Insurance Journal West 2017-07-10

WEST REGION Zenefits Paying for Labor Violations Surplus Lines and Medical Pot Regs Insurtech Buys MGA in California

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Contents July 10, 2017 • Vol. 95 No. 13 • West

West W1 Zenefits to Pay $3.4M for Fair Labor Act Violations in California and Arizona

W1 ZENEFITS TO PAY $3.4M FOR FAIR

LABOR ACT VIOLATIONS IN CALIFORNIA AND ARIZONA

National 10 Catastrophe Losses Top $7B; P/C Insurers’ Net Income Drops

W2 California Surplus Lines Don’t Want to be Left out of State’s Marijuana Regs

14 Special Report: Getting Ready for the Flood: HCI to Expand Flood Product to 9 States

W4 Insurtech Startup Buys MGA in California with Aim of Delivering Product for Agents

16 Special Report: Private Insurers Eye Flood Market 18 Spotlight: How Technology Training Addresses Agency E&O, Data Security

Idea Exchange

14

GETTING READY FOR THE FLOOD: HCI TO EXPAND FLOOD INSURANCE SALES TO NINE STATES

22 Special Report: Zika Outbreak in U.S. Would Cost $180M to $10B 24 As Agents’ Needs Change, Startups Emerge, Big ‘I’ Looks to Remain Relevant

28 Be Prepared: Vetting Is Essential for CAT Season Support 30 The Competitive Advantage: State of the P/C Industry, Part 1 34 Tech Talk: Looking at Insurtech the Wrong Way 38 Closing Quote: Do Cyber Underwriters Need Property Underwriting Training?

Departments W6 People 11 Declarations 11 Figures

18

6 | INSURANCE JOURNAL | WEST JULY 10, 2017

HOW TECHNOLOGY TRAINING ADDRESSES AGENCY E&O, DATA SECURITY

33 MyNewMarkets 36 Business Moves INSURANCEJOURNAL.COM

OPENING NOTE

Write the Editor: awells@insurancejournal.com

Misunderstanding Deductibles

A 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, Tom Wetzel Contributing Writers

Lisa Doherty, Oyauma Garrison IJ ACADEMY OF INSURANCE Director Patrick Wraight pwraight@ijacademy.com Associate Director Barbara Whiffen bwhiffen@ijacademy.com

ADMINISTRATION

Chief Financial Officer Mark Wooster mwooster@wellsmedia.com

MARKETING

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

NEW MEDIA

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

CIRCULATION

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 Insurance Markets Manager Kristine Honey (619) 584-1100 X132 khoney@insurancejournal.com Social Media Manager Ly Short (619) 890-7735 Lshort@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 kdelamora@insurancejournal.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 Manager Elizabeth Duffy eduffy@wellsmedia.com

lmost five years after Superstorm Sandy, one third of homeowners in several coastal states are still unaware of hurricane deductibles and how they work, new insurance research has found.

Not only did 33 percent of respondents say they had never heard of these deductibles or were not sure what they were, one quarter of respondents lacked an understanding of deductibles in general.

The Insurance Research Council (IRC) released the results polling homeowners in New Jersey, North Carolina, South Carolina, Florida and Texas. Insureds were asked whether they were familiar with hurricane deductibles, which is a higher deductible found in homeowners insurance policies that applies when a hurricane occurs.

“The findings from this survey suggest that ample room exists for educating homeowners about a key feature of every homeowners insurance policy — deductibles,” said Elizabeth Sprinkel, senior vice president of the IRC. Hurricane deductibles were a prominent issue in 2012, with misunderstanding and confusion due to the fact that Sandy did not make landfall as a hurricane. These deductibles, which became more common after insurers suffered heavy losses from Hurricane Andrew in 1992, are often calculated as a percentage of the insured value of a home — another concept the IRC survey found unfamiliar to homeowners.

One in three respondents with percentage-based hurricane deductibles did not know or were unsure of the percentage applicable to their deductible, and four in 10 did not understand the basis for calculating the deductible. One in four respondents incorrectly thought the percentage was applied to the total amount of their claim.

The survey also found that the level of understanding of hurricane deductibles varied across the five states studied. Compared with respondents in the other states, New Jersey respondents demonstrated the lowest level of awareness and understanding of several hurricane deductible issues, despite the fact that about 346,000 FOR QUESTIONS homes in New Jersey were damaged or REGARDING SUBSCRIPTIONS: Call: 855-814-9547 destroyed by Sandy.

Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: The report, “Public Understanding of insurancejournal.com/subscribe Hurricane Deductibles, Need for Consumer Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Education Persists,” is based on an online 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 survey conducted by GfK Public Affairs & per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubCorporate Communications on behalf of the lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended IRC. A total of 1,047 homeowners were surto 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 veyed – 200 or more in each of the five states Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. studied.

Insurance Journal is a publication of Wells Media Group, Inc.

‘The findings from this survey suggest that ample room exists for educating homeowners about a key feature of every homeowners insurance policy — deductibles.’

Andrea Wells Editor-in-Chief

8 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

POSTMASTER: Send change of address form to Insurance Journal, Circulation Department, PO Box 708, Northbrook, IL 60065-9967 ARTICLE REPRINTS: For reprints of articles in this issue, contact: Kelly De La Mora at 1-800-897-9965 ext. 125 or kdelamora@wellsmedia.com Visit insurancejournal.com/reprints/ for more information.

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National

Catastrophe Losses Top $7B; Property/Casualty Insurers’ Net Income Drops 42.2% in Q1

T

he U.S. property/casualty insurance industry saw its net income fall to $7.7 billion in the first quarter (Q1) of 2017 from $13.4 billion in Q1 2016, a 42.2 percent decline. Also, its overall profitability as measured by its annualized rate of return on average policyholders’ surplus fell to 4.4 percent from 7.9 percent, according to ISO and the Property Casualty Insurers Association of America (PCI).

The industry experienced $7.3 billion in catastrophe losses, the highest Q1 catastrophe losses since the 1994 Northridge earthquake and $2.3 billion above the direct catastrophe losses for Q1 2016.

Three major wind and thunderstorm events each resulted in more than $1 billion in damages in Q1 2017, the first time the industry has had three events of that magnitude in Q1 in more than 60 years, 10 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

according to Beth Fitzgerald, senior vice president, Industry Engagement, ISO.

Three major wind and thunderstorm events each resulted in more than $1 billion in damages in first-quarter 2017.

Insurers’ combined ratio deteriorated to 99.6 percent for Q1 2017 from 97.4 percent for Q1 2016.

There was some good news. Net written premium growth accelerated to 4 percent for Q1 2017 from 3.2 percent for Q1 2016.

Net investment gains increased by $1.2 billion to $14.4 billion in Q1 2017 from $13.2 billion for Q1 2016. The industry’s surplus reached a new all-time high value of

$709.0 billion as of March 31, 2017, increasing $8.1 billion from $700.9 billion as of December 31, 2016.

Fitzgerald said that insurers are well capitalized and short-term volatility in catastrophe losses is not affecting their ability to provide coverage and pay claims.

“However, to remain profitable and provide appropriate returns on their capital, insurers need to plan for the long term and continue to engage in disciplined underwriting based on robust data and analytics,” she said.

Robert Gordon, PCI’s senior vice president for Policy Development and Research, said industry data shows personal auto loss ratio improvement in Q1 2017 but personal property lines losses increased, affected by an almost 50 percent increase in catastrophe losses.

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West

Zenefits to Pay $3.4M for Fair Labor Act Violations in California and Arizona

Z

enefits is in trouble with another government regulator.

San Francisco, Calif.-based Zenefits FTW Insurance Services violated the Fair Labor Standards Act by misclassifying 743 account executives and sales development representatives in San Francisco, and in Tempe and Scottsdale, Ariz., as exempt from minimum wage and overtime.

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That’s according to U.S. Department of Labor Wage and Hour Division investigators, which found in late June that the firm incorrectly paid the workers a flat salary for all hours worked, regardless of overtime or training time.

Zenefits will pay $3.4 million in unpaid overtime to 743 account executives and sales representatives in California and

Arizona to settle the matter. Zenefits has also entered into a compliance agreement that includes monitoring by the department to prevent future wage and hour violations.

Zenefits provides products and services, including software for payroll, timekeeping, hiring and employee benefits. The company also serves as an insurance broker.

JULY 10, 2017 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

California Surplus Lines Don’t Want to be Left out of State’s Marijuana Regs

By Don Jergler

C

alifornia’s surplus lines industry is trying to clear up the haze over a proposed regulation that would require medical marijuana businesses to purchase insurance only from admitted carriers.

The regulation is one of several regulations under consideration at a series of public hearings conducted by the Bureau of Medical Cannabis Regulation, which held its final hearing on the matter in Sacramento in late June.

The BMCR anticipates the regulations will be finalized by Jan. 1, 2018.

Among the proposals that will help govern the state’s budding medical marijuana business — some projections peg the new industry’s value at $7 billion, with an estimated $1 billion in taxes generated — is wording that limits businesses to getting coverage only from “authorized” insurers.

The Surplus Line Association of California was one of the first groups that lined up to weed out that part of the regulations.

Benjamin McKay, executive director of group, has testified at public hearings that the proposed regulation would make it difficult, if not impossible, for those in the marijuana business to procure insurance.

Section 5108, Subsection C of the proposed regulations would require licensees to obtain insurance policies from companies authorized to conduct business in California.

