family LLC BMR Agency LLC Absolute Insurance Agency Inc. Kronholm Insurance Services Inc. M.J. Kelly Co. Owen Cole Kahn-Carlin & Co. Inc. KMH Insurance Services LLC IOA Re Inc ELMC Group LLC Setnor & Associates Insurance

Sources: SNL Financial, Insurance Journal, other publicly available sources and MarshBerry proprietary databases. Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. MarshBerry estimates that only 15 percent to 30 percent of all transactions are actually made public. Past performance is not necessarily indicative of future results.

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OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 23

NATIONAL | Special Report | Cyber Security

6 Cyber Security Trends to Watch in 2017

By Evan Bundschuh

A

s 2016 winds down and the insurance industry begins to adjust its business and marketing strategies for the new year, cyber criminals are doing exactly the same thing — reviewing their successes and failures, attempting to maximize their ROI, and brainstorming ways to streamline their processes so they can work smarter, not harder.

Cyber criminals are also exploring new practices, and forming their own mergers, creating organizations capable of more sophisticated, specialized attacks.

These changes will require organizations to implement better, stronger security controls, and become more attentive and agile in their reactions.

This cycle should come as no surprise, it’s Newton’s Third Law at work, a constant cycle of action-reaction.

So what will 2017 bring?

Ransomware Increase

I first encountered a ran-

somware claim around 2009.

It was for a website for a small business, which was surprising at the time. Since then ransomware has become a “go-to” tool of choice for many cyber criminals, working its way onto every security “top 10” list.

Simply put, it’s effective.

Some estimates have ransom attacks increasing 10-fold over the next year, and that is one of the more frugal figures.

With all of this success, their increase in frequency is somewhat expected, but it is the increase in demands that could prove more troubling.

Up until now, ransom demands have been relatively low and generally viewed more as nuisance payments to regain possession of information that is worth considerably more, in some cases, millions of dollars. But it is widely speculated that, as these attacks increase, the cyber criminals behind them will also begin to understand the value of the data and how to capitalize on that data. This will likely result in a sharp increase in the ransom awards being demanded.

Demands that were once $5,000 to $10,000 could increase 10-fold or more. With the FBI recently advising that payment may be the best option, these increases could have a profound financial effect — particularly smaller companies that may not be able to meet large demands.

It should also be noted that the costs/damages don’t end

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with the payment. In addition, organizations must deal with the time and labor involved to unencrypt the data (once handed over), repairing brand damage, resulting lost revenue, and the possibility of regulatory investigations. Which brings us to another trend — regulation.

Cyber-Related Regulatory Enforcement

Cyber security compliance and regulatory enforcement is set to receive a lot of attention.

What began with the FTC, OCR and SEC has grown to a constantly expanding list of regulators. In just the past six months the CFPB (Consumer Financial Protection Bureau) and the New York State Department of Financial Services were added to that list with their first action and newly proposed regulation.

As the agencies struggle to keep up with the hackers, expanding their security requirements, compliance is becoming increasingly challenging for organizations.

The FTC has been active in pursuing companies, citing violations for security failures and deceptive practices related to the collection of information and misleading privacy statements (among others). And the OCR has been aggressively enforcing HIPAA violations.

Regulators are also widening their view by: 1) Enforcing new foreign cyber laws; 2) Voicing an interest in the small-andmedium-sized business (SMB) sector; and 3) Voicing interest in regulating controls to prevent ransomware attacks. While the

multi-million dollar fines and penalties seem to be reserved mostly for HIPAA fines levied against healthcare providers, fines and penalties may increase across the board.

Trickle Down Effect

Hackers and viruses alike have an innate ability for locating the weakest link and path of least resistance. It makes sense. As larger organizations employ stronger security and tighter controls, breach incidents will continue to trickle down to the mid-sized and smaller companies, which are softer targets. This trickle down effect will force smaller organizations to pay more attention to their network security practices and cyber risks/exposures.

With human error often being stated as the leading cause of intrusions, employee training will play an important role in security strategy. Some of the strict cyber controls and penetration testing once only employed by large companies and financial institutions will begin to work their way into mid-sized and smaller companies, and deservingly so.

Many studies already estimate 50 per-

cent to 80 percent of companies that have experienced a breach are small and mid-sized companies, yet these same organizations have been very slow to adopt meaningful cyber frameworks/policies. The increase in regulatory oversight will likely help expedite the adoption of stronger controls, especially as regulators set their sights on the SMB sector.

Growing Cybercrime Marketplace

“Mask IP. Select file. Submit payment. Send.” This may be a gross oversimplification, but the truth is, deploying a directed hack today requires little more than an IP blocker and some bitcoin. The dark web used to be a secret corner of the internet reserved for governments and the elite of the tech underworld. A place Smarter Malware and Viruses where, among other things, Those unfamiliar with tech personal information, viruses and cyber security might and leaked information could assume that viruses and malbe purchased/exchanged freely ware are relatively unchanging on the black market with a — a digital file just floating in strong degree of anonymity. cyberspace, but that notion While the dark web is still is false. Just like mobile apps bustling with activity, those for your iphone, their designs marketplaces are no longer are constantly improving and a secret. They have become being modernized. Part of that increasingly accessible and improvement means the abiluser friendly with reviews and ity to bypass firewalls, easier feedback from purchasers creexecution and better deception ating something akin to a Yelp methods. for the cybercrime market.

