Insurance Journal West 2017-04-03

WEST REGION Earthquake Mitigation Tax Incentives Insurance Charity Honors Wells Chief Calif. Workers’ Comp Medical Review

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Contents April 3, 2017 • Vol. 95 No. 7 • West

West W1 2 California Congressmen Introduce Earthquake Mitigation Tax Incentives

W1 2 CALIFORNIA CONGRESSMEN INTRODUCE

EARTHQUAKE MITIGATION TAX INCENTIVES

W2 Pinnacol Issues $50M in Workers’ Comp Dividends to Colorado Employers

National 8 Insurtech Startups Take Note: Traditional Insurers Score Highest Ever Satisfaction Grades 14 Closer Look: Broad Intellectual Property Coverage Presents Challenges in Private D&O

W2 CDI Issues Directive on New Workers’ Comp Law Pertaining to Excluded Employees

15 Underwriting Profits Now Imperative for Medical Liability Insurers: PLUS Report

W4 Insurance Charity Benefits Make-A-Wish, Honors Wells Chief

17 Non-Compete Agreements and Poaching Take Spotlight in Aon – Alliant Lawsuit

W6 California Workers Comp Medical Review Volume Hit a Record in 2016

20 Special Report: Forget Insurtech. What About Us?

Exclusive Young Agent Survey Results

Idea Exchange 25 How to Reduce Workers’ Comp Costs in a K-12 School Climate 27 Unlock the Secret to Retaining Young Professionals 28 Overcoming Roadblocks: A Look at Restrictive Covenants and Obstacles to Moving 32 The Competitive Advantage: The Lost Value Proposition of Independent Agencies

14

BROAD INTELLECTUAL PROPERTY COVERAGE PRESENTS CHALLENGES IN PRIVATE D&O

32 THE LOST VALUE PROPOSITION OF

34 Closing Quote: Brokers Beware of Data Breach Lawsuits Without the Breach

4 | INSURANCE JOURNAL | WEST APRIL 3, 2017

INDEPENDENT AGENCIES

Departments

11 Declarations

11 Figures

12 Business Moves

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Overcoming Obstacles

T

‘You have to know your worth and your value and be willing to fight for that.’

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

Southeast Editor/MyNewMarkets Amy O’Connor aoconnor@insurancejournal.com South Central Editor/ Midwest Editor Stephanie K. Jones sjones@insurancejournal.com West Editor Don Jergler djergler@insurancejournal.com International Editor L.S. Howard lhoward@insurancejournal.com Columnists Chris Burand

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

Contributing Writers

Insurance Markets Manager Jennifer Quinn Broda, David Kristine Honey (619) 584-1100 X132 Coons, William Grace Frost, Jeff khoney@insurancejournal.com Lagos, Ron Lebow, JillAllison Opell, Tony Tatum Social Media Manager Ly Short (619) 890-7735 IJ ACADEMY OF INSURANCE Lshort@insurancejournal.com Director Patrick Wraight Classifieds, Jobs, pwraight@ijacademy.com Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Associate Director Kelly De La Mora (800) 897-9965 X125 Barbara Whiffen kdelamora@insurancejournal.com bwhiffen@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

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

NEW MEDIA

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

his issue of Insurance Journal features exclusive results from the 2017 Young Agents Survey where nearly 600 young agents nationwide shared their views on the industry and their experience as an agent. (see page 20).

Overall, young agents seem happy with their career choice. The survey found that 82.1 percent of young agents consider insurance to be a permanent career choice and 79.5 percent would recommend being an agent to another young person.

They enjoy the freedom and work-life balance that comes with the job of an independent agent. But there is one discouraging hurdle that most young agents must overcome: ageism.

According to the survey, 73.9 percent of young agents feel as though they must work harder to gain the confidence of their clients because of their age.

There were a lot of “no’s” and a lack of trust from prospects and clients early on for 30-year-old Caroline Pintabone, an account executive at Ahart, Frinzi and Smith, an independent insurance agency with offices in Phillipsburg, N.J., and Alexandria, Va. “When I started, I was handed a book of business because a woman at our agency went on maternity leave and ended up not coming back,” Pintabone said, who serves as the chair of the New Jersey Young Agents Committee and as a member of the national Big “I” Young Agents Committee. “When I first took over this book of business, you could hear it in their voice. Their lack of...trust or...they just didn’t know if their account was in the right hands. If someone would ask me about a coverage question or ask me for a quote, they would always say, ‘Well, can you check with the agency owner?’”

Then there is the constant questioning from clients: “How old are you?” Those comments can be discouraging, she said. Only time, experience and knowledge can overcome this obstacle.

Being young and female may even be more challenging.

“There have been times that I was questioned basically because I was a younger female,” said Kelly Townsend, chair of the Independent Insurance Agents of Rhode Island Young Agents Committee and personal lines manager for the Paolino Insurance Agency Inc. But over time “people either learned through interaction that I was FOR QUESTIONS capable and knowledgeable or they didn’t.”

REGARDING SUBSCRIPTIONS: Call: 855-814-9547 Young agents can’t be all things to all Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: people and sometimes it’s best to move on, insurancejournal.com/subscribe Townsend said.

Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Those and other obstacles shouldn’t stop 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 any young professional with a desire to excel per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubin the insurance industry. lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended “You have to know your worth and your valto be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2016 Wells ue and be willing to fight for that,” Townsend Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. said. “But do give insurance a chance. It’s a Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, fantastic industry Circulation Department, PO Box 708, Northbrook, IL 60065-9967 and a great way ARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or Editor-in-Chief to make a living.” kdelamora@wellsmedia.com

DESIGN/WEB

Chief Technology Officer/ Chief Innovation Officer Joshua Carlson jcarlson@insurancejournal.com V.P. of Design Guy Boccia gboccia@insurancejournal.com Senior Web Developer Chris Thompson cthompson@insurancejournal.com Web Developer Jeff Cardrant jcardrant@insurancejournal.com Web Developer Terrance Woest twoest@wellsmedia.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

Andrea Wells

Visit insurancejournal.com/reprints/ for more information.

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National

Insurtech Startups Take Note: Traditional Insurers Score Highest Ever Satisfaction Grades

By Andrew Simpson

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hose uppity insurtech startups might want to take note: About one of every 15 U.S. homeowners insurance policyholders files a claim each year, and these claimants are now giving insurers their highest ever satisfaction ratings.

The J.D. Power 2017 U.S. Property Claims Satisfaction Study gives U.S. home insurers a record score of 859 (on a 1,000-point scale). The industry’s cumulative score stood at 846 in 2016. Five factors are considered when assessing policyholder satisfaction: settlement; first notice of loss; estimation process; service interaction; and repair process.

That was cause to break out the lemonade at the Insurance Information Institute (I.I.I.), the industry’s public relations arm.

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“Insurers are the nation’s economic first responders and, as such, are continually working to improve how they help Americans recover their lives and businesses in the wake of tragedy and catastrophe,” said Sean Kevelighan, president and chief executive officer (CEO) of the I.I.I. He said this year’s J.D. Power survey results are a “clear reflection that the industry’s hard work and dedication are delivering the intended results.”

The satisfaction ratings appear to undermine the position of some startups that are promising to revolutionize what they say is a consumer-unfriendly insurance experience. One startup in particular, on-demand property insurer Lemonade, is counting on riding a wave of discontent revealed by its behavioral scientist, Professor Dan Ariely.

Ariely believes the current insurance

system is “antagonistic” and “annoying” — adjectives he uses to describe it in a promotional video for Lemonade.

“If you tried to create a system to bring out the worst in humans, it would look a lot like the insurance of today,” Ariely said.

“We’ve spent recent years deepening our understanding of honesty and trust, and our conclusion is that insurance is crying out for a makeover. With its unique business model and technology, Lemonade aims to reverse the adversarial dynamics that plague the industry, transforming both the economics and experience of insurance.”

Most other startups are kinder to traditional insurance, but they are also banking on transforming what they see as an industry in need of innovation and transparency.

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Many of the upstarts provide sales and claims service via smartphones rather than via agents or claims adjusters.

Founded in early 2016, Wrisk is an insurtech venture that delivers motor, travel and home insurance directly through smartphones. “The benefit of connecting direct to customers through an app, is that it’s possible to improve the efficiency, accuracy and transparency of insurance,” which reduces costs and makes customers’ lives easier, the company says.

But other J.D Power surveys of auto insurance have shown that customer satisfaction is highest when agents help insureds file claims.

Put in Context

The industry’s latest all-time high claims satisfaction scores are even more impressive given that incurred losses and loss-adjustment expenses for U.S. property/casualty insurers grew by 7.6 percent year-overyear when comparing the first nine months of 2016 to the first nine months of 2015, according to an analysis by Dr. Steven Weisbart, I.I.I.’s chief economist.

Incurred losses reflect the dollar amount of a home insurer’s claim payout, whereas a loss adjustment expense is the sum an insurer pays for investigating and settling claims, including the cost of defending a lawsuit in court.

Moreover, Weisbart noted, catastrophe-related claims through the first nine months of 2016 were already at their highest level since 2012 — the year of Superstorm Sandy. The fourth quarter of 2016 pushed those numbers even higher

after insured claim payouts from October 2016’s Hurricane Matthew.

“Property and casualty insurers have redoubled their efforts to improve the settlement process and finetune their customer interactions, efforts that have been clearly recognized and appreciated by homeowners who experienced significant losses this past year,” J.D. Power’s researchers said.

‘Property and casualty insurers have redoubled their efforts to improve the settlement process and finetune their customer interactions, efforts that have been clearly recognized and appreciated by homeowners who experienced significant losses this past year.’

Those efforts by insurers may be on target. Another behavioral scientist, Josh Wright, who is executive director of Ideas42, told the Insuretech Connect conference last October that the design of insurance systems, such as limiting forms and rules, affects the customer experience. He also shared research showing that a customer’s final experience matters. If the end of an insurance buying or claims

10 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

experience is a good experience, customers are more likely to return.

But before traditional insurers get too cocky, they may wish to check out yet another J.D. Power survey suggesting they may be headed for trouble with younger customers, namely Gen Y customers ages 21 through 38. Members of the Gen Y generation, who were born between 1977 and 1994, are less satisfied with their homeowners insurers than others, J.D. Power found.

Bottom line is that insurance companies, whether traditional or tech-focused, are smart to focus on delivering a great customer experience because they are rewarded in the long-term by both consumers and investors.

A recent analysis by Watermark Consulting said that insurers with a great customer experience far outperform the market and their peers. Using J.D. Power rankings, Watermark found that the home insurance customer experience leaders outperformed the industry, generating a total return that was 42 points higher than the

Dow Jones Property & Casualty Market Index. Meanwhile home insurance laggards trailed behind, posting a total return that was 15 points lower. Over the seven year period from 2009 to 2015, home insurance leaders generated an average annual return which was double that of the laggards.

The 2017 J.D. Power study indicates there is room for carriers to improve, notably in water-related and other complex claims that take a long time to settle and that cause significant lifestyle disruption.

“Insurers that manage to get the settlement process and customer interaction equation right in these types of disruptive and often catastrophic scenarios are those that raise the bar for the industry,” J.D. Power noted.

The study was based on more than 6,600 responses from homeowner’s insurance customers, and was fielded between January and November 2016. Share this

article with a colleague.

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West

2 California Congressmen Introduce Earthquake Mitigation Tax Incentives

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pair of Congressmen from California in late March introduced the Earthquake Mitigation Incentive and Tax Parity Act of 2017 to exclude incentives for residential seismic retrofits from federal taxation.

The act was introduced by Reps. Mike Thompson, D-St. Helena, and Paul Cook, R-Yucca Valley. These earthquake mitigation measures are already tax-free at the state level in California.