This language is “at odds with both market realities and the California Insurance Code,” McKay argues.

The lion’s share of businesses selling or involved in marijuana are insured in surplus lines market, he said.

McKay has explained to the BMCR that there are many cases when it is neces-

sary for California insurance consumers to shop outside the state for coverage, such as when the risk being covered is considered distressed, unique, high-capacity or too new for standard insurers to price.

McKay urged the bureau to reconsider the language limiting coverage to authorized insurers to ensure that businesses involved in the legal marijuana industry can get insurance.

Add the California Department of Insurance to the list of those who do not want the regulations preventing marijuana-related businesses to go to the nonadmitted market greenlighted.

The CDI in formal comments submitted a week ago expressed its concerns about the proposal, “which would have the consequence of allowing only licensed insurers to write coverage.”

The CDI has proposed language as a fix (deletions are stricken): • (c) A distributor licensee shall

‘It’s all the typical business covers that you would expect. ... There are a lot of companies in and around this space.’

W2 | INSURANCE JOURNAL | WEST JULY 10, 2017

•

•

•

•

maintain the insurance required in subsection (b) from an insurance company authorized to do business in California by the Secretary of State that is: (i) a nonadmitted insurer, that meets the requirements of Insurance Code section 1765.1 or 1765.2, and the insurance is placed pursuant to Insurance Code section 1763 and through a surplus line broker licensed under Insurance Code section 1765; or (ii) an insurer qualified to do business in California by the Secretary of State and authorized by the Insurance Commissioner to write the liability and property classes of insurance as defined by Insurance Code sections 102, 103, 107, 114, 108 and 120; or (iii) a registered risk retention group compliant with the California Risk Retention Act of 1991. See California Insurance Code sections 125 – 140. (d) A distributor licensee shall notify the bureau in writing within 10 calendar days of a lapse in insurance.

continued on page W4

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WEST | News & Markets

Insurtech Startup Buys MGA in California with Aim of Delivering Product for Agents

By Don Jergler

I

nsurtech startup Bridger has purchased Pleasanton, Calif.-based SCJ Insurance Services in a step toward launching what the firm contends will be “simpler, cheaper, and easier-to-manage automotive insurance.”

Bridger CEO Kimo Winterbottom talked about the acquisition with Insurance Journal in late June and said the plan is for the managing general agency to continue to work with independent agents.

“We’re producing a product for the independent agents,” Winterbottom said. “I think disintermediating the independent agent is foolhardy.”

He wouldn’t divulge the terms of the deal for SCJ. SCJ is a nonstandard auto program manager that also sells homeowners insurance.

Winterbottom said Bridger purchased the firm as the best way to test then launch products — similar to what a few large insurtechs have done in purchasing carriers to clear a path for their launch.

“By having the agency, we’ll have an ability to test proof-of-concept for some of the products we’re developing on a

tech front,” Winterbottom said. “I just feel like if you’re Lemonade or Metromile, you want to own a carrier, good for you. I feel like an MGA platform is a more capital-efficient approach to delivering technological products to the insurance industry.”

Agents dealing with Bridger will use a mobile native application, which he said will encompass the entire customer experience: from quoting, to binding to claims.

Winterbottom said he expects a full Bridger launch to occur in the next 18 to 24 months.

The focus of Bridger will be nonstandard auto, commercial auto and homeowners.

Melody Johnson, listed on SCJ’s website as the CEO, couldn’t be reached.

Johnson’s name was removed from the firm’s dial-by-name directory, and a person who answered the phone in the human resources department said she’s no longer with the company.

Winterbottom said he was replacing her as CEO, and Ken Chow has been named the new chief financial officer. Winterbottom has been involved in private equity and insurance for more than a dozen years. He

was CEO of Mount Beacon Holdings, executive chairman of Family Security Holdings LLC and a senior vice president at Lockton Cos. SCJ has a brief note about the Bridger purchase on its site: “Under new ownership and management from Bridger, we have taken bold action to leverage the firm’s rich legacy, deep relationships, and vast scale to disrupt the industry.”

Winterbottom was asked if there are plans to make other acquisitions.

“I don’t know,” he replied. “Depends on whether I like the product and the opportunity.”

SCJ also holds licenses in Texas and Arizona.

entering the marijuana business, specifically, federal law views marijuana as an illegal substance.

A list of marijuana insurance providers in California compiled by Marijuana Business Daily indicates that most insurers are non-admitted, and often non-traditional, with names like Cannabis Insurance Pros, Green Rock, InsureBud, MarijuanaInsurance.net, SOS Cannabis USA and www.MarijuanaBusiness InsuranceBroker.com.

James River, Scottsdale and Lloyd’s are among the numerous well-known insur-

ers who entered the state’s marijuana insurance business.

McKay said the lines of coverage he believes are needed for the for the marijuana business are extensive: general liability; clinical testing; all-risk commercial property; errors and omissions; crop insurance; garage liability; excess liability; errors and omissions; directors and officers.

“It’s all the typical business covers that you would expect,” McKay added.

“There are a lot of companies in and around this space.”

‘I think disintermediating the independent agent is foolhardy.’

continued from page W2

• (e) Admitted insurers and risk retention groups must show proof of capitalization in the amount of at least $10,000,000.

One reason the CDI and others may support doing away with the proposed exclusion of surplus lines insurers is that there are few if any admitted insurers in the marijuana market.

“We don’t know of any admitted products,” McKay said.

He pointed to some impediments that prevent most admitted carriers from W4 | INSURANCE JOURNAL | WEST JULY 10, 2017

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WEST | PEOPLE

Carrie Dolan

Trow Moody

Kerry Shapiro

San Francisco, Calif.-based Metromile has named Carrie Dolan chief financial officer.

Dolan most recently served as CFO of Lending Club, an online credit marketplace connecting borrowers and investors. Prior to Lending Club, Dolan was with Charles Schwab & Co, where she was senior vice president and treasurer and CFO of Schwab Bank. Early in her career, Dolan held various financial positions at Chevron.

Metromile’s pay-per-mile insurance is currently available in California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington.

Troy Moody, chief operations officer of Moody Insurance Agency Inc. in Colorado, has been elected to the board of directors of RiskProNet International.

Moody Insurance Agency has offices in Denver, Grand Junction, Colorado Springs and Fort Collins.

RiskProNet is an association of insurance headquartered in Menlo Park, Calif. Each member is an equal owner in the association.

BCU Risk Advisors has named Kerry Shapiro director of marketing and development in its newly opened Las Vegas, Nev., office.

Shapiro most recently ran the national sales office for Marsh PCS. He was previously with Azumidex and Aon. BCU provides property/casualty insurance con-

W6 | INSURANCE JOURNAL | WEST JULY 10, 2017

sulting and brokerage services.

CNA has named Gregg Fergot vice president of underwriting.

Fergot will be based in San Francisco and report to Dieter Korte, senior vice president of customer segments. He will be responsible for leading the technology segment.

Fergot was most recently vice president and head of technology in the middle market commercial segment for Zurich. Prior to that, he was Western zone vice president in global technology for Travelers. He has also been a regional manager for Chubb.

CNA’s insurance products include standard commercial lines, specialty lines, surety, marine and other property/casualty coverages.

JLT Specialty USA has named Jennifer Schaeffer senior vice president.

Schaeffer will be based in Based in San Francisco, Calif. and focus on business development.

Schaeffer joins JLT from Aon plc, where she was a senior vice president. Prior to Aon, Schaeffer was with Wells Fargo Insurance Services. Schaeffer began her career at NASDAQ. JLT Specialty USA is the U.S. platform of the specialty business advisory firm, Jardine Lloyd Thompson Group.

Alliant Insurance Services Inc. has named Reshma Dalia to chief financial officer of Alliant’s specialty group.

The firm has also named Andrew Laing a producer within the company’s Alliant Americas middle market division.

Dalia was previously senior vice president of operations and finance for the construction services group. She was at Aon Risk Solutions before joining Alliant.

Laing will be based in Portland, Ore., and be responsible for the design and delivery of insurance and risk management solutions to clients in real estate, construction and other industries.

Prior to joining Alliant, Laing was manager, business development and portfolio manager for Campbell Global, a timberland and natural resource investment manager. He was an investment banking analyst at Pacific Crest Securities prior to that.

Alliant provides property/casualty, workers’ compensation, employee benefits, surety, and financial products and services.

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Figures

192

The number of traffic fatalities in Kansas this year, as of June 21. That represents a 10.3 percent increase over the number of fatalities during the same period last year. The total number of traffic deaths in Kansas in 2016 was 429, up from 355 in 2015.

$182.29 The amount to which California’s 2018 minimum and maximum temporary total disability (TTD) rates will increase on Jan. 1, 2018. The state’s Division of Workers’ Compensation announced the minimum TTD rate will increase from $175.88 to $182.29, and the maximum rate will increase from $1,172.57 per week to $1215.27 per week.

$9.4 MILLION

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Drugs, Risks, Lies

“They used bogus front organizations and fake research; they used fraudulent advertising and deceptive trade practices. … And they repeatedly lied about the true risks of the drugs.”

— Missouri Attorney General Josh Hawley, after filing a lawsuit

against Purdue Pharma LP, Johnson & Johnson and units of Endo International Plc, accusing the drug manufacturers of fraudulently misrepresenting the risks of opioid painkillers. The companies are accused of violating Missouri’s consumer protection laws and its Medicaid statutes, and seeks hundreds of millions of dollars in damages and civil penalties.