These newer versions are The growth of the cyber less resource heavy, causing black market coupled with the less computer lag and red flags increased demand for fresh to the user. As a result, those PII (personally identifiable infected may have little to no information) and PHI (personal knowledge that their systems health information) will result have been compromised. in a flood of new malware and Because they are better at viruses, making it easier than remaining undetected, ever for companies and their late discovery could executives to be targeted. result in more files being infected and/or Sophisticated/Market stolen, and costs to Manipulation organizations When the average executive will rise. and mid-sized company hears the term “security breach” they immediately think of stolen PII but those familiar with cyber security know that criminals are thinking way beyond that.

Stolen PII is just the tip of the iceberg. These perpetrators are well organized, and like any well performing business, are looking for maximum

return on investment. Those at the top now have their eyes set on insider trading and market manipulation.

The year 2015 brought two such widely publicized breaches carried out by two separate groups. In one, hackers obtained credentials through sophisticated spear phishing attacks in order to access and “weaponize” confidential information regarding upcoming mergers. In another, hackers gained access to news media outlets accessing non-public corporate information, which included sensitive information such as financial restatements, and traded on that info prior to public release, making millions.

Due to the opportunity for significant payouts, it’s almost a given that these frauds will increase.

With most of these schemes executed through credential theft and carefully designed phishing campaigns, organizations should review their controls for preventing such attacks. Companies should also implement strong vendor security requirements to ensure that all partners and outside providers have adequate cyber security controls in place to detect, prevent and report any possible intrusions.

Summary

In the future, organizations will see an increase in intrusions that are better designed, trickling down to businesses that are less prepared to handle them. Even as regulators look on, cyber criminals will continue to exploit their success and venture into larger money making schemes such market manipulation.

So what can companies

do to protect themselves?

Organizations of all sizes should implement stronger controls such as employee training, intrusion testing, formal reporting procedures and vendor cyber security-requirements. These controls should be coupled with well-tailored cyber insurance policies.

It has been voiced before, but not all cyber policies are created equal. Generally speaking, organizations and their brokers should perform careful reviews focusing on (among other items): • True first party coverage with loss of income; • Robust regulatory defense and penalty coverage (with policy wording that would include coverage for regulatory actions related to ransomware attacks, if possible); • Coverage for ransomware attacks/cyber extortion; • Coverage for “transmission of viruses to others”; • Coverage for “failure to dis- close a privacy incident;” • Avoidance of any self propagating code exclusion; • Avoidance of any require- ments to maintain minimum security standards; and • Definitions that include CCI (corporate confidential information) and PHI.

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Bundschuh is partner and commercial lines head at GB&A, an independent insurance brokerage located in New York focused on insurance programs and risk management solutions for tech companies, financial and professional services, manufacturers and product-based businesses.

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NATIONAL | Special Report | Cyber Security

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There is such a thing as TMI — too much information — even in the data-driven insurance industry.

By Elizabeth Blosfield

I

nsurance carriers and agents have come to learn that increased data can lead to greater risk for insureds, and they are increasingly advising businesses to disclose data collection practices while seeking to gain insurance coverage, according to David Garrett, president of CISO Advisory & Investigations LLC. “It is not unusual now for insurance applications to include specific questions about applicants’ data collection practices,” Garrett said.

Standard insurance applications are becoming more detailed in the wake of increased wrongful collection of data claims as more companies are unintentionally swept up in litigation or regulatory action as a result of data collection practices, insurance industry experts told Insurance Journal.

“There have been many instances in the last decade where companies didn’t know they were doing anything wrong,” John Coletti, chief underwriting officer for cyber and technology at XL Catlin, said. “They thought they were collecting data for innocent means, but really, they were in violation of some statute.

These situations can actually cause some large financial losses for companies.”

NetDiligence’s 2015 Cyber INSURANCEJOURNAL.COM

Claims Study found that personally identifiable information was the most frequently exposed data, making up 45 percent of claims, last year. The study also found that 2015’s largest legal and regulatory costs resulted from mid-revenue organizations accused of wrongful data collection. The combined legal and regulatory costs for these organizations ranged from $411,000 to more than $6.7 million over the course of the year, according to the study.

Coletti pointed to one example where some California and Massachusetts retail stores found out the hard way in the past several years that asking for customer ZIP codes along with a credit card transaction in those states can lead to class action lawsuits or regulatory involvement.

“There’s a statute in California that has to do with the collection of information at the point of sales,” Coletti said.

“In the past when you would go into a store to purchase something, companies may ask for your ZIP code. It turns out that isn’t allowed under this statute in California, so lots of companies were doing this in violation of the statute and ended up with class action claims. They didn’t even realize it in many cases, because they just wanted that information to know a little more about their customers.”

This example points to the broader issue of information security, which has become more important than ever with trends toward collecting big data — large and complex sets of data used for analytical purposes.

“Some businesses today are storing massive amounts of customer data for no immediate purpose — simply in the hope that they will discover a way to monetize it in the future,” Garrett said.

“But stockpiling petabytes of data creates significant risks to

businesses,” Garrett said.