The California Earthquake Authority and the Governor’s Office of Emergency Services established the California Residential Mitigation Program to help INSURANCEJOURNAL.COM

residents protect their homes from earthquake damage. Their Earthquake Brace + Bolt program provides homeowners up to $3,000 toward a retrofit, which costs between $3,000 and $5,000 on average.

As a senior member of the Committee on Ways and Means, Thompson introduced the bill to bring federal tax law into step with state policy. Currently, the federal government taxes residents on grants they receive to safeguard their homes from earthquakes.

Thompson’s proposal would eliminate those taxes, giving homeowners greater incentives to take steps to protect their

homes before a disaster.

“The South-Napa earthquake damaged more than 1,500 homes in 2014, making it clear we need to do more to help residents prepare for disasters,” Thompson said in a statement. “These tax incentives will encourage homeowners to make the necessary retrofits to protect their homes — reducing damage from earthquakes, saving lives, and saving the government money in the long run. California has already seen the value of these retrofits, which is why they are exempt from state taxes. It is time for the federal government to follow suit.”

APRIL 3, 2017 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

Pinnacol Issues $50M in Workers’ Comp Dividends to Colorado Employers

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olorado workers’ compensation insurer Pinnacol Assurance is distributing $50 million in dividend checks to its policyholders.

More than 53,000 employers throughout the state — roughly 94.2 percent of the company’s policyholders — will receive a dividend in recognition of maintaining

safe workplaces.

Dividend checks are calculated based on the policyholder’s premium size and performance. The average 2017 dividend check will be $941. Checks were being delivered to employers in March and April.

This is the second consecutive year Pinnacol has issued a general dividend. With the

2017 declaration, Pinnacol has now returned $556 million in total general dividends to Colorado employers.

“This dividend is possible because of our policyholders’

commitment to the safety and well-being of their employees, Pinnacol’s financial stability and strength, and a vibrant Colorado economy,” Phil Kalin, Pinnacol president and CEO, said in a statement.

California City Seeks to Improve Safety

by Scanning License Plates

CDI Issues Directive on New Workers’ Comp Law Pertaining to Excluded Employees

California city plans to scan the license plates of all incoming cars by placing stationary cameras at key intersections in a bid to boost public safety.

The seaside city of Carlsbad will spend $1 million to add cameras at 14 intersections following a spike in property crime, the San Diego UnionTribune reported.

Statistics show that most of those crimes were committed by suspects from other cities, police Capt. Mickey Williams said.

The plan approved last month by the city council has some residents concerned about their privacy rights, with police able to monitor where they travel throughout the city.

“We need to look at this for what it is — mass surveillance,” resident Noel Breen said.

The cameras automatically recognize license plates and check

he California Department of Insurance has notified the Workers’ Compensation Insurance Rating Bureau of its concern that some insurers may be in violation of Assembly Bill 2883.

The law, which went into effect on Jan. 1, excludes an officer or member of the board of directors of a private or quasi-public corporation from the definition of an employee if he or she owns at least 15 percent of the issued and outstanding stock of the corporation and executes a written waiver of his or her rights stating under penalty of perjury that the person is a qualifying officer or director.

Some experts have said that not only does AB 2883 present implementation problems for insurers, it presents an errors and omissions issue for insurance agents and brokers, especially with those entities that today do not purchase a workers’ comp policy because only the owners are involved in the business.

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them against a law enforcement database that includes information about stolen vehicles and missing people.

Any data collected will be deleted after a year unless it’s part of a criminal investigation, Williams said.

Carlsbad — which has about 110,000 residents in San Diego County — isn’t the only Southern California city to use the license plate readers. Many use them on a more limited basis, affixing them to patrol cars.

In nearby Orange County, Laguna Beach also has placed the cameras at key entry points to the city.

Copyright 2017 Associated Press.

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The bill also excludes a general partner of a partnership or a managing member of a Limited Liability Company who executes a written waiver stating under penalty of perjury that the person is a qualifying general partner or managing member. A waiver is effective upon the date of receipt and acceptance by the insurer and remains effective until the individual provides the insurer with a written withdrawal of the waiver.

The CDI indicated in letter to the WCIRB last week that “… the provisions of AB 2883 applied to all in-force policies as of January 1, 2017”, that “… unless a duly executed waiver was received and accepted by the insurer on or before January 1, 2017, any employee that may have otherwise been eligible for an exemption was required to be added to the coverage provided by the insurer” and that “… ‘backdating’ waivers … would constitute an unlawful business practice and a violation of Labor Code section 3352.”

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Insurance Charity Benefits Make-A-Wish, Honors Wells Chief but heartfelt speech that encapsulated the prevailing attitude of the evening. n a room packed with insurance indus The gratitude expressed by Pickett try professionals, an undeniable air of during his opening presentation was gratitude hung over those who were for being in an industry that’s able and doing the giving. willing to give back. The IICF’s Western Speaker after speaker came up and talked division this year awarded $424,260 in to the audience at a charity event about grants from fundraising efforts in 2016. how grateful they were to be in the indusThat marks a record high in grant awards try, and to be able to give back to the comfor the Western division, benefiting 44 munity. nonprofits.

“We’re fortunate to be in this indus Fellow presenter Jon Axel, IICF try,” said Jerry Pickett, CEO of the Liberty Western division chair and senior vice An Insurance Industry Charitable Foundation event Company Insurance Brokers and chair of president of Hub International Insurance in Los Angeles honored as this year’s Golden Horizon the Horizon Award Gala.

Services Inc., said those funds were Award winner Mark Wells, editor, CEO and publisher The annual Insurance Industry Charitable raised through events like the IICF Week of Wells Media Group Inc., the parent company of Insurance Journal and several other industry publicaFoundation gala in late March drew hunof Giving in October 2016. tions. Wells has directed his company to donate more dreds from the industry to raise funds and “This year we plan on hosting events than $1.2 million over the past 10 years to insurance-recelebrate the spirit of philanthropy. in every hub in our Western division,” he lated charities. Photos by Danielle Klebanow This year’s IICF event was held at the said. There are six IICF hubs in California, Natural History Museum in Los Angeles. and chapters in Arizona, Colorado and omizes the heart of this award,” Pickett said.

It featured nonprofit Make-A-Wish, Washington.

Wells, who serves on a number of which grants the wishes of children with Proceeds from the gala helped raise boards, including the board of the National life-threatening medical conditions. $218,000 to benefit the IICF Community Insurance Industry Council for City of It also honored this year’s Golden Horizon Grants Program, $20,000 of which is earHope, contributes regularly to the Matthew Award winner Mark Wells, editor, CEO and marked for Make-A-Wish Los Angeles, Wells ’88 Memorial Fund at Flintridge Prep, publisher of Wells Media Group Inc., the according to Melissa-Anne Duncan. which he established in 2002 to honor his parent company of Insurance Journal and Wish Kid Ambassador Theo Strum and late son. several other industry publications. his mother, Heidi Levine, spoke at the event His role as head of Wells Media has him Among the many reasons cited for giving to thank the audience for supporting the overseeing the operations of Insurance him the prestigious award was that Wells charity and to tell their story.

Journal, Claims Journal, MyNewMarkets, has directed his company to donate more At age 10 Strum was diagnosed with Insurance Journal’s Academy of Insurance than $1.2 million over the past 10 years to enthesitis related polyarticular juvenile and Carrier Management. insurance-related charities. rheumatoid arthritis. He also has been diag Throughout the day that Wells was noti Wells closed the ceremony with a brief nosed with psoriatic arthritis and fibromyfied about the award he tried to digest the algia since his first diagnosis. Now age 15, news, until hours later he had an epiphany. it’s a struggle for him to go out and play “That night I was lying in bed … and I realand do the normal things that kids his ized this isn’t about me, it’s about you,” age do, he said.

Wells said.

The 10th grader’s wish was to go to Wells illustrated his point using the aforeTokyo Disneyland and Tokyo Disney Sea. mentioned annual charity issue, which he The charity helped realize that dream in said gets far too many tales of agency and June 2016. carrier good deeds to put in one magazine.

Pickett’s introduction of the award The issue often spans roughly 40 pages. recipient noted Wells Media’s long-term “We could fill three or four issues with all commitment to insurance-related charof your activities,” Wells said.

The IICF raised money for Make-A-Wish. Wish Kid ities, and that the company donates 10 He ended his acceptance with more gratiAmbassador Theo Strum and his mother, Heidi Levine accepted a check on behalf of the foundation. Jerry percent of the proceeds from its annual tude.

Pickett, CEO, The Liberty Insurance Co. and chair of charity issue each year.

“I wanted to say thank you for what the Horizon Award Gala is at far left. Neal Aton, CEO of “This year’s recipient, Mark Wells, epityou’ve done,” Wells said. “Keep doing it.”

Make-A-Wish Los Angeles is on the far right.

By Don Jergler

I

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California Workers Comp Medical Review Volume Hit a Record in 2016

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he California workers’ compensation independent medical review process used to resolve medical disputes found that in 2016 IMR physicians once again upheld about 90 percent of utilization review (UR) physician’s modifications or denials of treatment, yet IMR volume climbed 6.5 percent last year, a new report shows.

The California Workers’ Compensation Institute analysis is based on a review of data from 477,045 IMR decision letters issued in 2014, 2015, and 2016 in response to applications submitted to the state after a UR physician modified or denied a requested medical service.

State lawmakers who included IMR in the 2012 workers’ comp reforms expected the process would reduce workers’ comp treatment disputes once doctors, attorneys and other participants came to understand which services could be approved because they meet evidence-based medicine standards.

Three years in, however, IMR volume is at a record high, as the Division of Workers’

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Compensation reports there were 10,477 more cases in 2016 than in 2015, according to the CWCI report.

The 2016 IMR outcomes data show that IMR physicians upheld the UR doctor’s modification or denial of a requested service 91.2 percent of the time, which was up from an 88.4 percent uphold rate in 2015 and matched the rate noted in 2014, the report shows.

The mix of services reviewed by IMR physicians in 2016 showed little change from the two prior years, as prescription drug requests (28.5 percent of which were for opioids) again accounted for nearly half of all IMRs, with UR modifications or denials of pharmaceutical requests upheld 92.5 percent of the time.

Notably, requests for compounded drugs did represent a declining share of the 2016

prescription drug IMRs, as they fell from 8.0 percent of the 2015 determinations to 6.2 percent last year, which may have to do with their consistently low IMR overturn rate, the report shows.

The CWCI report shows that requests for physical therapy, injections and durable medical equipment together represented about 24 percent of the 2016 IMRs, while no other medical service category accounted for more than 5 percent of the disputed requests.

Among the medical service categories, uphold rates in 2016 ranged from 78.9 percent for evaluation and management services (primarily referrals for consultations) to 93.6 percent for acupuncture, according to the report.

As in the prior 2 years, the analysis found that most of the disputed medical services that went through IMR in 2016 were requested by a small number of physicians. The top 10 percent of physicians named in the 2016 IMR decision letters accounted for 85 percent of the disputed service requests, while the top 1 percent accounted for 44 percent. More than 32.8 percent of the IMR decision letters were addressed to Los Angeles County recipients even though the region only accounted for 23.6 percent of all workers’ comp medical services in the state, the report shows.

The CWCI report also shows that IMR volume was disproportionately high in the Bay Area, which accounted for 20.1 percent of the IMR letters vs. 15 percent of the medical services, while less populated regions of the state had a disproportionately small share of the IMRs, as did the Inland Empire, Orange County and San Diego.

A complete analysis of the latest IMR results can be downloaded by institute members and subscribers at www.cwci. org, while others can purchase a copy for $24 at www.cwci.org/store.

3/24/17 4:52 PM

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Figures

921

The number of wildfire victims who lost their homes in Tennessee that have been issued checks by Dolly Parton’s My People Fund, established after the deadly fires that swept through the state in November.

The fund reportedly received more than 80,000 donations in December and January.