Mother’s Work

“We’re talking about something that is so basic, it’s almost sad we have to legislate it. This is about working moms providing food for their babies.”

— Julia Parish, an attorney at Legal Aid at Work, hailed a deci-

sion by San Francisco supervisors, who approved legislation that requires employers to provide new mothers a clean and private space to pump their milk.

Senior Discounts

“Senior-citizen insurance discounts are meant to provide financial relief to the elderly, not illegally enrich fraudsters who want to avoid paying their fair share for coverage.”

— New Jersey Attorney General Christopher S. Porrino, after a

$2.2 BILLION The amount in Texas surplus lines insurance premium recorded by Surplus Lines Stamping Office of Texas (SLTX) for the first five months of 2017, up from the $2 billion reported during the same period in 2016. May 2017 alone accounted for $535 million in total premium, up from $510 million in May 2016 and $434 million in May 2015.

1.65 MILLION The amount paid by insurers in more than 300 dog bite claims in Tennessee in 2016, according to the Insurance Information Institute and State Farm.

Nationwide, dog bites and other dog-related injuries accounted for more than one-third of all homeowners liability claim dollars paid out in 2016, costing in excess of $600 million.

Declarations

The amount Rolling Stone magazine agreed to pay to settle a defamation lawsuit filed by a University of Virginia fraternity over a debunked story about a rape on campus. The settlement closes the final chapter of a lengthy legal saga sparked by the 2014 story, “A Rape on Campus,” which was retracted after a police investigation found no evidence to back up the account of the woman identified in the story only as “Jackie.”

Middlesex County, N.J., man was charged with insurance fraud and theft for allegedly impersonating his deceased mother to obtain cheaper renters insurance under her senior-discounted policy and for falsifying claims for jewelry and other items stolen during Superstorm Sandy. Nicholas Schneiderman was charged with two counts of insurance fraud, theft by deception, attempted theft by deception and impersonation.

Vigorous Denial

“While we vigorously deny the allegations in the complaint, we share public officials’ concerns about the opioid crisis, and we are committed to working collaboratively to find solutions.”

— Purdue Pharma, in a statement responding to a lawsuit

filed by three district attorneys representing parts of the east Tennessee mountains in Appalachia. The area has been the epicenter of the prescription drug epidemic that has ravaged the country. The lawsuit is among a growing number of such actions filed recently around the country against makers of opioid drugs.

InsuranceJournal.com

Poll

Who stands to gain the most from shifting more flood insurance business to the private sector?

24.4% Private insurers (153 votes) 9.57% Private reinsurers (60 votes) 36.68% Taxpayers (230 votes) 15.63% Flood insurance policyholders (98 votes) 11.8% Insurance agents and brokers (74 votes) 1.91% Other (12 votes)

Total Votes: 627

JULY 10, 2017 INSURANCE JOURNAL | NATIONAL | 11

NATIONAL | Special Report | The Disaster Issue

Getting Ready for the Flood: HCI to Expand Flood Insurance Sales to Nine States

By Andrew Simpson

A

s Congress tries to figure out how to change the federal flood insurance program to encourage more private insurer involvement, one insurer isn’t waiting to wade deeper into the private flood insurance business.

Florida-based HCI Group is looking to take its Florida flood insurance experience and proprietary insurance technology to nine additional states.

HCI Group said it has begun the regulatory process to expand its private flood insurance operation into Arkansas, California, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas.

Currently, the company offers flood insurance solely in Florida, where it has about 4,000 policies. It writes flood both as an endorsement to its standard homeowners policy in its established homeowners subsidiary, Homeowners Choice Property & Casualty Insurance Co., as well as standalone flood coverage through its TypTap subsidiary, a proprietary insurtech online platform to quote and bind policies.

“A core part of our long-term strategic plan has been — and continues to be — expanding and diversifying our operations geographically. We believe expansion into additional markets will leverage our proven business model, as well as our internally developed technol-

ogy,” said Paresh Patel, HCI Group’s chairman and chief executive officer.

Kevin Mitchell, HCI’s vice president for investor relations, said HCI is beginning talks with state regulators to see what approach will work best.

HCI is targeting middle-market homes, not preferred or high-end properties. Middleincome residents on the water are the ones “who really need the help,” Mitchell said.

HCI will be expanding regardless of potential changes to the National Flood Insurance Program (NFIP) to encourage more private insurers to sell.

“We need the competition.

We can’t write every risk,” Mitchell said.

Technology Key

While the insurer has been

14 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

writing flood policies in Florida since 2013, HCI ramped up its effort in April 2016. HCI is betting on TypTap and its technology to help capture market share. “The technology is the big thing,” Mitchell said. “It really hit a chord with agents.”

HCI Headquarters

TypTap makes it easy for agents to sell and property owners to buy flood coverage — potential customers type in their address then only need to answer three questions and pick an agent from a dropdown menu to purchase the policy.

The technology is important, but TypTap also competes with NFIP on coverage and pricing.

TypTap offers replacement cost on contents, no 30-day waiting period, and no elevation certificate. The coverage also offers a loss of use component, which isn’t available through NFIP policies, up to $500,000 on the building limit, and up to $250,000 on replacement and contents with underwriting approval.

According to Mitchell, TypTap can price its policies competitively because of its experience, its pricing models and perhaps because it does not have the burden of past losses from Katrina, Sandy and other storms that NFIP must surcharge policyholders to cover. NFIP is about $24 billion in debt.

“You have to be competitive,” Mitchell said. “You’re not trying to surcharge the customer to make up for underwriting mistakes.”

Mitchell said it’s “unfair” for new policyholders to have to pay for NFIP’s debt. “That’s not their fault,” he said.

Mitchell said technology is key. “You have to have the tech right to make it really work,” he said. “If we had a great flood product but everyone had to send in an ACORD form, it just wouldn’t work.”

He said that his company has not had problems satisfying lending requirements with its policies because it is an admitted carrier. Policyholders and agents also appreciate the “long-term commitment” HCI has made to the flood market.

Florida accounts for 37 percent of the NFIP’s policies, and leaders in the state have complained that its homeowners pay into NFIP more than they get in return and pay disproportionately higher rates than the rest of the country.

HCI Group owns subsidiaries engaged in homeowners’ insurance, reinsurance, real estate and information technology services. The company’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Co., is a provider of property/casualty insurance in Florida.

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NATIONAL | Special Report | The Disaster Issue

U

By Andrea Wells

16 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

nleashing the invisible hand that has been missing from the flood insurance market for nearly 50 years is no easy task. But private flood insurance experts say the change will be a good thing not only for private flood insurers but for consumers as well.

How much and how fast the private market for flood coverage will change depends on what Congress does to overhaul the current federal program, the National Flood Insurance Program (NFIP). The House and Senate are both working on legislation that would reauthorize the NFIP, which expires on Sept. 30, and introduce reforms that include changes to encourage private insurance. There appears to be bipartisan agreement on encouraging more of a private market, although there is some disagreement over how to go about it.

Some private insurers and brokers are enthused about the potential.

“It is inevitable that the private market will assume the dominant position of flood (insurance) in the United States,” claims Craig Poulton, CEO of Salt Lake City-based Poulton Associates, which administers one of the largest U.S. private flood insurance programs, the Natural Catastrophe Insurance Program, at CATcoverage.com.

Poulton believes that a vibrant private market will drive out waste in the NFIP. “When you look at how much of each dollar is available to pay a claim and what is paid in, you understand why there’s a $24 billion deficit,” he said.

The deficit continues to grow, he added. In January, the Federal Emergency Management Agency (FEMA)

again announced that the NFIP would need to borrow another $1.6 billion from the U.S. Treasury to break even on its 2016 losses. Add that to the existing debt, largely due to Hurricanes Katrina and Rita and Superstorm Sandy, and the NFIP currently is almost $25 billion in debt.

Taxpayers in every state where flooding is not a major issue are demanding change, according to Poulton. Why? “Because enough is enough.

Flood insurance is not special.

Flood insurance is insurance.

Flood insurance is just property insurance” and the private market should be insuring the risk, he said.

“Whatever works for homeowners [market] is going to work for flood. Let’s get it insured and let’s move forINSURANCEJOURNAL.COM

ward,” he said. “Overall, both the NFIP and the private market will deliver lower rates if you unleash the invisible hand.

That’s the way we see it, and we think we’ve demonstrated that.”

Uninsurable to Insurable

In the past, flood was considered an uninsurable risk for private market insurers.

“The reason that has been a generally accepted truth for many years, 50 years or so almost, is that we did not have the right information,” said Nancy Watkins, a principal consulting actuary for Milliman, an actuarial consulting firm in Seattle.

“Insurance companies for many years did not have that information, and they didn’t have any good way of measuring how risky a house was for flood peril. With catastrophe models over the last few years, and with a lot of big data sources coming available that didn’t used to be available, that problem has largely been reduced.”

The NFIP says it is not allowed by law to share its data. Data-sharing is among the issues addressed by the bills before Congress.

Another reason the private insurers have not jumped deep into flood waters is price.

“It was perceived — maybe true in some cases, maybe untrue in other cases — but it was generally perceived that the NFIPs rates were too low,” Watkins said.

“Without data to understand how risky a house was, and then having a suspicion that the NFIP’s prices were too low, there wasn’t much incentive [for carriers] to go in and try to offer coverage. Some comINSURANCEJOURNAL.COM

panies did it anyway and have been doing it for many years, but most companies didn’t,” Watkins said.