Indeed, the California Supreme Court decided in February 2011 that the collection of a customer’s ZIP code along with a credit card transaction violates consumer privacy under the Song-Beverly Credit Card Act. Similarly, the Supreme Judicial Court of Massachusetts ruled that state law prohibits retailers from collecting ZIP codes as part of credit card transactions in March 2013.

“When you give somebody what you think is a harmless piece of information, they can do a lot more with it than you expect,” said Nick Economidis, an underwriter at Beazley, during a panel discussion at the 2016 Professional Liability Underwriting Society (PLUS) Cyber Liability Symposium held in New York City.

In fact, the swipe of a credit card combined with a ZIP code and email address can lead a large data broker to get a name, address and other information about a customer, he added.

As technology has grown more complex, protecting information privacy has become increasingly difficult, leading some states to crack down on data collection practices to better define personally identifiable information and leading regulators to dive deeper into the issue.

“What researchers have shown is that separate databases can be used along with algorithms to basically disclose the anonymity of anybody,” said Arturo Perez-Reyes, vice president at HUB International.

Regulatory Landscape

In 2012, the Federal Trade

continued on Page 28

OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 27

NATIONAL | Special Report | Cyber Security continued from page 27 Commission (FTC), the nation’s chief privacy policy and enforcement agency, issued a final report outlining best practices for businesses to protect U.S. consumer privacy and give consumers broader control over the collection and use of personal data. Additionally, the FTC in 2014 issued another report urging U.S. Congress to consider legislation to make data broker practices more

transparent to consumers, offering consumers additional control over personal information collected and shared by data brokers, or companies that collect consumers’ personal information and resell or share it with others.

“The regulators have started looking at what constitutes personally identifiable information in a much broader sense,” said panelist Dominique Shelton, partner at Alston & Bird LLP, at

the 2016 PLUS Cyber Liability Symposium. “They are looking at the fact that a lot of data can be identified later and linked to a specific person, so they are moving away from the concept of aggregated, purely anonymous data.”

Additionally, some state and local governments have moved to better regulate data privacy and security, Garrett said.

“New York is a great example,” he said. “Agencies as

Best Practices for Companies to Avoid Wrongful Collection Claims

Cinthia Motley, Partner, Sedgwick Law

John Coletti, Chief Underwriting Officer, Cyber & Technology, XL Catlin

Arturo Perez-Reyes, Vice President, HUB International.

Only Store Essential Data

Be Transparent

Stay Informed

“You can’t prevent entities from being hacked, and I don’t think that’s what regulators are aiming at. You can, however, reduce the volume of records exposed. I call that being on a data diet. That way, when a breach happens, maybe the records exposed won’t be seven figures - maybe it can be [less].”

Take a Company Wide Approach

“Cyber risks need to have a holistic approach by a company; it’s not just an IT issue.”

“The advice for companies is that yes, you’re going to collect data, but you need to be transparent with the consumer, whether you’re doing it in person or digitally. You need to be transparent in privacy notices and statements about what you’re collecting and what the motives are for collecting it. It’s always better to be overly detailed and explain exactly what you’re doing with that data.”

28 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

“People need to be better informed. This is a growing problem.”

Pay Attention to Privacy Statements

“A lot will boil down to the privacy statement contract between the consumer and the company doing the aggregation. If the company is in any way violating the privacy statement, the FTC and any attorney general can bring a lawsuit under a trade practice claim.”

diverse as the New York Department of Financial Services have recently proposed new cybersecurity regulations.”

The New York State Department of Financial Services (DFS) has proposed cybersecurity regulations for financial services companies that aims to protect New York state’s financial services industry from cyber attacks. The proposed regulation is the first of its kind in the U.S. It requires banks, insurance companies and other financial services institutions regulated by the DFS to maintain a cybersecurity program designed to protect consumers and ensure safety in New York’s financial services industry, according to a DFS press release. The proposal also addresses the issue of company data collection and retention.

While the FTC and state regulators have taken a closer look at this issue recently, laws around data collection still vary by state with no federal standard for compliance.

“The laws around that are kind of a state in progress right now,” said Perez-Reyes.

Garrett added that the patchwork nature of these laws so far has made it difficult for many businesses and underwriters to comply.

“There is no one security standard for companies to build their network, so for an underwriter, there’s no reference point,” said Coletti.

“On the buyer side, it can get frustrating because you can talk to three different underwriters who will all ask different questions because there’s no standardized process for evaluating someone’s cybersecurity.”

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Insurance Industry Challenge

Another source of confusion for the insurance industry regarding data collection can be determining the difference between an unintentional wrongful collection of data claim and a business that has been negligent or malicious, Coletti added.

“This is a tricky coverage area for insurers because you understand from an insurance perspective in some cases, the company feels like it’s doing everything correctly, is being transparent, has read the laws, has done due diligence and has had lawyers review statutes and privacy notices and still gets hit with wrongful collection claims,” he said. “But you have some clients that aren’t doing that and are collecting data without any regard to laws or statutes. The coverage in the market treads that line between wanting to cover innocent insureds, but not wanting to cover those that are collecting data negligently.”

This has led many insurers to exclude wrongful collection of data from their policies, he stated.

“Some carriers say flat out they don’t want to cover wrongful collection because they don’t want to get into a INSURANCEJOURNAL.COM

dispute about whether the insured did this intentionally or negligently,” Coletti said.