$1 BILLION

The amount the Ohio Bureau of Workers’ Compensation wants to return to the state’s 200,000 private and public employers. It amounts to two-thirds of the premiums that employers paid in the policy year that ended last June. If approved by the BWC’s board, checks could be issued in July. The bureau says the proposal is a result of better-than-projected investment returns and strong financial management.

$27 MILLION

60

The percentage by which collisions between trains and vehicles at Central Texas railroad crossings have fallen since the 1980s. The decline is attributed to the installation over the years of safety measures such as medians and gates at crossings. The drop in such collisions in Bastrop, Hays, Travis and Williamson counties came over the same period the region experienced explosive growth that included far more vehicles on the road.

INSURANCEJOURNAL.COM

The amount a U.S. judge has given final approval for in a class-action settlement with Lyft Inc. The settlement ends a legal case that challenged the independent contractor status of the ridesharing service’s drivers.

$900,000

The estimated total sum of payouts for 30 fires set in an insurance fraud scheme in which Virginia prosecutors arrested six people. Federal prosecutors say the defendants over the course of 16 years set fire to homes, trailers, mobile homes and cars they bought at auction or in foreclosure in order to collect insurance proceeds.

The payouts for each fire ranged from $1,000 to $300,000.

Declarations A Costly Disadvantage

“Consumer protection laws need to keep pace with changes in the marketplace. Data mining and information sharing by insurance companies has put consumers at a costly disadvantage that needs to be remedied. State regulators and lawmakers don’t have to reinvent the wheel to fix this problem. A number of states have it right.

Others can easily follow.”

— Amy Bach, executive director at United Policyholders, stat-

ed in a press release announcing a new report by the Rutgers Center for Risk and Responsibility at Rutgers Law School in Camden, N.J., in cooperation with United Policyholders. The report offers recommendations to state lawmakers in terms of how homeowners insurance claims are addressed by insurance companies following a loss.

Airbnb Battle

“The zoning code of the city of Miami is very clear — any commercial intrusion in the residential, single-family homes is illegal and code compliance will go after those residents.”

— Miami Mayor Tomas Regalado, who is currently battling with

home-sharing platforms like Airbnb over regulations prohibiting rentals of single-family homes in the city’s residential areas.

The mayor is pushing for increased regulations and pledged to crackdown on short-term rentals.

Urban Rents

“Soaring rents and housing costs are driving people into places like the Ghost Ship.”

— Edwin Bernbaun, who’s 34-year-old son, Jonathan, died

in the Ghost Ship warehouse fire in Oakland, is one of several family members of victims calling for zoning law reforms and financial support of artists driven to live and work in dangerous buildings because of high urban rents.

Prepare for Spring Flooding

“If you’re in northern North Dakota, or in the Snake River basin in Idaho, prepare for moderate to major flooding this spring.”

— Tom Graziano, Ph.D., director of the National Oceanic

and Atmospheric Administration’s (NOAA's) Office of Water Prediction. Northern North Dakota — the Souris River, Devils Lake and the northernmost reaches of the Red River — has the greatest risk of major flooding this spring, according to NOAA’s Spring Outlook.

Unsupported Losses

“We have a product whose pricing hasn’t been able to support the losses.”

— Ed Schreiber, Houston region president for Bancorp South

GEM Insurance Services, which sells federal flood policies, comments on the expectation that Houston-area homeowners are likely to see a hike in flood insurance policies this year.

The U.S. Government Accountability Office noted in a recent report that the federal initiative “offers rates that do not fully reflect the risk of flooding.” Harris County alone has 9,700 “repetitive loss” properties, or homes for which two or more flood insurance claims of more than $1,000 have been filed within 10 years.

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 11

NATIONAL | Business Moves

KKR, Canadian Pension Fund, USI Insurance Services, Carolina First Associates

Private equity firm KKR and Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) have agreed to buy USI Insurance Services from Onex Corp. in a $4.3 billion deal, including debt.

The deal is the latest in a string of mergers in the insurance market, which has not grown quickly enough to support the smaller brokerages.

Valhalla, N.Y.-based USI had net debt of about $1.82 billion as of Dec. 31 and generated earnings before interest, taxes, depreciation and amortization of $353 million in 2016.

Canadian private equity firm Onex bought USI in December 2012 for $2.3 billion from Goldman Sachs Group Inc.’s private equity arm, funding $702 million of that through equity, and borrowing the rest with debt placed on the company.

The biggest deal last year in the insurance brokerage sector was the merger of Willis Group Holdings and Towers Watson,

which created Willis Towers Watson Plc, a company with a $17 billion market capitalization.

In November 2016, Greg Williams, the chief executive of Acrisure LLC, an insurance brokerage that was controlled by private equity firm Genstar Capital, completed a $2.9 billion management buyout of the company.

USI has been active in buying small regional rivals. It has been seeking to beef up USI One Advantage, an interactive platform that helps the company share information with sales consultants sitting in offices around the United States.

The deal is expected to close by the end of the second quarter 2017.

New York-based KKR managed $129.6 billion as of the end of December, while CDPQ’s net assets under management totaled $270.7 billion.

In a separate deal, USI acquired Carolina First Associates LLC, an employee benefits insurance advisor located in Hickory, N.C. This acquisition extends

12 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

USI’s presence as a middle market insurance brokerage and consulting firm in the Southeast.

Carolina First Associates and its employees will remain at the current Hickory location following the acquisition.

Terms of the transaction were not disclosed.

“Our depth of experience in the ever-changing era of healthcare reform has helped us to understand and overcome the high costs and limited options faced by most businesses,” said Samuel E. Rhodes, principal and owner of Carolina First Associates. “With this acquisition, our clients will continue to enjoy this high touch, specialized customer care, but now they can tap into USI’s expanded suite of employee benefits, retirement consulting and personal risk solutions.”

World Insurance Associates, Coverage Administrators

World Insurance Associates LLC has acquired Coverage Administrators Inc. of New York.

World Insurance Associates is an independent insurance agency headquartered in Tinton Falls, N.J. It offers extensive, cost-effective personal and business insurance solutions in 43 states. The company specializes in group benefits and insurance for transportation companies, the hospitality industry, coastal properties, high-net-worth individuals and general commercial clients.

Coverage Administrators Inc. has been offering risk management solutions as an independent insurance brokerage since 1997. As a family-owned

firm, it works with businesses and individuals to develop personalized and comprehensive strategies and plans for clients.

Hub, BCI Group, Plus Point Services

Chicago-based global insurance brokerage Hub International Ltd. (Hub) has acquired the assets of BCI Group Inc. (BCI) and its subsidiary, Plus Point Services Inc. (Plus Point). Both are based in Portland, Ore. Terms of the acquisition were not disclosed.

BCI and Plus Point specialize in employee benefits, retirement benefits, life insurance and business consulting.

Robert (Bob) Coen, CEO of BCI, will join Hub Northwest and report to Tim Kennedy, executive vice president, Employee Benefits, Hub Northwest.

York Risk Services Group, Northeast Association Management

York Risk Services Group has acquired the stock of Latham, N.Y.-based Northeast Association Management Inc. (NEAMI).

York is a Parsippany, N.J.based provider of claims management, managed care, specialized loss adjusting, alternative risk programs, pool administration and other insurance services. York Pooling, a division of York, provides pool management, underwriting, financial management, litigation and claims management, actuarial, and risk control services to public entity pools across the U.S. .

NEAMI, a pool and association manager, provides a range of services including operations INSURANCEJOURNAL.COM

management, information technology, financial management and strategic planning to the largest workers’ compensation trust for public entities in New York. As the pool’s administrator for more than 20 years, NEAMI has helped build a program that saves millions of dollars annually for the trust’s public entity members, which consist of municipalities, counties, school districts and special districts across the state.

Acentria Insurance, Walker Insurance

Acentria Insurance has finalized its merger with Walker Insurance & Financial Services, Inc., located in Orlando, Fla. Walker Insurance has specialized in personal and business insurance for local residents for more than 29 years and will continue to do so with the same team members. It will continue to operate out of its existing location and will slowly transition under the Acentria Insurance name.

Acentria Insurance is a full-service independent insurance agency that works with several national and regional carriers. The company offers protection for both individuals and businesses. While maintaining a corporate office in Destin, Fla., Acentria has more than 20 offices across the Florida and the Southeast.

Keenan & Associates, AssuredPartners

Keenan & Associates, a Torrance, Calif.-based insurance consulting and brokerage firm, has entered into an agreement to join Lake Mary, Fla.-based brokerage AssuredPartners Inc. Following the agreement, INSURANCEJOURNAL.COM

Keenan’s employees will continue operations under the current leadership of president and CEO Sean Smith. Smith and his current management team will continue to direct Keenan’s operations in its nine offices throughout California, and Smith will be joining AssuredPartners’ board of directors.

Keenan will also continue its focus on the public entity and healthcare markets, and will provide additional distribution for AssuredPartners in California.

The closing of the transaction is subject to customary closing conditions and regulatory approval. It is expected to be finalized in late March or early April 2017.

Avatar Partners, Elements Property Insurance Holdings

Avatar Partners LP, the parent company of Tampa, Fla.-based Avatar Property & Casualty Insurance Company (Avatar), has agreed to acquire Tallahassee, Fla.-based Elements Property Insurance Holdings LLC and its wholly owned subsidiaries, including Elements Property Insurance Company (EPIC).

The acquisition will expand Avatar’s scale and presence in the Florida residential property insurance market. The transaction is subject to regulatory approval and other customary closing conditions.

The transaction allows Avatar to expand the reach of its homeowners’ insurance products through EPIC’s distribution channels in Florida.

Avatar will acquire approximately $65 million of Florida residential insurance in-force premiums and access to more

than 500 Florida independent insurance agents.

Avatar Property & Casualty Insurance Company has provided repairs and solutions to policyholders for nearly a decade. It underwrites homeowners’ insurance, condo insurance, manufactured home insurance and commercial building insurance. The Avatar team also manages a fully integrated insurance company including sales, underwriting, customer service, claims and repairs.

Established in 2013, Elements Property Insurance Holdings LLC is an insurance holding company. EPIC writes residential property insurance in Florida through a network of more than 500 agents.

Rudd & Diamond, P.A. and Radey Law Firm are acting as legal advisor to Avatar. GC Securities and Barnett, Bolt, Kirkwood, Long & Koche are EPIC’s exclusive financial advisor and legal counsel.

Lighthouse Property, Prepared Holdings

Lighthouse Property Insurance Corp. Chairman and President Patrick L. White, has acquired an 89 percent ownership stake in Prepared Holdings, LLC and its wholly owned subsidiaries including Prepared Insurance Co. The Florida Office of Insurance Regulation has authorized the change in ownership, and the deal was consummated on March 10, 2017.

White now has controlling interest of Prepared and plans to enhance financial stability to support overall company growth, the company said i.

Prepared’s management team will remain in place and

maintain its ownership interest. White will assume the position of chairman and CEO. Eric Gobble will continue as president and chief risk officer.

Prepared writes approximately $60 million of Florida residential insurance premium through a network of more than 500 independent insurance agents. Prepared Holdings is the parent company of a consolidated group of companies writing personal homeowners’ lines of business in Florida and Louisiana.

The Hilb Group, American Truck Insurance Exchange

The Hilb Group LLC (THG) has acquired Manasquan, N.J.-based American Truck Insurance Exchange LLC (ATIE). The transaction became effective March 1, 2017.

THG is a Richmond, Va.headquartered middle-market insurance agency. ATIE is a property and casualty insurance agency that specializes in the trucking industry.

All of ATIE’s employees along with the managing partners, Rich Minerva and Ryan Proud, are joining THG under its existing name and will continue to operate out of its office in Manasquan, N.J. “With over 40 years in the insurance industry, Rich, Ryan and their team possess considerable experience in trucking insurance,” said Robert J. Hilb, founder and CEO of THG. “Not only is ATIE’s insight beneficial to our team, but the addition of their agency will expand our already substantial transportation operations in New Jersey.”