Things are different now, according to Watkins and others. NFIP premiums are no longer low in all cases and insurers have new underwriting tools they can deploy.

“First of all, after the storms of 2005, Katrina especially, the NFIP built up a very big deficit and they started raising their premiums. That really made a big difference in terms of perception as to whether their premiums were too low or not,” she said. “Once the premiums got higher, more in the range of what a private insurer might be interested in charging, there became real opportunity for private market insurers.”

The second thing driving opportunity for a bigger and better private market is new and evolving catastrophe models. Carriers can now measure flood risk in much of the same way as they measure wildfire risk, earthquake risk, hurricane risk, etc. “They’re already used to these big disaster types of occurrences, but they didn’t have a model for flood. Now they have several models for flood,” Watkins said.

More Than the NFIP

While the NFIP insures about five million policyholders, the opportunity for private market spans far beyond that, experts say.

There will always be a need and a place in the market for the NFIP, according to G. Michael Sloane, executive vice president and chief marketing officer of Wright Flood, one of the largest flood providers in the nation. Wright offers fed-

eral, excess and private flood insurance, rated A- (Excellent)

by A.M. Best, and claims to have written the first-ever flood policy through the NFIP. “We are strong believers that we will continue to grow the NFIP book and that marketplace will always be there. But we also have financial partners that allow us to be able to offer flood in the private market,” Sloane said. “We are going to go full throttle to continue to grow the NFIP book and provide a private flood alternative for those that want to pursue that course.”

Sloane doesn’t know how much of the NFIP book of business will be viable for the private market but he believes there’s no doubt that some could be moved out of the federal program. However, the real opportunity will come from outside of the NFIP, he said.

“What I think is going to happen and what is incumbent upon us as an industry and those that are offering a private flood alternative program is to grow that base outside of the NFIP, not just concentrate on what’s there already,” he said.

“Some 25 percent of all flood losses happen in non-required flood zones, or what we call preferred risks. And that’s just those that have insurance.

There are literally thousands more [properties] that didn’t have any type of coverage or thought they had coverage or didn’t understand coverage.

That’s where we really have to grow as an industry and I think competition and the private market can help stimulate that more.”

Milliman’s Watkins says that opening up the insurance market should afford homeowners

insurers an opportunity to offer existing policyholders broader and more complete property coverage.

“For an insurance company, one of the major opportunities is to offer more coverage to their existing policyholders that people really need,” she said. “Flood is not just a hurricane or a river. It’s just a lot of rain sometimes, and a lot of rain can happen anywhere.

Or a pipe breaking down the street, and the water flows down the hill and gets into your house.

‘It is inevitable that the private market will assume the dominant position of flood in the United States.’

“It’s water that gets in, rising up from the ground, and that is not as unusual as many of the other perils that are already covered under homeowners insurance.”

Flood is an opportunity for homeowners insurers to provide coverage that people really need, she added. “It’s an opportunity [for the industry] to not have a black-eye when somebody’s man cave gets flooded in a bad rainstorm, and he thinks he has coverage, and then finds out that he doesn’t.”

Flooding in basements is often excluded from a typical homeowners policy.

If insurers are able to properly price flood coverage, one or two man caves getting wet, is OK. “They can pay for it, because they collected premium for 98 other man caves that

continued on page 20

JULY 10, 2017 INSURANCE JOURNAL | NATIONAL | 17

NATIONAL | Spotlight | Errors & Omissions

How Technology Training Addresses Agency E&O, Data Security

By Andrea Wells

E

mployees at Little Rock, Ark.-based Stephens Insurance have had a front-row seat in the development of agency technology that works the way they do.

The agency is a Vertafore Agency of the Year, recognized for working closely with Vertafore’s developers, giving them feedback for their latest programs based the actual needs, workflow and habits of real employees.

“It included bringing on several people from Vertafore on site, and they actually sat with our users, would watch them do things, and then would ask questions,” Brittany Bulloch, business process manager for the agency said.

“It was very much for them to get an understanding, because a lot of these Vertafore employees that came on site were developers. They weren’t insurance people.

“They had ideas of how things should work. But then when they would watch a user, they could see the different ways that they would move through the software 18 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

program or the different ways that they would work and recognize, ‘We thought that this made a lot of sense if they went from here, here, to here, but they’re not doing that. They’re going from here, over to here and then back to here.’

“That gave them that insight to be able to adjust the product and adjust their perspective on how people would process the work and then use that to adjust their development.

So they don’t get the product so far along that it takes a lot of effort to bring it back, and move it in a different direction.”

insurance industry. We’ve done things the same way for so long that there are a lot of habits, there are a lot of comfort levels,” she said.

“When you’re asking people to start changing the way they do things, it can create some challenges. This was a great way for our users who were maybe a little timid about some of the changes we were asking them to make. This allowed them to see that Vertafore was really engaged in making this product as effective for them as possible. That was wonderful for me, to be able to bring that to my users.

Obviously, Vertafore was able to get a lot of information and get a better road map for development.”

The agency has been growing and now has a full-time technology trainer on staff.

“We are constantly pushing training because what can happen is people will try to train all at one time, and that’s a lot of information. What we have found that works better is, obviously, you have to do some level of introductory training that’s somewhat intensive. But then dripping information, little by little, over an extended period of time.”

On the Web

Agency Benefits

To watch a video of Brittany Bulloch’s interview visit: www.insurancejournal.tv.

While Vertafore obviously benefited from the process, so did the agency.

Bulloch said employees appreciated being listened to when being asked to change the way they were doing things.

“Change, especially with technology. is hard, it is very hard, especially in the

E&O Risk

Having a trainer is a way to help control the agency’s E&O exposure.

“As technology is evolving really quickly, if the users that have to engage that

continued on page 20 INSURANCEJOURNAL.COM

NATIONAL | Spotlight | Errors & Omissions continued from page 18 technology don’t understand what they’re doing, that’s where you can get in a really dangerous spot,” she said.

“It’s all about teaching and educating, because there’s a lot going on and everybody still has their regular job to do and they are just trying to get it done as quickly as possible. If you aren’t keeping them up to speed then you’re definitely going to walk into a potential errors and omission (E&O) situation in my opinion, because they’re going to put something somewhere they don’t intend, or make something available or not make something available and there you go.”

The agency stresses data security and how employees should be managing the agency clients’ data. The trainer also helps in this area, including with simple things like educating employees not to click on links they don’t recognize.

She cited a situation where a user unin-

tentionally deleted an entire client file. “[I]t moved it to this other location and it’s a process to get it back where it needs to be. If you don’t take the time to make sure that people understand how to use the technology they could really walk themselves straight into a major issue,” she said.

“We’re constantly reminding them of the issues that they need to be concerned about and giving them tips and tricks, and trying to not overwhelm them,” she said.

It’s important to be “consistent with new pieces of information and training,” she said.

Bulloch acknowledged there is pressure for agencies, especially growing agencies like Stephens, to automate as much as possible. “Most agencies want everything done in this exact standardized way because obviously as you get big, you need to have that insight and structure,” she said.

Having a baseline that ensures the safety of client information and guards against E&O exposures is important, she said.

However, she cautions against going too far and devaluing employees and their intelligence, especially when it comes to dealing with customers.

“It’s very important to recognize that technology can do a lot of things. But there are some things that humans need to be doing, and so [it’s important to find] the value of where should I have people engaging and where do I need to be engaging technology and keeping that as a central focus. So you don’t windup tapping into technology to do something that you really should have a person doing.”

“While I love technology, it doesn’t fix everything,” she said.

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Flood, continued from page 17 didn’t get wet,” she said. “All in all, they hopefully made a profit on it. That’s the way homeowners works.”

If insurers can sell flood to more of their existing policyholders, not just the riskiest properties, and bundle flood in with other coverages, then they’ve increased their premiums, while also increasing coverage for their policyholders, Watkins said.

Matt Herr, president and lead underwriter for Superior Flood Inc., also known as Flood Insurance Services, in Brighton, Colo., agrees that insurers are not just interested in cherry-picking the best risks from the NFIP. He says insurers are interested in providing a broader coverage flood product, at the right pricing structure in order to make a profit.

He believes the insurance industry can deliver on that promise by reducing some of the cost that comes along with a government-run program.

“There’s a lot of overhead that we don’t have and that’s true with any private market side versus the forced NFIP policy or government-run,” Kerr said.

“There’s a lot of extra layers and layers

20 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

and layers and layers [in the NFIP] and that money could be allocated on the FEMA side to pay for claims. On the Lloyd’s side, which we write the private [flood] through, we run lean and mean.

We don’t have a lot of fat in the steak.”

Everybody Stands to Gain

Martin Hartley, executive vice president and chief operating officer of Florida-based PURE Insurance, says everyone stands to gain by opening up the flood insurance market but adds there is huge room for improvement all around.

“The NFIP does an excellent job at what it was originally designed for, but I think there is huge room for innovation and improvement,” Hartley said.

“Unleashing the private market [in flood] while keeping some presence in federal responsibility, policyholders will gain because there will certainly be more choice. There’ll be more competition.

Different insurance companies will price risks differently and have a different view of risks. People can only benefit from that.”

Will insurance companies benefit?

Sure, he says, but like any competitive product line the short-term view will be tight. “Short-term, insurers may overcompete, but I think ultimately it would probably benefit private enterprise.”

Hartley sees more product innovation occurring as more competition enters the market as well.