This is because increased technological connectivity can impact the exposures both policyholders and insurers face, said Laurie Kamaiko, partner at Sedgwick Law. “Insurance companies have the challenge of being very much on top of their own exposures, but also on top of the exposures presented to them through the lines of insurance they write,” she said.

Evolving Coverage

With this in mind, businesses need to take a close look at their insurance policies to be sure the right coverage is in place.

“I tell clients all the time that it’s not just a question of seeking coverage for cyber events — there are a host of class actions for privacy claims associated with data breaches as well,” Shelton said during the panel discussion.

After companies are hit with class action lawsuits or regulatory investigations, they will sometimes look to their cyber policies for coverage and find a wrongful collection of data exclusion that’s not what they thought it would be, she explained.

Some insurers that initially exclude wrongful collection from their policies will add it back in through an endorsement or negotiation at the time of binding. Because this is a

new product and market for many insurers, as coverages are better understood with advances in technology and increased wrongful collection claims, underwriters are learning to ask the right questions, Coletti added.

“I think the discussions between the underwriters and clients are getting more technical in regards to security and privacy law,” he said.

“That trend will continue, and it has to continue. Evaluating cyber is a difficult underwriting process, and the only way to analyze it is through a detailed discussion or application. It’s a good thing for the industry in general, because this is something that has to be done to effectively mitigate cyber risk.”

Although regulation

around data management has increased recently, businesses need to be aware of the data they’re collecting and what it’s being used for, particularly as technology changes so quickly, Coletti said.

“We live in a dynamic time,” Garrett added. “You have regulators all over the world pushing for increased controls to ensure data privacy and security. On the other hand, you have businesses seeking to monetize new technologies, such as big data analytics. One trend is pushing businesses to store less data, and the other is pushing [them] to store more.

Only time will tell where the equilibrium will be.” Share

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“The Internet of Things (IoT) has connected thousands of devices that were not traditionally connected to the internet: thermostats, smoke alarms, locked doors.

Each of these devices are computers that are accessible from anywhere in the world and feeding significant volumes of data back to a centralized location. I don’t think anyone fully understands yet the extent of the data privacy and security risks that IoT presents.” ­ — David Garrett, president of CISO Advisory & Investigations

OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 29

NATIONAL | Spotlight | Data & Analytics

How Analyzing Workers’ Comp Claims Helps Both Clients and Their Brokers

By Josh Fagin

D

ata analytics on claims (specifically workers’ compensation claims) adds clarity for the client when identifying underlying issues they need to focus their loss control efforts on. This article outlines the main areas that

can add value for your clients.

Analysis of reserves as a function of total claims cost can shed light on how insureds stack up versus their peers.

This analysis can determine whether a client has an exorbitant amount of open reserves on their workers’ compensation claims. Open reserves on claims lead to a higher experience modification, and thus higher workers’ comp costs.

Utilizing claims consultants who speak the claims adjustors’ language is critical to negotiating reserve closures.

Evaluate Medical

It is also important to analyze how many claims fall into the first aid or medical only category. These small claims

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can negatively affect a clients’ experience modification. A solution for these types of claims is a medical triage program. Medical triage is a telephone injury assessment and reporting service designed to effectively deal with injuries that occur to employees on the job.

While more serious injuries can and should be treated at an appropriate medical facility, many less serious injuries can be handled onsite. This type of program can typically filter out 30 percent to 40 percent of claims, so they do not go to the insurance carrier or onto the experience modification calculation. The calls are digitally recorded so potential fraud can be dealt with accordingly. This can provide significant ROI for the client, which the buyer can understand and appreciate.

Taking the analysis a step further, it can provide insight to determine how the clients’ claims are categorized. For

instance, if 30 percent of the clients’ claims are auto accidents, then this should be the area of loss control focus.

Year-over-year analysis of claims categorization trending will also show how the clients’ claims are changing over time and which areas to watch for in the future. If 20 percent of their claims are strains and contusions, yet 40 percent of their total claims cost fall in this category, then there is a disconnect. It would be eye-opening to determine with the client why they have a disproportionate amount of claims costs, versus claims frequency, in order to understand and attack that trend.

Evaluate Experience Mods

It is critical to evaluate and review the clients’ experience modification, so you can determine what underlying claims activity makes it up. We have found many instances where the Workers’ Compensation

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Insurance Rating Bureau of California made an error in calculating clients’ experience modification, and this check will provide a backstop to determine if the calculation is accurate. It is not unusual to find instances where the experience modification is amended by 10 points or more in this investigation, which can translate into many thousands of dollars in workers’ compensation savings.

Each year of claims affects a client for three years on the experience modification calculation. Analyzing the make-up of the experience modification sheds light onto how each year in that three-year period stacks up on adjusted losses versus expected losses. If the most recent year on the experience modification calculation is much worse than average, then you can make the assumption that the experience modificaINSURANCEJOURNAL.COM

tion will be trending upward in future years.

Analytics can determine how each particular claimant affected your experience modification in terms of total points and corresponding cost. For example, you can clearly understand if John Doe slept in this morning and did not get injured,

Data and analytics are becoming very popular in business.