Combining forces will also allow ATIE to expand services for clients and establish new opportunities for associates.

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 13

NATIONAL | Closer Look | Directors & Officers

Broad Intellectual Property Coverage Presents Challenges in Private D&O

By Elizabeth Blosfield

P

hysical property damage due to natural disasters, weather-related or man-made incidents can be relatively straightforward to assess, but understanding how a different form of property causes damage can be a little more ambiguous, according to a group of panelists at the recent Professional Liability Underwriting Society’s 2017 Directors and Officers (D&O) Symposium in New York.

Intellectual property claims are some of the highest severity claims seen in the private D&O space, but understanding insurance coverage in this area can be a challenge, according to the panelists, who discussed exposures in the private sector and emerging trends in D&O. “Intellectual property coverage is really broad, and that’s always a challenge for us as brokers trying to sell something that doesn’t say, ‘When the building burns down, it’s covered,’” said David Lewison,

14 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

national financial services practice co-leader at AmWINS Brokerage Group.

This is because intellectual property claims can arise out of a multitude of situations, panelists said.

“The biggest dollar amount for us that I see still revolves around claims involving intellectual property — or ‘You stole my people; you stole my stuff,’ claims, as one of my colleagues calls them,” said panelist Mark Kohler, second vice president at Travelers Bond & Specialty

Insurance. “We’re seeing claims arising out of business contracts gone awry. Claims can arise when one competing insurer hires someone, and the person brings their contacts with them. So, the old employer sues the new employer saying those contacts and trade secrets may cause an unfair advantage in the marketplace.”

Another area of intellectual property that can be challenging from an underwriting standpoint because of its broad scope is false advertising, according to panelist Bertrand INSURANCEJOURNAL.COM

Spunberg, the executive risks practice leader at Hiscox.

“Those consumer-action type claims involve the entire distribution chain from the manufacturer to the retailer,” he said. “To underwrite them is very complicated.”

Spunberg gave an example of one ex-seafood manufacturer that was found to be selling 5.5 ounce tuna containers instead of the six ounces it advertised.

“Everybody got dragged into it — the manufacturer, distributer and retailer,” he said. “How to start evaluating that exposure is very challenging.”

What can make it even more difficult is how intellectual property claims are covered by insurance, panelists added.

“If it’s an allegation of any wrongful act, it’s probably covered unless it’s excluded,” said Lewison. “Policies don’t always address it, and sometimes they are deliberately ambiguous on certain things.”

Panelist Erin McGinn, vice president and claims manager for the Private Commercial Claims Unit of XL Professional Insurance, agreed with Lewison’s perspective. “There are too many holes,” she said.

“Too many gray areas.”

High Costs

That said, litigation costs of defending an intellectual property claim can add up quickly.

“Given that there are no physical assets, intellectual property is less defined in terms of value, so the value can be elevated,” Will Grein, senior vice president of the Private/Notfor-Profit Management Liability Division at Allied World.

“Intellectual property litigation routinely costs between a few hundred thousand dollars INSURANCEJOURNAL.COM

and several million dollars in costs and attorney’s fees in addition to any damages awarded.”

McGinn said one big driver of the severity of intellectual property claims is fees. This is

‘An intellectual property claim is very hard because it’s an idea, so it’s difficult to prove that someone has or hasn’t had the same idea as someone else.’ because the more time it takes to defend a matter means higher fees for the insured.

“There are three themes I see — embedded, emboldened, aggressive plaintiffs, overly optimistic defense counsels and personal vendettas,” she said. “Those three things will drive fees and severity of claims.”

The best way to avoid high severity intellectual property claims, Grein said, is to mitigate risk from the outset.

Directors and officers should ask lots of questions of incoming employees and work with counsel to make sure any new hires are not breaching prior non-compete agreements or bringing over any intellectual capital that belongs to their previous firm, he stated. It is also important to confirm whether employees have signed non-compete agreements and ensure the stipulations in those agreements are appropriate given the industry

they operate in.

“Most policies exclude coverage for the entity and only provide coverage for individuals,” he said.

“Standalone intellectual prop-

erty coverage exists in the market but is very specialized with large retentions and premiums.”

He encourages insureds to seek advice from their broker, who can assess the risk and determine whether their policy has additional exclusionary language relative to intellectual property.

It is equally important to vet new ideas posed by anyone within the company, said Tim Finch, commercial D&O underwriter at ArgoGlobal.

“An intellectual property claim is very hard because it’s an idea, so it’s difficult to prove that someone has or hasn’t had the same idea as someone else,” he said.

Finch said he worked with one company in which new ideas were first sent to a legal team for approval.

“What this company did was take the person who had the idea out of the loop until the lawyers and the information technology (IT) team had looked at the idea quite deeply and checked that it hadn’t been done already,” he said. “That separation of someone who had the idea from someone who deals with the legal side of it seems to be a very good practice.”

Role of Carriers

Insurance carriers can work to mitigate intellectual property claims for insureds on the frontend, which can also help set carriers apart in a competitive environment.

“It is a competitive environment, and everybody is after the same thing,” Spunberg said. “You have to think about how to help your clients by being more than an insurance carrier. It’s great to have a carrier that pays your claim, but not having a claim is better. The disruption generated by litigation is tremendous, and helping insureds not have losses to begin with is important.”

Spunberg said the way different carriers approach this strategy will determine how successful they are in today’s environment.

“How do you make sure you set yourself up to identify flags that are red enough?” he said.

Having a good relationship and open dialogue between the carrier and the insured is a good place to start, particularly because private companies tend to be less transparent than public companies, Lewison said.

“It’s important to have a good relationship,” he said.

“There can be other factors that come into play outside of what the contract says, so an open dialogue is important.

You have to say, ‘It is vague and not always abundantly clear, so let’s make sure we do the right thing.’” Share this

article with a colleague.

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APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | News & Markets

Underwriting Profits Now Imperative for Medical Liability Insurers: PLUS Report

By Joseph S. Harrington

F

or all the changes in healthcare in the past 10 years, the principal challenges facing medical professional liability (MPL) insurance remain much the same as they did during the crisis in the mid2000s: a high level of capital with poor investment returns and shrinking premium.

The roughly $30 billion in capital held by the MPL industry serves as a cushion against systemic losses, but also as a barrier against a hardening of the market needed to sustain underwriting discipline, said Jerry Theodorou, vice president of Conning, the insurance research and asset management firm.

Theodorou’s comments came in a presentation at the 2017 Medical Professional Liability Symposium conducted by the Professional Liability Underwriting Society (PLUS).

Reporting on the state of the industry, Theodorou said that MPL’s fixed expenses, premium decreases, and a recent uptick in accident-year loss ratios are “eroding MPL’s distinction as a low-expense, low-combined ratio line of business.”

Compounding the problem, he added, is that “MPL book [investment] yields have been down, down, down” in the low interest rate environment.

For years, MPL carriers have not been able to rely on investment returns to make up for underwriting losses. In terms of combined ratios, “95 is the new 105,” Theodorou said, indicating that underwriting profits are now imperative.

He said that Conning’s analysis of 2016 rate filings still noted substantial rate decreases.

This is a function of the continuing soft market, but even more rate increases, although the increases tended to be smaller than the decreases.

16 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

‘Rate Erosion’

That may not reveal the whole story of MPL pricing, however. According to Theodorou there is still “rate erosion” when MPL carriers expand coverage without changing their rates.

One example is adding coverage without adding rate.

“Some companies are adding coverages and not fully recognizing the exposures in their pricing. When you throw in additional terms and conditions [for adding coverage], there is rate erosion,” he said.

Rate erosion is compounded by the continued rapid consolidation of the healthcare sector, as doctors, hospitals, and clinics combine into large healthcare networks.

“If a hospital or facility doubles in size, you’re not going to be able to double your premium,” said Carolyn Toomey, senior vice president with OneBeacon.

“A risk may not have the self-insured retentions and aggregate limits to reflect its size,” Toomey said, adding that “some of our worst accounts [from a loss perspective] expand most quickly.”

Panelists agreed that there can often be too much focus on negotiating a merger and not enough focus on implementing it.

Toomey shared the anecdote that, following one merger, employees of an acquired facility could not get into work because their name badges no longer allowed them access.

More fundamentally, Toomey said, patients expect that all the facilities in a network have knowledge of or access to their medical histo-

ry, and may not think it necessary to inform practitioners of their past treatment, medications, and other matters relevant to their care.

Apparent Agency

According to Theodorou, confusion over connections between practitioners and facilities is contributing to a growth in insurance claims, citing what is called apparent agency. That concept, promoted by some plaintiffs’ attorneys, holds that a practitioner who works at a facility as an independent contractor, and not for the facility as an employee, can nonetheless be regarded as an agent for the facility. The facility would therefore share in liability for the acts of the health practitioner.

At a time when surveys indicate low morale among physicians, managing healthcare professionals to protect patient safety is a critical job, said Margaret Marchak, senior vice president and chief legal officer for Hartford HealthCare Corp., a healthcare network.

Networks have the unpleasant task, on occasion, of putting a physician “in an area where he or she can practice safely,” she said. “If messaged in an engaging, sympathetic way, you can bring people around to it.” Share this arti-

cle with a colleague.

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Harrington is a Chicago-area business writer and communications specialist.

From 1994 to 2016, he served as director of corporate communications for the American Association of Insurance Services (AAIS).

INSURANCEJOURNAL.COM

News & Markets | NATIONAL Terese M. Connolly, a partner in the Chicago office of Culhane Meadows PLLC, views the order to move the case to Illinois as a bad sign for Alliant.

“That’s not going to bode well for the defendants.”

Alliant and Aon both declined to comment for this story.

Case History

Non-Compete Agreements and Poaching Take Spotlight in Aon - Alliant Lawsuit

By Don Jergler

A

legal battle between two insurance brokerages over whether a former employee violated noncompete agreements and poached numerous employees is not over yet, but the brokerage bringing the charges has scored key early victories.

The lawsuit brought by U.K.based Aon plc accuses defendants Newport, Calif.-based Alliant Insurance Services Inc. and executive Michael Heffernan, a former Aon employee, of staging “a raid” last year and allegedly taking more than two dozen Aon employees and closely held information on Aon clients.

Aon’s suit seeks injunctive relief and damages arising out of Heffernan’s alleged breaches of restrictive covenants contained in agreements between Heffernan and Aon; statutory and common law duties; and Alliant’s alleged aiding and INSURANCEJOURNAL.COM

abetting of those breaches.

The case is still in the early stages, but Alliant has been dealt two blows that several legal experts say give Aon a definitive edge.

First, Aon won a temporary restraining order last year.

Then, last month the court ruled that the case will be heard in Illinois, rather than in California as Alliant wanted, because that’s what Heffernan agreed to in a noncompete agreement he entered into while employed by Aon. Taking the case out of California against Alliant’s wishes and placing it in Illinois was a blow to Alliant’s defense, according to Kerry Fields, professor of clinical finance and business economics at the Marshall School of Business at the University of Southern California.

“The laws of more than 30 states enforce covenants not to compete against employees,”

Fields said. “Illinois is a state that will enforce these covenants.”

California would likely have not done so, according to Lisa Von Eschen, partner with Lamb and Kawaskami LLP in Los Angeles. “That’s a big win for Aon,” she said. “California is notoriously the worst place to try and enforce any sort of noncompete.”

The agreement with Heffernan prevented him from contacting clients he worked with at Aon for two years and from contacting any prospective clients for six months after he left.

“Both of those are ways to be broad to try and be enforceable in California,” Von Eschen said.

“In California, there is such a strong public policy in favor of free-market competition.”