“Right now, in the private market, there is a lot of ‘me-too-ing’ of the NFIP. It’s the same coverage the NFIP is writing. That’s just simpler, because it’s easier to get banks to approve a private market as the flood carrier to satisfy the mortgage requirements if the coverage is the same,” he said. “There isn’t a lot of creativity yet in how flood coverage is offered.”

People want to buy flood especially post-disaster.

“There is a great opportunity for the private market to come up with products that people want and to come up with service that people want,” he added.

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NATIONAL | Special Report | The Disaster Issue

Zika Outbreak in U.S. Would Cost from $180 Million to $10 Billion: Research

E

ven a relatively mild Zika outbreak in the United States could cost more than $183 million in medical costs and productivity losses, while a more severe one could result in $1.2 billion or more in medical costs and productivity losses, suggests a computational analysis led by Johns Hopkins Bloomberg School of Public Health researchers.

The report in PLOS Neglected Tropical Diseases, a journal on tropical diseases, estimates the potential effect of a Zika outbreak based on a variety of epidemic sizes. The researchers focused on five Southeastern states (Alabama, Florida, Georgia, Louisiana and Mississippi) and Texas, the U.S. locations most populated by Aedes aegypti, the mosquito most likely to carry the disease.

While many people with Zika show mild symptoms, if any, a Zika infection during pregnancy can cause birth defects such as microcephaly or other severe brain defects. In regions affected by Zika, there have also been increased reports of Guillain-Barré syndrome, a rare illness of the nervous system.

There is no treatment nor is there a vaccine to prevent Zika.

“This is a threat that has not gone away. Zika is still spreading silently, and we are just now in mosquito season in the United States, which has the potential of significantly increasing the spread,” said study leader Dr. Bruce Y. Lee, an associate professor in the

Department of International Health at the Bloomberg School. “There’s still a lot we don’t know about the virus, but it is becoming clear that more resources will be needed to protect public health. Understanding what a Zika epidemic might look like, however, can really help us with planning and policymaking as we prepare.”

With funding for Zika detection, prevention and control still uncertain, policymakers need estimates of Zika costs to help guide funding decisions, according to the researchers.

It is unclear how many people in the United States have been infected and how many more cases will occur this summer, but they say the findings are evidence that the costs of any Zika outbreak would be high.

For their research, Lee and his colleagues from Johns Hopkins, Yale and the National School of Tropical Medicine developed and ran a computational model based on different rates of spread of Zika if it were to hit the six states, taking into account factors including healthcare costs — such as visits to the doctor, laboratory tests and the lifetime cost of caring for a child born with microcephaly — as well as productivity losses.

22 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

Zika outbreak is believed to have originated. They are also lower than recent outbreaks of chikungunya, a virus spread the same way as Zika, including one in Puerto Rico (23.5 percent).

Even when assuming an attack rate — the percentage of the population that eventually gets infected — of only 0.01 percent, the model estimates Zika would cost more than $183 million and cause more than 7,000 infections, two cases of microcephaly and four cases of Guillain-Barré.

An attack rate of 1 percent would cause more than 704,000 infections, 200 cases of microcephaly and 423 cases of Guillain-Barré. The 1 percent attack rate could result in $1.2 billion in medical costs and productivity losses. A 10 percent attack rate could result in more than $10.3 billion in medical costs and productivity losses.

These attack rates would still be substantially lower than those observed in French Polynesia (66 percent), Yap Island in Micronesia (73 percent) and State of Bahia in Brazil (32 percent) where the

‘This is a threat that has not gone away.’

Last year, Congress allocated $1.1 billion for mosquito control efforts and vaccine development, and for emergency healthcare for Puerto Rico, where more than 35,000 people contracted the virus. Lee believes far more money may be necessary.

“Without details regarding the Zika prevention measures that would be implemented and how effective these may be, it is unclear what percentage of these costs may be averted,” Lee said. “Our model shows it is very likely that preventing an epidemic — or at least finding ways to slow one down — would save money, especially because epidemics like Zika have hidden costs that aren’t always considered.”

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NATIONAL | News & Markets

As Agents’ Needs Change and Startups Emerge, Big ‘I’ Looks to Remain Relevant

S

pencer Houldin is chairman of the nation’s largest and oldest agents’ association, the Independent Insurance Agents and Brokers of America (Big “I”). He is also co-president of the family run Ericson Insurance Advisors, an 80-year old agency serving the greater New York City and Litchfield County, Conn., region. His father William Houldin, who took over the agency in 1963 after the death of its founder, retired in 2005, leaving the agency in the hands of his sons, Peter, Scott and Spencer. Spencer has 25 years of experience as a personal insurance advisor and leads Ericson’s high-net-worth personal insurance division.

As chairman of the Big “I”, Houldin appreciates how many agencies are small startups that are looking for different help from the association than firms like his established business might expect. In this edited interview with Insurance

Journal’s Andrea Wells, he discusses the meaning of independence in an age of private equity, how his agency developed its high-net-worth specialty, the future for different distribution channels, and the role of the association in meeting the needs of today’s agencies.

Wells: Let’s talk about independent, because it does seem that the term independent has changed. There are agencies now that are owned by carriers and by banks. They’re owned by private equity investors. What does being independent mean to you?

Houldin: Independent means

very competitive price. When you look at the three different channels of selling insurance, you have your direct writers, your 800 numbers. There is a consumer that’s interested in that, but there really isn’t any counsel. There really isn’t any consumer advice that’s given to those people.

Then you have your captive agents, who only sell one product and that’s for that insurance company. While they provide the counsel, they don’t have any choice in anything but what they have.

The real power, especially as technology is allowing an independent agent to give a higher level of service on off-hours, is the independent agent that not only can give the 24-7 service but also can have many, many solutions in their arsenal. I think this will be the direction of the future for the consumer.

I’m really scared about the captive agent, that they’re going to be squeezed out, and we’re going to have direct writers and we’re going to have independent agents.

But it’s a really exciting time to be an independent agent.

Wells: What are your goals for your chairmanship?

Houldin: It’s really import-

ant that we focus on the value proposition to our end-user today and for tomorrow. Of course, we have mergers and acquisitions that are taking that we have choice and that place at a rapid pace, but we we can deliver to the consumalso have a lot of startups. er a customized solution at a Our Agency Universe Study that came out late last year showed the number of independent agenTo watch Spencer Houldin’s interview, cies in the country visit: www.insurancejournal.tv actually has stayed fairly flat over the

On the Web

24 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

past decade. Despite the myth that mergers and acquisitions are making the independent agent system decrease in numbers, it’s actually not true, because we have a lot of people that are starting up in small offices. We need to capture them as members.

We have started a very significant initiative on membership recruitment. We started with two states, South Carolina and New Jersey, at the beginning of this year. They’re our beta testers. New Jersey has already acquired eight new members, and they all tend to be the startup types.

It’s important that we address the needs of all of our members but especially the startup types. The world is changing at a faster pace than we’ve ever seen. Why somebody belongs to a trade association 20 years ago is different than why they belong today, so trying to identify what does the member need from us so that we can stay relevant.

We’re in the process now, as an executive committee and as a board, looking at the future needs of the independent agency system so that we can meet those needs and stay relevant.

Wells: A younger agency or a smaller agency might have different needs or goals. How do you address those?

Houldin: We do have mar-

kets. We have Big “I” Markets, which is a Big “I” initiative, where we have contracted with insurance companies that a smaller agency may not have the volume to be able to get an appointment on their own. But they can access many markets through Big “I” Markets. Using the power of 22,000 indepen-

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NATIONAL | News & Markets continued from page 24 dent agencies that are members, we’re able to bring market access to those younger and startup agencies.

Also, our resources, whether education, or errors and omissions products. We have a bank, InsurBanc, designed specifically to loan money to startups. We have a ton of tools for that startup agency to help them get off the ground.

Wells: Over your agency’s 80-something year history, you have evolved into a specialist agency. How much of your business today is in the high-net-worth market?

Houldin: About 10 years ago,

we sold our benefits division, so we only sell property and casualty. At that time, we were about 60 percent personal lines from a revenue standpoint, 40 percent commercial — again, all property and casualty. Today, we’re about 80 percent personal insurance, 20 percent commercial insurance.

We decided that there is a segment of the population that wants a different client experience. While price is always going to be important, there is a customer intimacy, there is a customer experience, that can be a very powerful value proposition.

We decided to go after that consumer who really wants amazing advice. For instance, when they have a car accident, we’ll have a rental car delivered to their house. Just like somebody’s willing to spend a thousand dollars a night on a hotel room for a different experience, that’s the consumer that we decided to go after.

Revenue-wise, it’s just gone through the roof. On finding those, that’s been a difficult thing over a decade, how you

get to the high-net-worth individual. The good news is that rich people talk to rich people.

Although it takes a while, word of mouth is how it has spread.

Wells: How would you describe the market for highnet-worth? I know there’s a limited amount of business and rates have been dropping in the soft market, yet you have seen some new entrants.

Is the competition steep?

Houldin: It’s always steep,

but we love competition because it only makes us stronger. Certainly with the consolidation of ACE, Chubb and Fireman’s Fund into the new Chubb, we’ve lost some markets in the high-net-worth space. But as you mentioned, there are some entrants.

What’s more of an opportunity for us is there is a ton of business that is with direct writers that technically is highnet-worth or affluent business.