However, the same level of analysis and scrutiny does not seem to be occurring for mid-market insurance clients. your experience modification would be 11 points lower, which translated to $25,000 per year in workers’ compensation cost. Furthermore, each claim

affects a client’s experience modification for three years, so in this case, the total cost of the claim is $75,000.

An experience modification review can determine what the losses would have to be for the client to have an average experience modification of 1.00.

Then it is easy to determine the incremental cost, increase or decrease, that the client has with their experience modification versus what it would be at the unity mod.

Analysis can show what your lowest experience modification can be and what makes up that delta. Most clients are not aware of how low their experience modification can go, which is typically in the 50s or 60s. This gives the clients a target to aim for. It is also valuable to determine what makes up the difference between their current experience modification and the lowest possible

figure. Is it primarily large claims or is it small, frequency issues? Analytics can determine that if a client has 80 points of controllable mod, for instance, that 57 of those points are currently due to large claims and 23 are due to small claims. Knowing this specific data gives the client information on how to adjust their loss control program accordingly.

Big data and analytics are becoming very popular in business. However, the same level of analysis and scrutiny does not seem to be occurring for mid-market insurance clients. Shedding light on these issues can provide significant insight and future cost savings for clients. Share this arti-

cle with a colleague. IJMAG. COM/124GZ Fagin is senior vice president at Heffernan Insurance Brokers. Phone: 650842-5227. Email: joshf@heffins.com.

OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 31

NATIONAL | MyNewMarkets or recovery of casing; instrument logging; well servicing; rig erection; pipeline; spooling; manufacturing; and alternative energy.

Available limits: As needed Carrier: Unable to disclose States: All states Contact: Customer service at 214-206-4900

Lawyers

Market Detail: Jimcor

Apartments and Habitational

Market Detail: Leo Risk

Services Inc. (www. leoriskservices.com) can help with difficult-to-place real estate schedules including apartments, dwellings, student and subsidized housing, highrise, vacant properties and CAT exposed. Coverages available for property and casualty exposures. Submission requirements: ACORD, statement of values, habitational supplemental and five-year currently valued loss runs.

Available limits: Minimum $1 million, maximum $50 million Carrier: Unable to disclose, admitted and nonadmitted available States: Ala., Fla., Ga., La., Miss., N.C., S.C., Tenn., and Texas Contact: Katie Nehls at 727734-0040 or e-mail: knehls@ leoriskservices.com

Excess Comprehensive Personal Liability Market Detail: Pennock

Insurance’s Excess Comprehensive Personal Liability Product (www. pennockins.com) is now available. Many of customers are

seeing great success writing limits such as $500 CSL excess of $500 CSL, and $1 million CSL excess of $1 million CSL, to help meet the insurance needs of those locations needing additional liability coverage.

Coverage features and advantages: Short-term rentals with no restriction on length of stay; limits available up to $5 million with a minimum attachment point of $100,000; and vacant land by itself is acceptable.

Trusts, estates, limited liability corporations, and family partnerships are eligible as named insureds.

Available limits: As needed Carrier: Unable to disclose, nonadmitted States: D.C., Dela., Md., N.J., Pa., and Va. Contact: Edwin Minner at 800662-5182, ext. 1246

Rental Equipment & Party Goods Defender Market Detail: Serving con-

tractor, homeowner, tool, tent and party and general rental companies, the Ascinsure Specialty Risk’s (www. ascinsure.com) Rental Equipment and Party Goods facility has hundreds of insureds nationwide. Ascinsure

32 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

holds the pen for the rental program, which is backed by 25 years of experience in insuring the rental and party industries.

For more information, email newbusiness@ascinsure.com.

Available limits: As needed Carrier: Fireman’s Fund States: All states except Alaska and Hawaii Contact: Ken Helmick at 877372-0517 or e-mail: ken@ ascinsure.com

Energy / Alternative Energy

Market Detail: Southwest Risk

(www.swrisk.com) is positioned to best assist its agency partners to help their clients through U.S. energy growth.

Coverage and form needs vary by territory, and Southwest Risk will address those varying concerns. Whether the client is manufacturing products related to the energy sector or operating as a contractor, Southwest Risk has relationships with the key insurance companies writing this business. Energy business that can be placed include: oil and gas contractors; acidizing, cementing, cleaning, or swabbing; drilling or re-drilling (including directional drilling); installation

Agencies’ (www.jimcor.com) professional liability specialists can handle D&O and E&O risks. D&O protects the officers and directors of a corporation against claims for damages made against them allegedly caused by their negligent acts, errors or omissions while acting in their corporate capacities. Features include coverage available for public, private and nonprofit companies; dedicated professional liability specialists; defense outside the limits available; high limits and excess layers available; in-house binding authority; low minimum premiums; multiple “A” rated or better carriers; and quick turn-around Available limits: As needed Carrier: Unable to disclose States: Conn., Dela., Fla., Mass., Md., N.H., N.J., N.Y., Ohio, Pa., R.I., and W.Va. Contact: Customer service at 201-573-8200

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

Need a Market?

Find it.

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Idea Exchange

The Wedge

Why Agency Owners Must Drive Producer Growth • You must attend class.

You notice the word must. It is synonymous with “driving” a process; they steer their team. College football coaches drive their players to improve.

If attendance at team meetings were optional, how many players would skip it?