Attorneys for Alliant and Heffernan likely knew that, and thus filed a motion to have the employment agreements ruled unenforceable under California law; they actually filed that motion before Aon filed its suit.

“If they had succeeded, they would be in a lot better shape to fight these claims and have these agreements held unenforceable,” Von Eschen said.

Heffernan was an employee and executive at Aon from March 2000 through January 26, 2016. At the time he resigned, Heffernan was executive vice president and regional managing director of Aon’s construction services group. He also was head of Aon’s San Jose office, according to the lawsuit.

On the day of Heffernan’s resignation, according to the lawsuit, Alliant “raided Aon’s officers, employees, and clients by orchestrating a mass exodus of Heffernan and 26 other Aon employees from Aon’s San Jose office.”

Alliant appointed Heffernan executive vice president in its San Jose office the same day.

According to the suit, prior to Jan. 26, 2016, Alliant did not have an office in San Jose, but following the exodus, Heffernan and most of the 26 employees joined the newlycreated San Jose office.

On the day he left Aon to join Alliant, Heffernan filed the preemptive action in California seeking a declaration that the restrictive covenants he signed with Aon were unenforceable under California law. The agreements with Aon included restricted stock unit agreements, according to the suit.

“Pursuant to these agreements, Heffernan agreed to be

continued on page 18

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 17

NATIONAL | News & Markets continued from page 17

bound by, among other things, restrictions from competing with Aon, soliciting Aon clients or employees to leave Aon or join an Aon competitor, and improperly taking or using Aon confidential or trade secret information,” the suit states.

“Heffernan entered into these agreements in consideration for, among other things, substantial awards of cash or stock.”

Heffernan and Alliant employees have since solicited Aon clients to join Alliant, according to the suit. Aon claims it possesses an email solicitation sent by Heffernan to an Aon client. An attorney for Heffernan did not reply to requests for comment.

According to the suit, Alliant has done this sort of thing before. In 2011, Alliant and Peter Arkley, another former Aon executive, allegedly led a prior raid on Aon’s clients and employees. Aon filed an action in a New York court seeking to enforce the restrictive covenants in Arkley’s employment agreement, and Arkley and Alliant sought to dismiss the action on grounds of the prior action pending in California.

The New York court maintained the action in New York, finding, among other things, that “the evident disfavor California law holds for restrictive covenants, supports the motion court’s finding that the California action was a preemptive measure undertaken to gain a tactical advantage and negate the force and effect

of the restrictive covenants, which the parties had freely agreed upon.” The case was Aon Risk Services v. Cusack.

that he could use it for Alliant’s benefit once, as planned, he resigned from Aon and moved to Alliant,” the suit states.

Confidential Data

‘The laws of more than 30 states enforce covenants not to compete against employees.’

According to the lawsuit, shortly before resigning from Aon, Heffernan requested access to AonWrap, the company’s proprietary software and data management system, which Aon says includes confidential data files on wrap-up insurance projects.

“No Aon competitor has access to AonWrap or the data and analysis of the data that Aon compiles, develops and maintains within it related to the thousands of construction projects for which Aon’s San Francisco office managed the Wrap-Up Insurance from 1998 to present, or for that expansive date range,” the lawsuit states. “This is utterly unique and proprietary data, and includes data for construction projects throughout the United States, from coast to coast.”

According to the complaint, Heffernan on Jan. 12, 2016 downloaded a report from AonWrap’s database that contained data related to construction projects performed by more than 8,000 companies. The lawsuit alleges that was the only time since at least August 2015 that Heffernan downloaded any report from AonWrap.

“It is evident that Heffernan wanted and improperly downloaded the AonWrap data file, and the confidential and trade secret information belonging to Aon contained therein, so

18 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

Connolly said at that point Heffernan should have spoken with an attorney if he did as the suit states. “It’s advisable for people who are going to leave and who have agreements that contain restrictive covenants to get advice before doing anything that could remotely, possibly violate those agreements to avoid situations like this,” Connolly said.

Fields, the USC professor, said courts often try to hold cases where it’s most convenient for employees. Although Heffernan resides in California, the court held that the claims outweighed everything else.

“He received a number of opportunities, which in exchange for these opportunities — which are the restricted stock — he promised that he would not use any of their confidential trade secret information,” Fields said.

Days after the order for the case to be heard in Illinois, attorneys for Alliant and Heffernan filed a motion for reconsideration, claiming that Illinois law requires the application of California law to plaintiffs’ claims “because California has a materially greater interest than Illinois in this case, and California’s policy in favor of employee mobility and against restraints on

employment is fundamental.”

The court ordered plaintiffs to respond to the motion and scheduled a status hearing on April. 7. Aon attorneys filed a response late last month arguing for denial of the motion.

Fields offered up six questions — along with answers — that a court will ultimately entertain in a case like this: Is there a state statute that will enforce the covenant? Yes. What’s the employer’s interest that’s at stake? Is it material? Yes. Was the agreement executed and done without duress?

Heffernan received stock.

What’s the reasonableness and scope of this agreement they want to enforce against Heffernan? He could have information that pertains to Aon’s affairs in many states.

What duty would he have as a prospective employee to disclose that he’s bound by these agreements? He would have such a duty.

Are there any prohibitions against solicitations of Aon’s customers? Yes. Connolly believes a court trial is unlikely. “More often than not these cases settle,” he said.

Fields said from what has happened in the early stages of the case, Alliant and Heffernan are not in a favorable position.

“If I were counsel for this gentleman, I would be concerned that a well-financed industry player had sued him,” Kerry said. “These cases are usually settled and rarely go to trial because the employers win so often.” Share this

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NATIONAL | Special Report | Young Agents Survey

By Andrea Wells

W

ith so much attention lavished on insurtech startups that vow to replace them, young insurance agents feel they are being shortchanged in the race to invest in insurance technology. Just give them the technology tools they need, and they will be able to compete with insurtechs, chatbots and robots, they say.

“Technology across the spectrum is a concern,” wrote one young agent.

“We desperately need technology that will make it 10 times faster to do new business and servicing tasks on commercial and personal lines in order to even remain relevant,” wrote one concerned young agent. “NOBODY is building this for us. All of the fintech is aimed at replacing agents or selling direct

What Young Agents Earn Under $30,000

9.8%

$31,000 to $50,000

25.8%

$51,000 to $75,000

22.3%

$76,000 to $100,000

14.8%

$101,000 to $125,000

7.5%

$126,000 to $150,000

6.0%

More than $150,000

13.8%

0

5

10

15

20

25

30

35

Profile of Young Agents by the carriers. If they would spend some of that money making it more efficient for us to sell and service, we could do so.”

Technology in general — inside the agency and across the entire P/C industry — is an area that needs an upgrade, according to young agents responding to Insurance Journal’s 2017 Young Agents Survey, which polled nearly 600 young professionals 40-years-old and younger.

The annual survey asks young agents for their opinions on the industry, their agencies and their career as an independent agent.

The exclusive survey revealed that only 10.2 percent of young agents rated the property/casualty industry’s use of technology as “excellent” but nearly half or 47.4 percent rated the use of technology “fair” or “poor.”

Advancements in technology are coming at a rapid pace but not quick enough say some young agents.

For 30-year-old Caroline Pintabone, an account executive at Ahart, Frinzi and Smith, an independent insurance agency with offices in Phillipsburg, N.J., and Alexandria, Va., being able to work remotely one day a week is an ideal fit for work-life balance, something young agents value greatly. However, when asked about the industry’s use of technology overall, she’s less than satisfied.

“Being able to work remote, that’s great. But as far as the (industry’s) technology itself, everything is super outdated,” she said.

On the bright side, Pintabone, who serves as the INSURANCEJOURNAL.COM

chair of the New Jersey Young Agents Committee and as a member of the national Big “I” Young Agents Committee, has seen significant progress in the past year in areas such as new carrier apps for mobile, but compared to other industries, insurance has a way to go to be on the cutting edge of technology, she said. ‘We desperately need technology that will make it 10 times faster to do new business and servicing tasks on commercial and personal lines in order to even remain relevant.’

‘We desperately need technology that will make it 10 times faster to do new business and servicing tasks on commercial and personal lines in order to even remain relevant.’

“I have friends that are in pharmaceutical sales and when you compare insurance to that industry, everything is so outdated,” she said.

“Some carriers are so far behind and that’s the difficult part; you have some carriers that are so advanced in terms of their technology capabilities, so those are the ones that you’re going to go to,” she said.

“I have my key carriers that I go to, and I can tell you that it’s because they’re easy to access online.”

Her go-to carriers have quoting systems that are advanced enough that getting an accurate quote in five minutes or less is easy, she said. “The companies

continued on page 22

Older Side of Young 57.6% are 31 to 40 years old; 42.3% are 30 and under.

Career Choice 82.1% consider insurance to be a permanent career choice; 15.7% are unsure; 79.5% would recommend career choice to another young person but 13.1% are not sure they would while 7.5% wouldn’t recommend being an agent.

Experience 27.2% have less than three years in insurance; 22.5% have three to five years; 24.4% have six to 10 years; 18.4% have 11 to 15 years; 7.4% have more than 15 years.

Education 64.8% have a college degree; 7.7% have a master’s, doctorate or other advanced degree; 59.0% have completed or are working on an insurance designation.

64.9% have an insurance agent mentor.

Family Affairs 51.7% work in family-owned agencies.

53.8% work for agencies generating $1 million to $25 million

89.9%

in property/casualty premium volume are privately held.

Employment Status 87.3% are independent agents; 9.2% presently are sole owners of an agency; 19.2% share ownership with partner(s) Ownership Dreams 71.6% do not presently own an agency; of these, 81.6% would like to own someday but just 39.0% of those feel very confident ownership dreams

27.8%

will come true - but don’t believe it will happen.

Book of Business 67.7% target mostly commercial lines; 32.3% target mostly personal lines; Gender ID 61.7% Male 38.3% Female What Young Agents Do 63.7% attend local business or community meetings.

65.3% volunteer in my community.

18.7% get involved in local politics.

78.4% use Facebook.

80.0% use LinkedIn. 36.1% use Twitter.

12.8% write a blog.

63.0% utilize insurance coverage or other checklists.

73.3% take insurance courses on the internet.

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 21

NATIONAL | Special Report | Young Agents Survey continued from page 21

that I very rarely use are the ones that they don’t even have a quoting system online. You have to submit paper applications, which just seems absurd to me.”

In Pintabone’s view, it’s not just carrier technology that needs an upgrade. “There’s definitely room for advancement in some agency management systems as well,” she said. “There’s a lot of options (in some agency management systems) but you find that a

Young Agents’ Outlook on Their Career

Outlook on U.S. Economy in 2017 3.1%

2.9%

Very Optimistic

9.9% 29.2%

58.1%

my quotes as soon as possible.

I understand that some quotes are going to require more underwriting information than others, but the quicker you can get something to an agent, the better chance you have of becoming that top carrier for that agent. My three largest companies are great, reputable companies but they also are the companies that get everything to me the quickest.”

“There is terrible technology from the carriers, especially

lot of those options they’re giving you don’t even necessarily work. I feel like there’s too many options out there … they focus on too many aspects of making the system perfect rather than focusing on one aspect and perfecting that.”

Whether it’s a focus on perfecting carrier technology or agency technology, young agents want advancements and they want it now, she said.