We have a saying, “get rich, never switch.” People will go and buy a what I will call vanilla contract, when they’re in their 20s, and they’ll just never change because they either are intimidated by the product to begin with or they just don’t know any better.

The opportunity is actually getting to the individuals that haven’t seen or been taught, “Why would I go with a company like Chubb or AIG Private Client Group or PURE or Cincinnati? Why is their contract better? Why is their claims service better? Why do they fit our needs better?”

Wells: Technology is changing very rapidly. Your own agency has developed something new. Talk about InsureScope.

Houldin: InsureScope is an

26 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

effort to bring the digital world to the independent agency system and the high-net-worth.

There is a segment of the population, especially emerging wealth, who want to do business online but also want the advice. InsureScope is a way for somebody to engage with us in a digital fashion. We will communicate to them with a highly customized solution, but it won’t be voice-to-voice as much as it will be digital-to-digital, 24-7.

We’re experimenting with it. We’re learning a lot. We’re really excited about the launch.

We’ve gotten great response, and we’ll continue to learn and evolve the product over the coming years.

Wells: What about the area of talent, hiring younger people. Is that something that your agency has invested in?

Houldin: It definitely is a cri-

sis in the independent agency system to bring on the next generation. There are plenty of resources to help train them and the Big “I” certainly has developed many resources.

What’s difficult is, depending on where you are, that how you source some of it changes.

If you’re in a college town, for

instance, that’s a much different strategy than if you’re where Ericson Insurance is, which is in a town of 2,500 people in the hills of Connecticut.

Our past two hires have been young adults who are phenomenal individuals but do not have insurance experience. For two years, we’ve been teaching them insurance and they’ve both turned into superstars.

There’s different ways to acquire talent, but it really can be geographic. What’s a shame is our industry is an incredibly great industry, but it’s not sexy.

Young people have no idea what an independent agent does, and I don’t think we do a good job of telling our story.

Anybody that’s in the business looks back and says, “Best decision of my life was to become an independent agent,” for reasons that I’ve stated. It just gives you independence of your schedule, it’s a very financially rewarding industry, and it gives you an opportunity to help people. I think it’s overlooked by young people, and that’s a huge mistake. Share

this article with a colleague.

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Idea Exchange

The Disaster Issue

Be Prepared: Vetting is Essential for CAT Season Support

By Oyauma Garrison

N

atural disasters are unforeseen and unpredictable — leaving a path of devastation and destruction in their wake.

With catastrophe (CAT) season around the corner, insurance organizations need to take a look at their contingency plans.

If faced with the sudden and often overwhelming demand that accompanies disaster situations, is your organization prepared?

organizations are in recruiting, resources are pushed to the brink and quickly tapped out in a time of disaster.

Timing is everything during these emergency CAT situations, lest an organization finds itself unable to adequately meet the needs of the insureds.

As a result, catastrophes are one of the most common reasons insurance organizations turn to interim professionals.

With the insurance industry continuing to face a growing “war for talent,” hiring staff quickly is difficult. Many are turning to outside staffing firms to meet their emergency human capital needs. These temporary staffing firms can react immediately and efficiently when the need arises, providing immediate support and assistance.

The Human Capital Crunch

When a catastrophe strikes — suddenly and disastrously — your organization’s response is only as good as its workforce. Unfortunately, many insurance organizations continue to operate on a “run lean” staffing plan, embracing the “doing more with less” mindset that emerged amid the Great Recession. Thus, they are often challenged to find the internal resources necessary to respond when a disaster hits. No matter how proactive 28 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

Vetting a Staffing Partner

To best prepare for the CAT season, establish a relationship with a temporary staffing firm that can react quickly. It is important to do your due-diligence and vet potential partners to ensure they understand your business well enough to provide efficient and effective talent immediately.

Has the firm worked with CAT situations before, or is their focus more on general temporary solutions? You want to partner

with an organization that has a track-record of providing talent to address disaster situations.

There are unique challenges involved in CAT staffing, and partnering with an organization that has experience will decrease response time.

How quickly is the firm able to deploy people locally and remotely? In times of crisis,

your organization wants to get “boots on the ground” as quickly as possible.

Policyholders expect immediacy — and your organization needs to deliver. Make sure your temp staffing partner can activate talent at a moment’s notice. These individuals should be deployed immediately and arrive on location quickly. In addition, they should require minimal ramp-up time to ensure they can jump in and get to work.

How deep is the firm’s candidate pool? Look for an organization

with a deep bench of positions, locations, disciplines and licensures. Their talent net-

work should include a broad cross-section of interim professionals — from entry-level staff to subject matter experts.

Having this range of talent is vital when responding to a CAT event. Organizations may also want to consider partnering with a boutique firm that has unique access to a database of professionals who already have insurance experience. These individuals understand the business and industry and are ready to make an impact.

Does the staffing firm ensure a specific level of care? You want

to make sure your staffing partner guarantees a high level of service. At the end of the day, the talent represents your organization and brand. In highstress situations, such as disasters and catastrophes, putting a good foot forward is key to maintaining positive interactions with your insureds.

CAT season is a critical time for most insurance organizations. The race is on to prepare and find a response to the high-demand experienced during a disaster. Plan interim staff is key. This strategy provides a unique and seamless response that enables your organization to respond quickly and effectively. Proactively developing a relationship with a temporary staffing partner can be the difference in successfully navigating the impending CAT season.

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

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Idea Exchange

The Competitive Advantage

State of the P/C Insurance Industry, Part 1: The Fate of ‘Hard Market’ Agencies (and Companies)

By Chris Burand

P

roperty/casualty (P/C) insurance and group benefits industry is changing faster than ever. Many factors are the parents of such change. In part one of this two part series, I will focus on the more traditional aspects and effects on agencies — the old-fashioned pricing cycle.

In the “old” days, only about 10 years ago, the P/C industry would go through hard and soft market cycles. Typically, companies would underprice or excessively relax their underwriting standards to grow more quickly. Insurance company executives were always confident and assuring that this time, they were pricing correctly. However, each time they were not pricing or underwriting correctly.

Their mistake or excessive confidence would lead to a hard market, where prices increased 10 percent to 50 percent upon renewal overall, and coverages became difficult to obtain. In the most infamous hard market, the mid-’80s, some liability coverages were not realistically obtainable.

Companies had to turn the market hard to make up for their underpricing sins, incompetency or both. Warren Buffet summed up the situation extremely well when he wrote in Berkshire Hathaway’s annual report, “In 1999, a number of insurers announced reserve adjustments that made a mockery of the ‘earnings’ that 30 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

investors had relied on earlier when making their buy-and-sell decisions.”

Some companies did not play this game and became known as “hard market” companies. These were companies that agents could count on when a difficult hard market arrived. They would not play the pricing game in a soft market; they suffered in the soft market. Agencies then had to have soft market and hard market companies.

that was, frankly, just an accepted reality.

The P/C market has been in a soft market for 13 years, longer than any soft market going back to 1900. Net premiums written (NPW) growth has not exceeded 4.4 percent once in that time. Looking forward, growth is not likely to accelerate. Growth is likely to decrease further. This long and deep soft market has far-reaching effects.

Soft and Hard Agencies

First, hard market agencies have had to transform or sell, because hard market agencies were based on the cycle turning roughly at least every seven years. A hard market would last three or four years, generating enough growth to see them through the next seven years. In a long soft market, they fell too far behind which may be a fac-

Agencies could often be divided into hard and soft market agencies, too. Soft market agencies sold price. They grew more quickly in soft markets because they could always find a cheaper price.

Sometimes prices dropped so fast they could cause clients to move midterm. In hard markets, they suffered. They had absolutely nothing to offer clients.

Hard market agencies grew in tough times because they held onto their existing accounts, but at much higher rates.

They also gained accounts because they had the companies that would write in a hard market (hard markets are historically correlated with higher number of insolvencies and downgrades). They generally also made much more contingency money because hard market agencies tended to be better upfront underwriters.

The cycle more or less evened out. Companies and agencies were fairly clear about their place in the market cycle. Some did not make it through the extremes of either part of the cycle and

Hard Times

tor in them selling (and an important reason so many buyers’ true, especially alpha, organic growth rates, completely stagnate after the deal and after the earn-outs end).

The second nail in hard market agencies’ coffins is how these hard market agencies were generally better underwriters.

Between waiting for the large bump, a hard market gave to their revenues and often much higher contingencies earned. Hard market agencies did not work hard selling.

They were more reactive, waiting for customers to find them or waiting for the right time (a hard market) to make a sale. Quite often, hard market agencies had no sales culture, whereas soft market agencies did, sometimes to the extreme where the producers were incompetent or even unethical. Few agencies historically were truly in the middle, which was a quiet point of frustration for carriers.

2.7 times what it was in 1996. Surplus has increased by approximately 172 percent during this time, while premiums have only increased approximately 97 percent.

With so much surplus, and so much profit, the probability of the market remaining

soft, even getting more soft, is far higher than the probability of it turning hard.

Organic Growth

Hard market agencies may not have a

continued on Page 32

Risk management is not a game.

Burand is an insurance agency and

industry consultant, author and analyst.

This article is based on his most recent 50-page whitepaper, State of the P&C Insurance Industry 2017, his “must- read” annual report with his forecast for the industry and independent agents. The special report is available from Insurance Journal’s Research and Trends division.

A soft market is created by adequate to excess surplus and profitability. A hard market requires lack of profit and, most importantly, a dangerous decline in surplus.