If weight lifting was optional, how many players wouldn’t show up?

If studying film was not compulsory, how empty would the film room be?

If daily practice was “come if you want,” would you even have a team?

By Randy Schwantz

A

n agency owner in Alabama wrote me, “How come my producers don’t invest their own money to improve themselves?” He went on to say, “he was self-motivated” and was confused why his producers were not.

As we got deeper into the discussion I asked him, “if you were head coach of the Alabama Crimson Tide football program, would you be asking these questions?” He hesitated for a moment and then said no, probably not.

Super performers are highly motivated and generally do invest in themselves. It would be unusual for you to have a sales team of super performers and that’s why you have to drive growth, because they won’t.

Hard Work Never Killed Anyone

Take this up a notch. In most programs, it’s not just about showing up, it’s about effort.

Nick Saban of Alabama and Urban Meyer of Ohio State are both perennial winners.

Optional is not in their vocabulary. Here’s what they have on most of us. They are certain that they know what works. They believe in their game plan. They believe in effort. They believe that to improve you have to try hard, strain, put in massive effort. So they drive it.

They know their players have to be strong and in shape to compete. The know their players need to study their competition, so they have to watch film, and that will improve their results. They really want their players to hard-wire the playbook in their head, and that happens in practice.

What would happen if you had something you believed in so much that you drove your producers to role-play, practice and build skills? What if you were committed to helping your producers win more accounts, write more new business and grow their income. How hard would you drive your producers?

If you have a house full of account managers, most will leave when you raise the intensity and start driving success. How do I know? I have dozens of clients that have done it. They have reported that it’s the easiest way to get the non-ambitious to quit (you don’t have to pay severance or go through HR). Non-performers actually leave your agency and find a job that fits their personality. Pragmatic owners tell me that’s a good thing, win-win.

Won’t Do It Themselves

Average producers will not take it upon themselves to try harder and get better. If you want them to improve, you have to work it into the system.

Your system needs to include some very introspective and in-depth goal setting.

You have to make them think about how much money they need to earn to fund the kid’s cars, college tuitions and weddings.

Then make them calculate how much more they need to save to fund their own retirement. This is the basis for their moti-

continued on Page 35

We Don’t Like Slackers

If you were head coach of a division one college football team what would be your expectation of all of your players?

I will bet your next paycheck, that any winning head coach has a set of standards and you meet them or hit the road. Here are a few of them: • You must be at all team meetings.

• You must attend all weight lifting sessions.

• You must attend all film watching sessions.

• You must attend daily practice.

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OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Human Resources

Is Training the Key to Unlocking Analytics Talent? five times faster than overall national employment growth.

As analytics becomes non-negotiable, how can organizations meet their growing needs for talent amid today’s increasingly competitive labor market?

Bridging the Growing Analytics Talent Gap

By Jennifer Shorr

A

nalytics and big data are here to stay. Already creating monumental shifts in the business world, today’s analytical advancements are leading an evolution on how people think about information, track data, shop for goods and even play sports.

Within the insurance industry, organizations are beginning to grasp the monumental potential offered by analytics.

Insurers now see analytics as a tool to enhance profitability and gain a competitive edge in today’s increasingly tight market. Analytics is permeating across nearly every area of the insurance organization, from actuarial, claims and underwriting to marketing, sales and human resources. Already, more than one-third of all insurers are investing in analytics and big data.

Unfortunately, as more and more insurers realize the value in leveraging analytics, the demand for high-quality, experienced professionals is rising.

In fact, insurance companies are currently adding analytics positions at a rate more than

Insurers now see analytics as a key part of their business.

In fact, 74 percent of insurance companies report that the use of information and analytics is creating an advantage for their organization. Meanwhile, 82 percent of insurance professionals believe that organizations that do not take

34 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

advantage of these trends will become obsolete and uncompetitive.

Regardless of the program your organization undertakes, creating an internal training strategy is vital to developing your employees’ analytical skills.

As insurance organizations continue to focus on building their analytics acumen, the demand for these skilled professionals is skyrocketing.

Today’s insurers are looking to add more than 15,000 new analytics positions to

their ranks. Unfortunately, an already shallow talent pool is struggling to keep pace with this furious demand. Currently, the industry is set to face a predicted deficit of more than 260,000 analytics and big data professionals.

The race is on to harness the power of analytics and achieve a competitive edge in the marketplace. Alas, the insurance industry is not the only one looking to expand its analytics presence. Faced with the growing talent gap, what solutions do insurance organizations have to meeting their continued demand?

Training as a Talent Solution

Beyond hiring additional talent or looking out of the industry for analytics professionals, insurance organizations should consider implementing internal training programs to develop the analytical acumen of

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their current employees. Many of today’s professionals pinpoint career development and professional advancement as key retention issues, allowing organizations to not only keep their top talent, but also bridge a growing skills gap.

The first step is determining a baseline of current knowledge in order to focus training efforts on areas of weakness.

For example, an organization’s actuarial team may have a much higher understanding of basic analytics compared to the sales team, and thus can start their focus on more advanced analytical skills and topics. In addition, a successful training program will incorporate the four key ways that professionals learn: education, experience; exposure; and environment.