“Young professionals want everything yesterday. I want

Optimistic

Very Optimistic

26.1%

29.2%

Optimistic Cautious

Cautious 41.6%

Not Optimistic

Believes 2017 Income Will Be Greater Than 2016

Not Optimistic

Independent Agents' Ability to Grow Personal Lines Market Share

3.4% 10.3%

Very Optimistic Optimistic

26.5%

59.8%

9.2%

Optimistic

25.0%

Cautious

Cautious 41.5%

Not Optimistic

Outlook on the Future of the Independent Agency System

2.2%

Very Optimistic 37.9%

Not Optimistic

Agents Ability to Attract Quality Talent

Very Optimistic

15.2% 36.6%

Optimistic Cautious

41.5%

Not Optimistic

Independent Agents' Ability to Grow Commercial Lines Market Share

3.8% 16.8%

Very Optimistic

24.3%

Optimistic Cautious

46.1%

Not Optimistic

Independent Agency Channel’s Ability to Advance in Technology Use 3.6%

11.1%

22.0%

Very Optimistic Optimistic

26.0%

Cautious 40.9%

Not Optimistic

22 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

17.8%

29.2%

49.5%

Very Optimistic Optimistic Cautious Not Optimistic

in the excess and surplus lines market,” wrote one young agent in the survey. “Using old-fashioned paper applications is inefficient and a waste of time. … Carriers should provide their agents with fillable online systems for rapid quoting. We quote thousands of accounts a month and many complain that it took too long.”

David Baker, a young owner and founder of the Stratum Insurance Agency in Newport Beach, Calif., said price is not the only reason big direct writers are excelling in personal lines. The reasons companies like GEICO crush independent insurance agents isn’t just about the price. “It’s ease of use,” he said.

“Look at how GEICO does business. They have a customer go on their website, input all the information, and sure, the customer still calls them, but they just give them the quote number. They say, ‘OK, you already put in all your information, you already have the quote, great. Do you have any questions, or do you want to just buy this?’ When they call an independent agent, we have to spend an hour on the phone with them trying to get their information into these systems.”

Technology lags exist in many parts of the insurance process, not just quoting, binding and processing. Risk management is another area where agencies could step up innovative tech use.

One young agent added: “Although new technology has been adopted by our agency I believe other agencies could pick up the pace a bit. When competing on new business very rarely has a client been INSURANCEJOURNAL.COM

What Young Agents Think introduced to new technology to assist them in managing risks.”

Disruption and Young Agents

The industry has been ripe for disruption from insurtech startups such as on-demand property insurer Lemonade because many traditional insurers have been hampered by legacy IT systems and regulatory transformation programs. That has created limited funds to invest in innovation, according to a KPMG report, “The Pulse of Fintech Q4 2016 – Global analysis of investment in fintech.”

“There seems to be significant pent-up demand for solutions to the problems challenging the insurance industry – from the need to improve operational efficiencies and cost effectiveness to creating more customer-centric product offerings,” said Murray Raisbeck, Partner Insurance, KPMG in the UK, who was quoted in the report.

“When these challenges are combined with the growing availability of tech from other sectors with the applicability to the insurance sector, there’s little doubt investment in insurtech is going to keep booming,” he added.

Ron Berg, executive director of the Agents Council for Technology (ACT) believes there’s a misconception in the industry about the growing threat of such insurtech startups such as — that it’s all bad.

“It’s only bad if we don’t pay attention to it,” he said. “Yes, we as an industry have known for a long time that we have to be faster to sense, react and implement solutions. We are not at that point of resting on INSURANCEJOURNAL.COM

Basically True

Basically False

As a younger agent, I have to work harder to gain the confidence of clients.

73.9%

20.0%

I fear that my career will be hurt by a merger or sale of my agency.

25.5%

58.9%

I wish I could specialize more than I am now permitted to do.

24.3%

63.0%

Much of my production supports older producers in the agency.

29.1%

61.1%

During my career, I have worked for more than one agency.

39.8%

59.2%

While in my present position, I have been offered a job with another agency.

59.4%

36.9%

Success in this business is mostly about building relation-

94.1%

4.0%

Success with 40 and younger clientele is built first by relationships online.

27.7%

54.9%

Efficiency and effectiveness are more important than relationships to succeed in this business.

32.2%

57.3%

I propose new ideas but our firm rarely seems to get to them.

25.0%

59.3%

The agency ranks could use more women and minorities.

39.3%

35.3%

I wish my agency would expand into new markets.

31.7%

52.4%

I think my compensation is fair.

68.2%

23.5%

I think my agency's management is fair.

80.8%

13.1%

I believe advancement is based on relationships more than performance.

29.2%

57.1%

I would like to increase the time I spend on sales versus servicing or administrative tasks.

68.4%

23.4%

Insurtech will lead to serious disruption of the industry.

24.0%

23.8%

Autonomous cars will wipe out the personal auto market.

16.0%

64.2%

The industry has been too slow to adopt new technology.

64.1%

28.1%

Millennials are misunderstood by the industry and others.

56.4%

28.0%

In 25 years, the independent agency system will be stronger than it is now.

50.0%

27.0%

Baby boomers have left the world a mess.

25.5%

46.3%

ships.

our laurels anymore. We have to find the best ways to assimilate and increase the ease of doing business and absolutely insurtechs are driving the change.”

Most young agents responding to the survey don’t appear worried about the insurtech

movement. Just under one-quarter of respondents (24.0 percent) believe that insurtech will lead to serious disruption of the industry.

However, 64.1 percent do believe the industry overall has been too slow to adopt new technology.

“Technology is going to make the independent agency world from a personal lines standpoint and small commercial difficult over the next 10 to 15 years,” said Ryan Von Haden, partner/vice president of Business Accounts at the Tricor

continued on page 24

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 23

NATIONAL | Special Report | Young Agents Survey continued from page 23

Young Agents Enjoy Career Choice But Worry About Future Hiring

D

espite sentiments about technology lags, the vast majority of young agents responding to Insurance Journal’s 2017 Young Agents Survey believe strongly that their career choice was the right one.

The survey found that 82.1 percent of young agents consider insurance to be a permanent career choice and 79.5 percent of those would recommend being an agent to another young person.

“This is a great career and with the right company, you are given plenty of room to grow and or even create your

own career path!” one young agent said.

But one area that concerns young agents is the industry’s need to attract talent. Some 42.8 percent rank finding new employees as their agency’s biggest challenge, but some 62.9 percent say they are “very optimistic” or “optimistic” about the prospects.

Finding quality talent is by far the biggest challenge for agency owners today, said Sharon Emek, president and CEO of Work at Home Vintage Experts (WAHVE).

“The insurance industry is very knowledge-based so you

can’t just take anyone off the street and expect them to go into an account manager position. It takes many years of training,” she said.

Estimates predict there will be about 400,000 open jobs in the insurance industry by 2020, said Deborah Pickford, executive director for InVEST, whose mission is to improve insurance literacy in students and attract new talent to the industry. The good news: technology can be a tool used by agencies to attract younger employees, she said.

Technology can also be used to provide better “synergy”

between younger and older workers in the agency.

“Young agents have grown up with all types of technology that the older agent hasn’t,” Pickford said. “I think there’s a nice synergy there in that the younger person can come into the agency and work with that older agent on technology. But also, the older agent can teach the younger agent things like customer service, leadership, management …. There’s a lot to be learned from a younger professional in terms of technology that can provide a lot of efficiency in the agency.”

Insurance, and the National Association of Professional Insurance Agents’ (PIA) 2016 Agent of the Year. “I don’t think larger commercial property and casualty is really going to be hit as much because of the need

for local service and relationships. But over the next 10 to 15 years, technology will lead to big changes in our industry.

There are already different online carriers getting into the insurance.”

Insurtech startups are moving the industry in the right direction, said Brent Rineck, chief information officer for ABD Insurance & Financial Services. “It’s forcing us all to take a higher emphasis on tech-

nology but I don’t think it will ever replace us,” he said. “But it’s definitely pushing us.”

Kitty Ambers, CEO of the Network of Vertafore Users (NetVU), agrees. Insurtech startups are providing the industry and agencies with an opportunity to get better.

“We need to take the time to decide where we are going, where we want to be, and how are going to get there,” Ambers told Insurance Journal.

Young Agent Opinions on Current Employer Excellent

Good

Fair

Poor

Quality of agency technology in general

32.1%

50.4%

17.3%

4.0%

Quality of agency management system

29.2%

45.9%

19.0%

6.0%

Quality of management

44.3%

39.8%

12.6%

3.2%

Employee compensation and benefits

36.9%

38.7%

18.9%

5.4%

Opportunities for advancement

36.6%

35.9%

19.7%

7.8%

Office (physical environment)

46.5%

37.7%

13.9%

2.0%

Administrative support

34.7%

41.6%

17.5%

6.3%

Opportunities for educational improvement

50.9%

34.0%

11.0%

4.1%

Telecommuting/flexibility in hours

40.0%

34.8%

16.2%

9.0%

About the Survey

Insurance Journal’s Young Agents Survey 2017 polled nearly 600 young agents nationwide from March 1-17, 2017, on their opinions about the industry, their agency, and how they feel about being an insurance agent.

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24 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

INSURANCEJOURNAL.COM

Public Entities/Schools

Idea Exchange

How to Reduce Workers’ Comp Costs in a K-12 School Climate

By William Grace Frost

T

he physical and emotional well-being of employees is of vital importance to the success of K-12 schools, but the challenge of keeping school staff safe from harm is becoming more and more complex. As a result INSURANCEJOURNAL.COM

of rising grievances, the costs of workers’ compensation claims are sky rocketing. Rising claims and rising costs are the curse of school administrators who continually look for ways to reduce the probability of injuries happening on their campuses, and it’s also why risk managers embrace the saying – “the best workers’ comp claims are the ones that never happen.”

Making sure that claims never happen depends on any number of factors ranging from reducing hazards to surveillance videos to effective training. According to the AMAXX Workers’ Comp Resource Center, “unsafe acts” contribute significantly to WC

claims. In K-12 schools, those unsafe acts most often involve teachers intervening in student altercations or student attacks directly against teachers.

In a July 2015 U.S. Department of Education report addressing teacher victimization by students, the department cited more than $2 billion lost annually and lost work days approaching one million.

After nearly 20 years working with schools on climate improvement, Community Matters knows unequivocally that the most effective way to reduce school violence, including staff injuries, is by creating a culture of respect where the nurturing of positive

Making sure that claims never happen depends on any number of factors ranging from reducing hazards to surveillance videos to effective training. staff-student relationships is of paramount focus, therefore minimizing unsafe acts.

The good news is that there is increased recognition among administrators nationwide of the value, benefits and effectiveness of implementing school climate improvement plans. The current trends,

continued on page 26

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 25

Idea Exchange

Public Entities/Schools

continued from page 25 research and legislation all highlight and promote the importance of school climate as a primary cornerstone and driver for improving safety and discipline resulting in the reduction of undesirable student behaviors that can lead to injuries.

So Where to Begin?

We know we can’t legislate civility nor can we punish children into being less violent.

The only viable solution to the spread of students’ aggression towards teachers and peers is to change the social norms that allow it to occur.

When school norms change from meanness and indifference to kindness, compassion and respect, that’s when vandalism, altercations, retaliations and other risk-related incidents go down.

Given our experience in providing support, training and consultation to more than 1,600 schools across the country, Community Matters has found the following to be the best practices leading to successful climate improvement and risk reduction:

Modeling. Increasing student

voice and utilizing a peer-topeer role-modeling approach is the quickest, most cost efficient and effective way to change the social norms on campus and reduce bullying, fights and resultant teacher injuries. By identifying and training the socially-influential leaders in each of the campus cliques to set an example of courage and compassion in their words and actions towards others over time, the social acceptability of such negative behaviors can be eradicated.

Restoration Not Punishment.

Discipline needs to be focused on restoration rather than punishment – restorative practices include powerful tools and strategies that maintain connection, restore relationships, repair hurt and ultimately

Relationships First. Successful

teachers and staff are those who put relationships first – taking the extra time to greet students by name, offering a kind word or smile, being “hall-friendly” and cultivating authentic connections with students.

These actions pay off in students developing a stronger sense of belonging, less negative reactivity towards teachers, reduction in staff time spent on discipline and more time for teaching and learning.