Both factors will almost definitely create a really hard market. A dangerous decline in surplus is actually more important than a lack of profitability. In today’s markets, carriers in total have made a large profit each year, every year since 2002. Their average profit the past 20 years is $37 billion on both a pretax and net income basis.

Why do carriers need to raise rates and create a hard market when they are making $37 billion each year?

Because surplus is more important than profits relative to the market turning hard, industry surplus hit an all-time high in 2016. Using A.M. Best data and 1996 as the base, surplus is now approximately INSURANCEJOURNAL.COM

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JULY 10, 2017 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

The Competitive Advantage

continued from page 31

place in this industry. Making their situation worse, carriers still need growth, especially if they are stock companies.

Hard market agencies grew with rates historically or through client duress (clients came to them when their soft market

“

agency could not find a carrier in a hard market). They did not typically proactively go out and find new clients. In a perpetual soft market, proactively finding new clients is a must. Many hard market agencies do not have the tools to make this hap-

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What does this mean to agencies?

Companies do not need agencies doing upfront underwriting, assuming they are using sophisticated modeling software.

Agents are frustrated by the emphasis companies are placing in contingencies on growth, and what they see as a de-emphasis on upfront underwriting, or loss ratios. Hard market agencies often earned high contingencies because their upfront underwriting was good. Companies do not necessarily value that model today and it’s a paradigm change for those agencies.

Technology is devaluing upfront underwriting and changing the nature and frequency of claims. With the promise of automotive technology to decrease claims enough to reduce auto premiums by 20 percent, the potential for water leak sensors to eliminate non-cat water damage claims, plus new employee safety technology, companies may find themselves making money even with their bad management. The issue is, when claims decrease, premiums eventually decrease, and therefore, companies need growth.

The industry has been through the longest soft market in history and barring a catastrophe or black swan event, this soft market is likely to remain for the foreseeable future. Agencies and companies that can generate organic growth, not purchased growth, have the best opportunity at outsized success.

Burand Associates is headquartered in Pueblo, Colorado. Burand can be reached at info@ burand-associates.com or 719-485-3868.

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32 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

pen. If an agency cannot generate organic growth, it probably will not survive.

Another environmental factor pushing the extinction of hard market agencies is the invention and use of predictive modeling, and the development of quality behavioral underwriting/pricing models.

These models “promise” more exact pricing based on a data set. Much of that data used to be provided by the agency. This was upfront underwriting, gained by being on premise and knowing the consumer. In theory, the predictive models obviate the data and vetting an agency would provide.

6/14/17 10:09 AM

INSURANCEJOURNAL.COM

MyNewMarkets | NATIONAL Inland Marine Hypermarket

Market Detail: Ascinsure

Rental Property Insurance

Market Detail: US Assure’s

(www.usassure.com) rental dwelling product is available for well-maintained one- to four-unit family dwellings.

This includes their detached structures, occupied by tenants only, with no more than two losses in the past three years, and with continuous insurance coverage for the past three years. The rental dwelling product is serviced by a dedicated, responsive team of experts, requires no premium commitment and offers competitive compensation to retail agents and brokers.

Product highlights include: streamlined underwriting process and online application; standard 12-month policy term, with short-term policies available in many states; optional coverage includes loss of rents, theft, back-up of sewer and drains, tenant relocation, and additional living expenses; property coverage up to $1 million; premises liability up to $1 million each occurrence/ aggregate; minimum property value is $20,000 for condoINSURANCEJOURNAL.COM

miniums and $50,000 for all other residential dwellings; rental dwelling policy can easily be converted to a vacant structure policy; direct bill with premium payment installment options and a credit card payment method. Eligibility requirements include: row homes; condominium or co-op units; manufactured/ mobile homes — provided they are fixed to permanent foundations, skirted and are not movable; and detached structures with respect to garages and larger storage sheds that can be rented to tenants provided they are not used for any commercial purposes (a separate limit is required for these structures).

Carrier: Diamond State Insurance Co. States: Ala., Ark., Ariz., Colo., Conn., Ga., Iowa, Ill., Ind., Ky., La., Mass., Mich., Minn., Mo., Miss., N.C., Neb., N.J., N.M., Nev., N.Y., Ohio, Pa., S.C., S.D., Tenn., Texas, Va., and Wis. Contact: Heather Crews at 800-800-3907 or email: info@usassure.com

Residential Insurance for Dwellings and Rental Homes

Market Detail: QuickIns (www. quickins.com) offers online, phone and email quoting for hard-to-place homes with tenants, including primary, secondary/seasonal and rental homes. See states available per quoting option. Targeted classes include: DP-1 basic and DP-3 special form; primary, secondary/seasonal, rental properties up to $1 million; protection classes one to 10; hard-to-place risks including coastal properties; trusts & LLCs; all construction types Available limits: As needed Carrier: Various, admitted and nonadmitted available States: Ala., Ark., Ariz., Calif., Colo., Conn., D.C., Dela., Fla., Ga., Iowa, Idaho, Ill., Ind., Kan., La., Mass., Md., Maine, Mich., Minn., Mo., Miss., N.C., N.H., N.J., N.M., Nev., N.Y., Ohio, Ore., Pa., R.I., S.C., Tenn., Texas, Utah, Va., Wash., Wis., and W.Va. Contact: Customer service at 877-275-9578 or QuickHomeQuotes@allrisks. com.

Special Risk (www.ascinsure. com) writes all types of inland marine risks, including: any equipment-driven risk; builders and general contractors; machine shops; well drilling and servicing; broadcasting property and equipment; electronic equipment; railroad rolling stock; warehouseman’s legal liability; scientific equipment; oil and gas equipment; surface mining; warehouses; builder’s risk; wind coverage available in Southeast United States; building material dealers; medical diagnostic equipment; stamp and coin dealers; courier and small package delivery. Ascinsure’s comprehensive inland marine program can cover any risk.

Available limits: As needed Carrier: Unable to disclose, admitted States: All states Contact: Ken Helmick at 877372-0517 or email: ken@ ascinsure.com

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

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JULY 10, 2017 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Tech Talk

Looking at Insurtech the Wrong Way

By Tom Wetzel

I

nsurtechs stimulate a lot of debate among agents about the extent to which they pose a threat and what should be done to address it. Some dismiss the threat by analyzing flaws in a particular venture or mocking past studies that predict the demise of the independent agent. Such criticism may provide some solace but misses the point of what’s driving the creation of insurtechs, and more importantly, what steps agents can take in response.

First, there is some confusion over the definition of an insurtech. The broadest definition involves the use of technology

innovations designed to create cost savings and efficiency. Some, however, define it more narrowly to mean startups, such as Slice, Lemonade and Hippo, that target different customer segments, especially millennials, with push-button coverages.

The former is more accurate, but for the purposes of this column, let’s use the latter definition, then discuss what agents can do by using the broader description.

These startups all share one mission: To simplify all or part of the insurance process from marketing to underwriting to claims using technology and big data. Many of these startups may fail as so many skeptics point out. What’s also true, however, is the underlying conditions and opportunity to exploit them will remain, so eventually some of these insurtechs will succeed big.

In response, carriers are addressing the need to streamline the insurance process, but agents must also do their part.

“I don’t think ‘good’ agents are overly concerned about the startups, but agents who are little more than price quoters are or should be,” says Bill Wilson, founder of Insurance Commentary.com and formerly the associate vice president of education and research for the Independent Insurance Agents & Brokers of America.

‘I don’t think ‘good’ agents are overly concerned about the startups, but agents who are little more than price quoters are or should be.’

“Someone can always develop a policy or adopt claims practices that cover little and sell it cheap. But I also don’t think we should underestimate insurtech’s efforts to simplify the insurance process.”

Wilson does think the industry can and should question a startup’s approach.

“Underwriting accuracy and regulatory fairness are the issues,” he said. “There are serious questions about the accuracy, reliability and relevance of some of the data being used.”

Using the broader definition of insurtechs helps identify steps agents need to take to counter these startups.

“Insurance innovations fall into two categories: frontend innovations focus on improving the customer experience and satisfaction, while back-end innovations include technologies that are mainly designed to increase companies’ operational performance,” said Peter Teresi, chief executive officer of

the ACORD Solutions Group, a subsidiary of ACORD that supports the implementation of standards.

“Agents must provide customers with friction-less communication — in other words, communication with no limits, like chatbot and automated replies, so customers may receive help whenever they need it, even if the agent is not available,” Teresi said. Most policyholders require many different types of insurance throughout their lives. “As a consequence, agents should utilize the multiple opportunities and develop customer life-time value that can be boosted by insurtechs — market prediction, customer acquisition, and insurance online distribution, among others,” he said.

Insurance technology can help agents with productivity post sales as well. “In some aspects, insurtech presents independent agents with one of their biggest opportunities if utilized in the right way by improving post-sale productivity and conversion rates,” Teresi added. “Agents will always have their own advantages, such as their industry expertise and being local, carrier-agnostic and dedicated to handson service.” Agents should also utilize the uprising insurance technologies to efficiently target customers and provide more transparent communication, he advised. “With the combined use of traditional skill sets and innovative technologies, agents can do much more.” Share this article with a

colleague.

IJMAG.COM/71IN Wetzel heads his own firm that specializes in website design and social media for agents through its Social Media Content Roadmap©. Website: www.wetzeland associates.com. Email: twetzel@wetzelandassociates.com.