The first is education. This includes traditional learning and development activities that an organization can offer their employees. Beyond the traditional in-person education, the insurance industry has a number of unique training options that allow professionals to participate in courses at their own pace, on their own schedule.

Some of the key course vendors include: the International Risk Management Institute; LIMRA — a worldwide research, learning and development organization focused on the life industry; AHIP — a national association providing health specific training; and The Institutes — a provider of risk management and property and casualty insurance training.

In addition to offering insurance education, The Institutes provides packaged courses for designations and recently introduced a data analytics cerINSURANCEJOURNAL.COM

tification program.

Organizations should look at potential course offerings and determine a selection of applicable options to help their current staff further develop their analytical skills. Organizing course offerings into prerequisite groups — requiring base skill classes before more elective options — will help create a progression to grow knowledge effectively.

Some 74 percent of insurance companies report that the use of information and analytics is creating an advantage for their organization.

experience and skills.

The fourth and final learning style is environment.

Employees should have access to information to help support themselves in their training and their work. This can include intranet resources and support tools. Consider putting together a repository of reliable sources—including association memberships, newsletter subscriptions and LinkedIn groups—that employees can turn to as they work to advance their analytics acumen.

dors. Regardless of the program your organization undertakes, creating an internal training strategy is vital to developing your employees’ analytical skills.

With the talent pool of analytical professionals continuing to dwindle, having internal resources to turn to in your time of need or to help fill a growing gap will be critical to ensuring future success.

Analytical Development

Shorr is assistant vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: jshorr@jacobson online.com.

Encourage employees to take advantage of the many complimentary webinars offered by industry associations and ven-

continued from page 33 The second learning style is experience and focuses on learning on the job. For many organizations this can be incorporated as a phase two in the training evolution, enabling professionals to take the skills they have learned in their formal courses and apply them to their work. Organizations should consider creating opportunities for job shadowing and cross-department work that enables trainees to gain a broad range of experience.

Exposure is the third key learning style and includes interactions and relationships with other people. Insurers should encourage their staff to get involved with professional organizations, join business networks, and take advantage of coaching and mentoring opportunities. In addition, organizations with analytics experts on staff may consider inviting them to serve as guest speakers and present on their

vation, the reason they need to sell more. By the way, most producers need to save $40,000 to $65,000 a year for 20 years to be financially independent. Most of them are underfunding their future by $30,000 annually or more.

Your system needs an outstanding sales process that works to win new business.

Once you commit to one, you need to set-up systems where your producers roleplay and practice. They will tell you they don’t need to practice, but you’d be a fool to listen. What athlete would go to a boot-camp and never practice again.

To drive your system, you can’t spend your life chasing spreadsheets unless you are still living in the ‘80s. Most agency owners have found that off-the-shelf CRM tools never get used. I’ve got too many friends that have wast-

Share this article with a colleague. IJMAG.COM/124QA

ed money on CRMs thinking it would make a big impact, but it didn’t. No one used it.

Growth Equals Wealth

Only you know why you own and manage an insurance agency. If you own an agency to build wealth, you must understand, growth equals wealth. To grow organically, you need a team of motivated and skilled producers. If you want growth, you will have to develop it.

To develop growth, you need a system and you need to drive it. Share this article

with a colleague. IJMAG. COM/124WB Schwantz is founder of The Wedge Group, and developer of the iWin Agency Growth System. He recently published a new book, “Agency Growth Machine: Transform Producer Potential into Agency Growth & Profit.” Phone: 214-446-3209.

Website: www.thewedge.net

OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 35

Idea Exchange

Minding Your Business

When Selling Your Agency Does NOT Make Sense is important to know when it makes sense not to sell, even when an agency owner initially thought they should.

The following are scenarios when it makes sense not to sell the business:

1. Know Your Value

By Catherine Oak and

Do not sell if the buyer is lowballing the value and will not pay a seller what they or their consultant think the business is worth.

Instead, consider an internal sale of the business. The seller can negotiate a loan for themselves and have the key employees or family members pay the owner off over a

Consider an internal sale of the business. The seller can negotiate a loan for themselves and have the key employees or family members pay the owner off over a reasonable time. reasonable time. The owner can then keep some stock and their pulse on the firm, while continuing to pull some money out of the business and build value in their remaining equity.

Rachel Schoeffler

T

he process of selling a business involves an amalgamation of financial, personal and external factors.

Sellers should work with their advisors to create a wish list of what they want.

It is equally important to create a list of what they do not want and other deal breakers. The final deal does not need to be perfect, but should meet all of the sellers’ needs and expectations.

Recently we have had six clients that wanted to sell their business. We worked closely with them throughout the process.

At the end of the process, two of them decided not to sell for good reasons.

Based on these two recent experiences and others we have seen over the years, it 36 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

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Summary

2. Milk the Business

Having an exit strategy is necessary for business owners. The first step is to know the parameters of what would be considered a successful exit as an owner. If it is time to perpetuate the agency and one or more of the scenarios above seem likely, discuss the situation with an advisor. It might be best to NOT sell the business to a third party. Instead, there are usually options that can be done to provide some relief to the owners and perhaps resolve most of their concerns.

Sometimes, the business makes too much money.

We once had a client who was taking home 70 cents of every dollar. That amount of profit was hard for the prospective buyers to consider, despite the historical financial proof.