26 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

reduce altercations; disagreements can also be diffused well before they get to the point of a physical exchange when restorative practices are used effectively.

Leadership. It takes strong organizational leadership to change the culture and climate of a school. Discipline procedures and practices are effective when all key stakeholders, from the administration and school board to the students, parents and staff, are included in the development and implementation of behavioral policies. If we want our students to be compassionate, respectful of differences and courageous enough to intervene, we must find our own courage first – the shift starts at the top.

Improvement Assessments.

Educational leaders, from

school boards and superintendents to building administrators, must be willing to make an honest and comprehensive climate assessment of their school’s strengths, weaknesses, gaps and opportunities for improvement. Starting with a “deep dive” analysis will go a long way in ensuring that school climate improvement planning is built on accurate data and leads to measureable and sustainable results.

In the end, transforming school climate is the only real solution to engendering employee risk reduction and stemming the tide of spiraling claims. We take heart in knowing that shifts are taking place and that many schools are committed to school climate transformation.

While there is still much work to be done, more and more schools are taking positive actions to ensure that students can attend schools where they feel welcome, safe, connected, and where the consequences and costs of Workers’ Comp claims are vastly reduced.

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Grace Frost is director of strategic relations for Community Matters, a national thought-leading non-profit organization that assists schools and districts. As director of strategic relations for Community Matters, he works to build collaborations with joint pool associations, insurance pools, risk managers and other corporate sponsors. This article first appeared on the Public Risk Managers Association’s blog in January 2017.

INSURANCEJOURNAL.COM

Human Resources

Idea Exchange

Unlock the Secret to Retaining Young Professionals and $25,000 per employee. Given the insurance industry’s talent pool, reversing the loss of young talent is a retention issue that cannot be overlooked.

Personalized Leadership Development

By David E. Coons

I

n today’s tightening labor pool, the competition for insurance talent is fierce. Faced with an aging industry, an impending wave of retirements and growing staffing demands, the insurance industry has shifted its focus to recruiting young professionals to fill the gap. However, forward-thinking organizations realize that

in today’s increasingly challenging labor market, recruiting young employees is not enough — they must engage and retain them.

Unfortunately, Millennial professionals have a much higher turnover rate.

According to Forbes, 60 percent of young professionals are leaving their organizations in less than three years. On average, this costs organizations between $15,000 INSURANCEJOURNAL.COM

Often characterized as confident and optimistic, Millennials are generally achievement-oriented. This is represented by 91 percent of Millennial professionals aspiring to a leadership position.

Unfortunately, 55 percent of Millennials are unsatisfied with their employer’s leadership development opportunities. To better retain these individuals, firms should rethink their development programs to support their young employees’ growth.

Developing Millennial professionals into leaders requires organizations to change the way they approach professional development. No longer is the traditional corporate ladder effective. Rather, these individuals want to carve their own unique career paths. They are embracing the career lattice.

Within the lattice system, ideas and development flow along horizontal, vertical and diagonal paths.

Organizations looking to implement a career lattice leadership development program should look at long-term strategies including job shadowing opportunities, cross-departmental projects and committee work.

Focus on dynamic, “assignment-based” programs that will provide Millennial employees with new jobs and assignments every 12 to 24 months. This allows for more talent mobility and helps young leaders improve their skills.

Lattice development programs also prevent talent from feeling pigeon-holed in

their roles and allow them to gain a broader understanding of the organization.

For many entry-level employees, their first job may not be the most compelling.

By allowing them to partner on cross-departmental projects, organizations are opening-up the possibility for professionals to learn more about other areas of the organization and to make an internal move.

Rethinking the Definition of Leadership

While the majority of Millennial professionals seek a leadership position, there may not be positions available within your organization. So, insurance organizations need to rethink the basic definition of leadership. Leadership goes beyond supervising, managing and delegating. They represent the company voice and brand to the public.

Insurance organizations should look at leadership in terms of being an ambassador for the company. This can include opportunities to byline thought leadership articles, star in company videos, participate in webinars and serve as conference attendees. These activities allow Millennial employees to build their public speaking skills, contribute their ideas and serve as brand ambassadors for your organization.

Employees are a vital part of any business. Where the competition for talent is particularly fierce, engaging and retaining current employees can be the differentiating factor. Providing opportunities for leadership and developing a more targeted development program may be the key to engaging and retaining today’s Millennial professionals. Insurance organizations that focus on engagement and retention today will gain a competitive advantage in the years ahead. Share this article with a

colleague.

IJMAG.COM/43GA Coons is senior vice president of The Jacobson Group.

Phone: 800-466-1578. Email: dcoons@ jacobsononline.com.

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 27

Idea Exchange

Agency Management

Overcoming Roadblocks A Look at Restrictive Covenants and Obstacles that Keep Producers from Making a Move

By Jeff Lagos and Tony Tatum

I

f someone were to offer you $1 million to make a job move, would you? What if that move meant you’d go through some lean years?

For $1 million, you’d likely tolerate several lean years. An entrepreneurial model that offers higher commissions makes this kind of income possible. But with a respectable book of business, a mortgage, and children headed to college, change is not a comfortable prospect.

Successful insurance producers by nature appreciate setting their own limits.

When you work for an agency that does not allow that kind of freedom, it can be an underlying frustration, one not realized until a better option presents itself.

When that better option becomes clear, what can stop you?

The most obvious answers are the confines of restrictive covenants, what will be lost in the transition, and the lack of a guarantee. It’s not easy to take one step back to take two steps forward. You must have patience, confidence, and, above all, vision.

Here, we’ll look at these roadblocks and how to overcome some of these challenges for the prize of a vastly better future.

Roadblock: Restrictive Covenants

Restrictive covenants are all about protection — protect the business and the investment it has made in its producers and clients. These agreements are considered critical to the strength and stability of an agency. Without them, the agency is far too vulnerable to ruin.

It also means a diminished valuation of the business.

However, the law often recognizes the right to compete for client relationships under the right circumstances; it does not always recognize an ownership of those relation-

ships. There are three main approaches to restrictive covenants.

The Noncompete. In the insurance industry, as in many others, insurance producers can expect to be required to sign a noncompete

Nonsolicitation agreements are the most popular restrictive covenants in the insurance industry because they directly protect the agency client base.

agreement. While California is a state that is the exception to this rule by declaring noncompetes a violation of the California Business Code, other states are currently adopting statutes to further clarify and restrict traditional noncompete elements, such as time and geographical scope.

Time is the first element of a typical noncompete, which is usually somewhere between six months and two years in length. Two years is the most popular choice for duration because it is considered the maximum amount of time that likely will be upheld in court if contested.

The second element is geographical area, often a set number of miles, e.g., 50 miles or the surrounding counties in proximity of an office or headquarters.

The third element is the type of business — restricting direct competition within the industry served by the company with which you’ve signed the contract.

An agency is most concerned with its clients being taken away, especially when it has invested in training the producer and the development of clients. Where training and investment are involved, courts allow protection. If the restraint is reasonably limited in scope, duration, and geography, then the court is likely to find the noncompete agreement enforceable.

To be upheld, a noncompete must be reasonable, must not be one-sided, should not impose undue hardship, must not be detrimental to the public, and should be no more restrictive than what is necessary to protect the company’s interests. Where there is a perceived overreach, the courts may view it as restraint of free trade, and that’s where the next type of agreement comes in.

The Confidentiality and Nondisclosure Agreement. Seen

as much less problematic than a noncompete, the nondisclosure agreement restricts producers more from a communications perspective.

It restricts them from using or disclosing proprietary and confidential information — such

as trade secrets, customer lists, processes, business activities or other internal information — to competitors when they leave an agency.

A nondisclosure agreement generally is more accepted by the courts. Although the typical duration is one year to 18 months, courts will uphold longer periods if a legitimate business need is demonstrated. Nondisclosures are seen as less of a restraint on free trade than noncompetes, so the courts are more willing to uphold them, including those in California.

Employment law attorneys will often recommend this type of restrictive covenant in lieu of a noncompete.

A basic nonpiracy covenant may be part of a nondisclosure agreement or larger contract, such as for employment terms, and some agencies require support personnel to sign a nondisclosure or nonpiracy agreement, as well, as a way to prevent a producer from poaching the firm’s account managers. However, some agencies may allow you to buy your book and take your employees with you without a penalty since the staff would be left without revenue support once the producer leaves. In some cases, this is an attractive option for the agency.

The Nonsolicitation Agreement. Narrower

in scope than the noncompete but more restrictive than the nondisclosure agreement is the nonsolicitation agreement. It restricts the producer from soliciting established or prospective clients of the agency and usually prohibits the recruitment of employees for a period of time. With this simple focus, they are more widely upheld if they are properly written. Some agreements protect key clients by prohibiting the solicitation of those clients.

Nonsolicitation agreements are the most popular restrictive covenants in the insurance industry because they directly protect the agency client base. They generally allow an employee or independent contractor to continue to work in the same industry and in the same city, so they are viewed more favorably by the courts than

continued on Page 30 APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 29

Idea Exchange

Agency Management

continued from page 29 a noncompete. The same elements of valid noncompete agreements apply to valid nonsolicitation agreements. They must be reasonable in scope and time, may not impose undue hardship, must not be detrimental to the public, and should be no more than what is necessary to protect the company’s legitimate business interests.

Nonsolicitation agreements also are barred by the California Business Code but are widely accepted elsewhere if properly written. Producers leaving an agency with a valid nonsolicitation agreement who wish to maintain their current book of business may want to explore the purchase of the book in order to facilitate a smooth transition without legal entanglement.

know exactly what your contractual obligations are. In rare cases, they may not be in force or may be rightfully contestable.

If you’ve never signed an agreement and it does not come up until you leave, you’re lawfully unrestricted. In some instances, you may have some room even if you have signed an agreement. For example: • The agency may have overstepped its bounds of enforceability, such as an excessive time period or too broad a restricted territory, and therefore, it may be worth litigating enforcement of the agreement.

• Previous contracts may not be in effect where multiple mergers or acquis tions have occurred. In Acordia of Ohio LLC v. Fishel, an insurance agency filed What Are Your Options? for injunctive relief against a competing It’s wise to start by hiring a lawyer to agency and four former employees for review your covenants to under alleged violation of the employee’s non A&Mrestrictive IJ Personal Umbrella.pdf 1 12/28/15 10:22 AM stand the details of your agreements and competition agreement. The court ruled

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that, although noncompetition agreements from a predecessor entity were inherited by the successor entity, mistakes in drafting resulted in unen forceable agreements. Depending on the structure of the agreement, if the employer is not the surviving entity in a merger or consolidation, the transaction may trigger the unintended running of the noncompetition period.

This case shows that careful wording of the document makes all the difference, especially after multiple mergers.

• Have the documents been drafted to comply with new state statutes? For example, when Georgia law changed a few years ago, a producer found that his contract had become unenforceable, and in 2016, Utah enacted a law limiting covenants to a one-year duration.

An agreement will most likely not be upheld if challenged in court when it is overly broad or doesn’t include reasonable parameters. The courts look for a reasonable balance between the protections of the agency’s business and the employee’s ability to continue to earn a living. Where there is an overreach, you may have grounds to get the contract overturned, although most jurisdictions allow the court to rework the agreement to one that is considered reasonable for the jurisdiction.

Since every state is a little different, it’s important to find an attorney who is on top of the applicable details and recent developments pertaining to restrictive covenants to determine what is enforceable and what is not.

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Be sure to have your documents reviewed. If the agency you’re moving to has an attorney, do not depend on their opinion only. Get your own attorney to look things over. Since every state is a little different, it’s important to find an attorney ANDERS16778.indd 1

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who is on top of the applicable details and recent developments pertaining to restrictive covenants to determine what is enforceable and what is not.