Buyers would have a hard time replicating that performance. The risk to a buyer would far outweigh what the risk is to the original owner, as they have all of the control.

In this situation it is often best to continue running the agency until there is nothing left. The owners should make more money keeping the business, instead of selling it.

Share this article with a colleague.

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3. Run It Yourself

When there is more than one owner, sometimes the owners choose to sell the whole agency to an outside buyer.

However, one owner might not be ready to sell.

Instead, that owner should consider buying out their partner(s) and run it the way they want to. If needed, some stock or stock options can be sold or given to key employees and family.

It is important to involve the next generation — to allow the remaining owner to transition out when he/she is ready.

4. Sell Only a Portion

Look for a buyer willing to take a minority share of the business.

Sometimes, the owner really needs to pull some of their equity out of the business to diversify their investments. Look for an internal buyer, a new partner, or a friendly competitor to buy into the business.

Keep the majority position, so that business management is also still controlled.

5. The Business Is Not “Sellable”

Once in a while there are times when

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the sellers have tried to sell and cannot, because the agency is not desirable to a third party buyer for a variety of reasons.

Perhaps, the accounts have too much risk in continuing without the owner, the firm is not yet profitable enough, the firm has a reputation for employee turnover or there are no young people to perpetuate the sales efforts.

The owners need to revamp the business if they want to sell. Outside advisors should be brought in to help make the right changes quickly.

6. Combine Forces

Some owners need to sell, but they are not quite ready. A good solution is to merge with an agency that has younger owners for a fresh perspective.

The first owner can usually maintain some ownership and have an equity position.

The second agency owners should protect themselves by having a planned buy-out of their new partner, in case that person “retires in place.”

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California.

Schoeffler is a financial analyst and

marketing assistant. Oak & Assoc. specializes in financial and management consulting for independent insurance agencies, including valuations, mergers, sales and marketing planning, as well as perpetuation planning. Phone:707-935-6565. Email: catoak@gmail.com.

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OCTOBER 24, 2016 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Stakeholder Engagement: An Untapped Opportunity for Sustainable Insurance Growth

By Max Messervy

R

isk, it’s everywhere.

The landscape of risks facing the insurance industry seems to expand daily. Cyber security, uncertainty around natural catastrophes, low interest rates, energy price volatility, shifting regulatory regimes … the list goes on.

Insurers that seek out the perspectives of a range of stakeholders can gain a competitive advantage. Your clients, suppliers, reinsurers, shareholders and nonprofit organization partners all have different views of your company’s operations and strategic outlook. Are you tapping into this potentially rich vein of risk and opportunity information?

Ceres, a nonprofit sustainability advocate, has for the past 25 years helped companies understand their key environmental and social impacts, and helped identify sustainability risks and opportunities through stakeholder engagements.

We convene confidential, collaborative dialogues between companies and others

with a vested interest on topics of material concern. The topics frequently relate to the development of a strong sustainability strategy, evaluation of whether a company is disclosing material sustainability related information, or how a company might identify clean energy investment opportunities, among other topics.

Engagement with insurance companies, regulators and investors in the past decade has focused on sustainability risks and opportunities.

Since 2010, we have published four reports analyzing insurers’ National Association of Insurance Commissioners Climate Risk Disclosure Survey responses, providing insights into how insurers are disclosing climate and sustainability risks.

These reports analyze insurers’ climate risk management practices across governance models, underwriting strategies, investment management and catastrophe modeling.

The latest report, released in October, found that a number of companies disclosed examples of how they reach beyond the walls of their corporations to engage a broader perspective.

For example, German insurer Allianz described its environmental, social and governance (ESG) dialogue process as “regularly engag[ing] NGOs (non-governmental organizations) to create an evidence-based dialogue built on trust and mutual understanding … We can also tap into [NGOs’] expertise when

38 | INSURANCE JOURNAL | NATIONAL OCTOBER 24, 2016

The pervasiveness of mobile devices has changed consumer expectations. formulating ESG positions and guidelines.” Such engagement aids the company’s formulation and validation of policies for addressing strategic ESG risks and opportunities.

Greater climate-related disclosure is not just being sought from the insurance industry. Ceres has worked with Citigroup and The Walt Disney Co. to engage stakeholders on key environmental and social issues, and to disclose how they are incorporating feedback into corporate strategies.

Citigroup disclosed feedback it received from stakeholders on its sustainability reporting and efforts to address conflict minerals in its supply chain.

Disney used stakeholder engagement methodology to review its sustainability strategy. The company disclosed the recommendations it received on topics ranging from measuring the return on investment of sustainability projects to the development of a comprehensive climate change strategy.

Investors may not expect these companies to have solutions to address these challenging issues, but by disclosing stakeholder feedback, the companies show good faith efforts.

Thoughtful stakeholder engagement can help companies see beyond their usual frames of reference. From such dialogues with interested parties, innovative products and services can be launched, value-adding policies and procedures can be developed, and lines of communication on emerging risks can be opened.

Working with stakeholders to establish what constitutes material risks and opportunities can be a powerful input for strategy development.

Understanding who the stakeholders are and being open to their points of view can lead to more resilient and valuable companies.

Messervy is the insurance program manager at Ceres. Phone: 617-2470700, ext. 126.

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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. Š2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

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