Other Roadblocks

Once you know the details of your restrictive covenants, you can look at the money side of a move. You may think you can’t move your book and there are very few options to making the transition worth it. However, there are plenty of options available to those who believe in themselves — because that is really what it boils down to. Here, we’ll look at some of the other roadblocks.

“I don’t want to lose my book.” Of

course you’ll want to take your book of business with you, and most agencies will allow your book to be purchased. But before you make an offer, research not only the value but also your agency’s past behavior in similar negotiations, which will dictate the amount, e.g., one or two times the revenue. This will be a large commitment, but it will pay off in the long run.

However, some agencies may get into a price war with you.

There are options to covering the cost of purchasing your book: • Pay over time. You may have the option to negotiate paying the agency a portion of the commi sions earned for a fixed period of time. Many finance the purchase of their book with premium financing. Rates are generally reasonable at 4 percent to 5 percent, and

Tony Tatum

INSURANCEJOURNAL.COM

some agencies may be willing to guarantee the loan. When you make the move to an agency that pays higher commission rates, you can use the difference to pay off the book purchase, which greatly accelerates the payoff.

• Use Leverage. The leverage you have in the negotiations is important to under stand. On average, the agency will lose 70 percent of your book over a three year period. Producers can use that fact when they present their offer to buy the book and negotiate payment.

Additionally, agencies know that per sonnel may need to be let go when producers leave and take revenue with them, at least for a transitional period.

There is a lot of risk involved in using this tactic, but it is reasonable and generally pays off in the long run.

Stock may play a huge part in the equation. It can be more valuable than the book. When you leave your agency, you may have to pay back the company, typically over a period of time. This will be another element that you may need to finance.

“I can’t move because I must have a certain level of income.” If you cannot purchase your book, an option may be to use a draw for the duration of the noncompete or other restrictive agreement. It’s important to remember why this option would

be worth it and keep the payoff in mind.

“It’s too late in my career.”

If this is your roadblock, you need to calculate carefully what a change would look like. Most make Jeff Lagos the transition more quickly than expected and are happy they made the change, even later in life.

“I’m afraid of the unknown.” Ask questions — you may be surprised by the options available. The right agency will work with top performers under all kinds of circumstances.

A move to the entrepreneurial model is not for everyone; it may not be for you.

There are two types for which this lucrative model does not work: (1) someone who needs to be micromanaged or must have regular meetings with leadership and (2) someone who does not appreciate working as a partner or sharing commissions with another producer to work with a client.

For the right personality type, the jump to a model that offers high commissions, equity in your book of business, and stock ownership options is a must. Don’t leave possibly millions on the table out of fear. Ask the questions required to push every roadblock aside. Your future and your family’s future are worth it.

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Lagos is president of Insurance Office of America (IOA), and Tatum is director of agency mergers and acquisitions and corporate counsel for IOA. They can be reached at 800-243-6899. Website: www. ioausa.com.

APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

The Competitive Advantage

The Lost Value Proposition of Independent Agencies

By Chris Burand

M

y brother recently asked for advice regarding his personal insurance. I recommended he contact an independent agent I know who represents three carriers who I know provide a good form, reasonable price, and good claims service that fit his needs well.

Two events during his purchasing process were virtual light bulb moments relative to the lost value proposition of independent agents. In other words, independent agents have unique competitive advantages, but they often are ignored.

The first light bulb moment was when he told me he had never heard of any of the three companies. Two are in the top 20 carriers, by net written premium. These are large, important carriers. Then he told me none of his friends had ever heard of these companies either.

My first thought was, “What a sad situation that three great insurance companies have so little name recognition.” My brother and his friends are the perfect personal lines clients, especially for quality independent agents.

Then I remembered the origin and reason independent agents exist. When insurance distribution was originally created, a choice was given to agents. One could be a captive agent whereby the insurance company would invest heavily in advertising, creating name recognition and driving 32 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

prospects to their captive agents. The agents in return would be paid less commission, would be limited in what lines of insurance they could sell, would be limited to one company’s forms and rates, and would be limited in their ability to build full value (relatively) in their agencies.

However, they could in some cases sit by their telegraph machine, and eventually by a telephone or by their front door for prospects to appear.

Independent agents on the other hand would represent companies who created little to no consumer name recognition.

In return, commission rates might be higher, the agent could build full value in their agency and sell it more openly upon retirement. They would represent many carriers and provide more options to clients. However, independent agents had to get out and sell or maybe create their own marketing, but mostly get out and sell because one local agent was rarely ever going to market effectively against an entire captive carrier.

such good insurance companies exist that he’d never heard of is really an indictment of independent agencies failing to communicate that insurance is not always about the company. He had no idea agents could offer any additional value beyond offering him quotes from companies he did not know existed. If that is all agents can offer, no future exists for independent agents.

If all independent agents can advertise and market in the new media version of old yellow page advertising is, “ABC insurance agency can quote many companies – call for a free quote today!” then a quality future does not exist either. In fact, given that about five to seven carriers spend approximately $6 billion annually on advertising not involving independent agencies, I do not believe heavy advertising and marketing expenditures, at least using normal advertising/marketing methods makes any sense whatsoever.

The Trade-Off

As with all things in life, a trade-off existed and still exists. If an agency is going to depend on carriers to market and advertise and then not go out and sell, then the company does not need to pay the same commissions and may not be able to afford to pay as much commission.

Companies have a tradeoff, too. Their agents can get out and sell on their own, or the company can assist through marketing, but to pay for that marketing, they have to cut commissions. A right or wrong answer truly does not exist. However, thinking a trade-off does not exist is simply naïve.

The selling and marketing emphasis for independent agencies is the agent’s responsibility. This is not to say that better company name recognition should not occur; it probably should, but it cannot be the burden of the carrier if agents want to keep their full commissions.

Moreover, my brother’s surprise that INSURANCEJOURNAL.COM

Independent agents’ true competitive advantage, from day one, is building one trusting sale at a time.

Sales and Marketing

Sales and marketing are not the same thing.

Sales is about proactively building one relationship at a time. It is proactive. It is about asking for the person’s money. Not everyone can ask someone to hand over their money. Those people may be better suited for a captive environment. By the way, not one independent agent had ever contacted my brother or any of his friends.

He is an ideal middle-market personal lines consumer in a non-cat state, and he even wants to buy extra coverage.

Independent agents are giving away their advantage.

I also recently discovered my sister’s auto policy listed her daughter as a driver.

If her daughter was 16, this would not be an issue, but her daughter does not live with her. She has her own home, with a husband and child. My sister has no insur-

able interest in her daughter’s vehicle.

When I asked where her son-in-law was insured, she advised he was insured on his parent’s policy. This married couple did not have their own auto policy! My sister is unfortunately written through a captive who should have his license revoked. An independent agent has never contacted her either. Making that sale would be easy.

The selling and marketing emphasis for independent agencies is the agent’s responsibility.

One final story: My sister-in-law asked me if she should buy auto insurance from a well-known direct writer. I advised she’d be better off if she went with a local independent agent who could be an advocate in the event of a claim. She had no idea an agent could be an advocate. I find that most independent agents do not know this either. They think they’re prohibited from being an advocate.

Being an advocate is different from interfering. It is different from interpreting coverage in a manner that creates issues with the carrier or creates an E&O exposure. Knowing insurance companies like I do, I cannot imagine buying insurance without having someone that could advocate effectively on my behalf.

The Best Solution

The independent agent, when he/she does his/her job well is perfectly situated to be the best solution for middle-class America. Middle-class Americans want, per survey after survey for the last quarter century:

1. Carrier choice and pricing transparency. This means offering three quotes with at least a brief outline of why pricing differences exist relative to quality of coverages, amount of coverage, and/or differences in INSURANCEJOURNAL.COM

claim service.

2. Advocacy. This means going to bat for clients, even if it is behind the scenes, when a claim goes awry.

3. Help preventing losses before they occur. This means loss control at least on a simple basis.

4. The right coverages even if they do not know what that exactly means. Them not knowing is an opportunity to be a hero, to exhibit professionalism, and to prove you are better than every other competitor.

Independent agents were created, from day one, to build one trusting relationship at a time through professionalism and sales. To give this away by asking for companies to build name recognition or to waste it by not strongly differentiating what you do versus what captives and direct writers do is your choice. What will your choice be?

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IJMAG.COM/43CV Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868.

E-mail: chris@burand-associates.com

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APRIL 3, 2017 INSURANCE JOURNAL | NATIONAL | 33

Closing Quote Brokers Beware: Data Breach Lawsuit Without the Breach

By Jennifer Quinn Broda

I

n December 2016, it came to light that the Chicago-based law firm of Johnson & Bell had been sued in a purported class action lawsuit brought in the U.S. District Court for the Northern District of Illinois.

The complaint, Jason Shore and Coinabul, LLC et al. v.

Johnson & Bell (Case No. 16-cv04363), had been filed in April 2016 under seal.

The lawsuit focused on Johnson & Bell’s alleged failure to keep its clients’ private information confidential because Johnson & Bell’s technology systems were allegedly not up to “industry standards.” This left open the possibility that its clients’ private information could be breached.

Although the firm did not suffer a data breach, plaintiffs asserted causes of action for, among other things, breach of contract and negligence. As damages, they sought injunctive relief, the requirement that the firm inform its clients that its computer systems are not secure and undergo a secu-

rity audit, the forfeit of fees and profits the firm allegedly diverted from having been spent on cybersecurity, attorney fees and expenses, and pre- and post-judgment interest.

The plaintiffs’ firm that filed this action, Edelson PC, commented that it has filed similar suits against other law firms under seal.

Obviously, law firms are not the only professional services firms susceptible to such lawsuits. Accountants and consultants, for example, could also be targets of plaintiffs’ firms looking to exploit vulnerabilities in a company’s technology systems. These lawsuits raise the question of whether coverage exists for such a lawsuit under either a professional liability or cyber liability policy where negligence is alleged, but no data breach occurred.

A professional liability policy usually provides coverage for claims arising from professional services provided by a firm for a fee. Depending on a policy’s definition of “professional services,” an argument could be made that the claims asserted against Johnson & Bell do not arise out of the professional services provided to the plaintiffs. Rather, they arose out of the means employed by the firm to store private client information, which merely “sets the stage” for the performance of professional services.

As such, under some professional liability policies, the allegations made against Johnson

34 | INSURANCE JOURNAL | NATIONAL APRIL 3, 2017

‘These lawsuits raise the question of whether coverage exists for such a lawsuit under either a professional liability or cyber liability policy where negligence is alleged, but no data breach occurred.’ & Bell may not be sufficient to trigger coverage.

There may be another defense to cover. The complaint seeks injunctive relief, as well as the return of fees or profits earned by Johnson & Bell. Frequently, professional liability policies contain an exclusion for claims seeking the return, reduction or withdrawal of fees. These policies may also exclude coverage for injunctive relief. Thus, even if an insured meets its burden establishing that the lawsuit triggers coverage under the policy, it will likely face additional hurdles to coverage, given the type of relief plaintiffs seek and the exclusions contained in most professional liability policies.

Coverage issues may also exist under a cyber liability policy that provides coverage for third-party liability.

Generally, such policies will cover third-party lawsuits alleging negligence and breach of contract. However, these claims

must be the result of a security or privacy breach before the coverage is triggered. The allegations against Johnson & Bell asserted that the firm’s lax technology system exposed confidential information. However, there were no allegations that a security or privacy breach actually occurred, or that there was a breach of the plaintiffs’ confidential information.

Additionally, cyber liability policies, like professional liability policies, often exclude the return of fees and injunctive relief. Thus, even if a professional services firm has both professional liability and cyber liability insurance, coverage may not exist under either for a lawsuit similar to that filed against Johnson & Bell. Share this

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Broda is a partner with Sedgwick LLP. Phone: (312) 849-1953. Email: jennifer. broda@sedgwicklaw.com.

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