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NATIONAL | Business Moves

Cross Insurance, Appleby & Wyman Insurance Agency

Cross Insurance, a Bangor, Maine-based subsidiary of Cross Financial Corp., has acquired Appleby & Wyman Insurance Agency, making it the 16th Massachusetts insurance agency to be purchased by Cross.

Founded in 1903, Appleby & Wyman was established to serve the insurance needs of businesses and individuals throughout the U.S. It is licensed in 38 states, including all New England states as well as New York, New Jersey, Pennsylvania, Delaware, California, Florida and more.

With offices in Beverly and Westford, Mass., the agency provides comprehensive advice in all areas of insurance and benefit needs, such as property and casualty programs, employee benefit solutions, buy/sell agreements, bonds and investment services.

Under the terms of the acquisition, Appleby & Wyman will become a wholly-owned subsidiary of Cross Financial Corp. and will continue to operate

under the same name. Appleby & Wyman executives will continue to manage the Beverly and Westford offices.

Lisa Marciano will serve as president. Christine Sciola and Mary Ann Dignan will serve as vice presidents. Stephanie Murphy will serve as assistant vice president, and Carmen Marciano, former chairman of the board, will assume the position of senior management advisor.

Cross Insurance owns and operates 15 additional agencies in Massachusetts, including offices in Duxbury, Braintree, Norwell, Weymouth and Quincy; two offices in Boston, three on the North Shore, two in Metrowest and three in Western Massachusetts.

Financial terms of the acquisition are not being disclosed.

World Insurance Associates, Wm. G. Palermo Inc.

World Insurance Associates LLC, an independent insurance agency headquartered in Tinton Falls, N.J., acquired Wm. G. Palermo Inc. of Linden, N.J.

36 | INSURANCE JOURNAL | NATIONAL JULY 10, 2017

Wm. G. Palermo Inc. is a third-generation, family owned insurance agency that was established on March 1, 1944, by William G. Palermo.

The firm services its clients’ personal and business insurance needs in New Jersey and Pennsylvania.

World Insurance Associates LLC offers personal and business insurance solutions in 46 states. The company specializes in group benefits and insurance for transportation companies, the hospitality industry, coastal properties and high-net-worth individuals, in addition to general commercial clients.

It began business in 2012 and now serves customers from 11 offices in New Jersey, Pennsylvania, and New York.

Hub International Limited, Brady Insurance Planning

Hub International Ltd., a global insurance brokerage, has acquired the assets of Brady Insurance Planning.

Terms of the acquisition were not disclosed.

Based in East Norwich, N.Y., Brady is an employee benefits advisor. Matthew Brady, the principal, will join Hub Northeast following the transaction.

Headquartered in Chicago, Hub International Ltd. provides property and casualty, life and health, employee benefits, investment and risk management products and services from offices throughout North America. It maintains a strategy of growing organically and through acquisitions to expand its geographic footprint and strengthen industry and product expertise.

Worley Claims Services, Apex Claims Service of New England

Worley Claims Services LLC, a provider of insurance claims services in the U.S., has acquired Apex Claims Service of New England LLC, a provider of daily and catastrophe commercial and residential property claims based in Westfield, Mass.

Financial terms of the transaction were not disclosed.

StoneRidge Advisors LLC advised Worley on the transaction.

Founded in 2005, Apex is a property claims adjusting and services provider in the Northeast. The company specializes in providing daily and complex loss adjusting services for regional and national insurance carriers.

The acquisition allows Worley to enhance its ability to service clients in the Northeast, said Worley CEO Jim Pearl.

The agreement with Apex is Worley’s fifth acquisition since 2015. In July 2015, Worley acquired NCA Group, a provider of daily and catastrophe residential and commercial property claims services throughout the U.S. In October 2015, Worley acquired Charlotte, N.C.-based RJMW Claims Services, a regional provider of daily and catastrophe residential and commercial property claims services.

In July 2016, Worley acquired San Jose, Calif.-based Summit Independent Claim Services, which provides commercial/GA and residential property loss adjusting services.

Most recently, in August 2016, Worley acquired Orlando, INSURANCEJOURNAL.COM

Fla.-based Nexxus Solutions Group, a nationally managed repair contractor and service provider network serving the property insurance industry in the U.S. and Canada.

Worley, based in Hammond, La., provides property, auto and casualty claims adjustment services and staffing solutions to national and regional insurance companies, managing general agents (MGAs), third-party administrators, self-insured corporations and clients in the federal or state government sector.

Aquiline Capital Partners, a New York-based private equity firm investing in financial services, acquired a majority stake in Worley in October 2014.

H.W. Kaufman Financial Group, Chlystek & White Services Inc.

H.W. Kaufman Financial Group has acquired Grand Rapids, Mich.-based Chlystek & White Services (CWS) Inc., a regional insurance premium audit services company.

CWS will become part of Afirm, Kaufman’s international provider of premium audits, loss control, and risk services.

Afirm is based in Fort Collins, Colo.

Each of CWS’s 158 employees will be retained by Afirm, including principal shareholder Mark de Waal, who will act as vice president of sales. He will be based in Grand Rapids.

CWS Inc. has served the premium audit needs of commercial lines insurance providers since 1988, with roots to 1968.

In addition to Afirm, Farmington Hills, Mich.-based H.W. Kaufman Financial Group also includes Atain INSURANCEJOURNAL.COM

Insurance Companies, Chesterfield Insurance Brokers, Lochain Patrick, Cranbrook Underwriting, Global Excess Partners, Burns & Wilcox, Burns & Wilcox Brokerage, Burns & Wilcox Canada, Burns & Wilcox Re, R.B. Jones, Royal Premium and Minuteman Adjusters.

MarketScout, Specialty Program Group

Dallas-based insurance exchange MarketScout, which provides agents with access to specialty markets, has sold its workers’ compensation managing general agency business to Specialty Program Group.

MarketScout said it sold the specialty unit, which it said handles $100 million in business, to fund a planned expansion into insurance technology and other MGA ventures. The national unit specializes in underwriting for hard-to-place, high-hazard risks in various industries, including transportation, construction, healthcare, retail and manufacturing.

Specialty Program Group (SPG) said it will re-brand the business as Specialty Comp Insurance Solutions.

The purchase price and terms were not disclosed.

SPG is a wholly-owned subsidiary of global insurance broker Hub International founded in 2015 to expand Hub’s reach into program and specialty business. The group is based in Summit, N.J.

J.M. Wilson, Klinger Associates Inc.

J.M. Wilson has acquired assets from Klinger Associates Inc., an Indianapolis-based wholesale insurance broker.

The acquisition will allow J.M. Wilson to increase its brokerage business.

The J.M. Wilson brokerage department has more than 50 combined years of experience.

J.M. Wilson is an MGA and surplus lines broker providing independent insurance agents access to specialty markets for personal and commercial lines.

Heavin Insurance Agency, Arvak Insurance Group, Leavitt Group Two Corpus Christi, Texas-based employee benefits providers, Heavin Insurance Agency and Arvak Insurance Group, have merged and joined the insurance broker network, Leavitt Group, to become Heavin, Otto & Leavitt.

Will Heavin of Heavin Insurance Agency and John Otto of Arvak Insurance Group are co-owners of the agency.

Seeman Holtz Property and Casualty Inc., Vincent, Urban, Walker & Associates

Seeman Holtz Property and Casualty Inc. has acquired Vincent, Urban, Walker & Associates, an independent insurance agency headquartered in Green Bay, Wis. Doug Walker and his partners at Vincent, Urban, Walker & Associates

have served the Green Bay area and beyond for more than 20 years. Their success is expected to strengthen Seeman Holtz’s foothold across the nation and in the Midwest.

Seeman Holtz Property and Casualty targets high-quality independent agencies for geographic expansion and growth.

Florida-based Seeman Holtz provides comprehensive financial and insurance advice to clients nationwide.

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JULY 10, 2017 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Do Cyber Underwriters Need Property Underwriting Training?

By Lisa Doherty

A

single cyber event can create multiple exposures with potential effects on one or more of a company’s insurance policies.

Cyber underwriters grappling with liability from such events would do well to learn from property underwriters who have a wealth of experience addressing similar issues in the following three areas:

Aggregation Exposure

Until recently, aggregation exposure was best known in property insurance, most typically related to natural disasters. For example, following an earthquake in Los Angeles, insurers would ask themselves how many insureds are in the city and what is the total aggregate loss. But as demonstrated by recent ransomware attack WannaCry, which affected 230,000 computers in 150 countries, aggregation is an issue for cyber as well. Who could have imagined vulnerabilities in older versions of the Microsoft Windows operating

system could cause worldwide damage to companies that failed to use an update patch?

Cyber insurers need to follow the lead of property insurers by expanding the range of possibility and determining aggregation issues.

For instance, today more than a million businesses manage finances on Quickbooks Online and store critical bookkeeping data in the cloud.

Imagine if QBO went down, disrupting mission-critical functions such as invoicing clients and doing payroll. Find out what popular software and cloud-computing services are being used by the insured to identify issues and losses.

As property carriers track ZIP codes to determine aggregation, cyber underwriters could track software and underwrite to those providers.

Business Interruption

One of the toughest challenges property underwriters and companies confront is determining exposure from downtime and consequential loss. With technology playing a pivotal role in operations, a breach or unleashed virus could cause disruption to a plant or to registers processing sales transactions. Recently, Starbucks was forced to close many outlets because glitches from a routine software update adversely affected operations.

Clients now want to add business interruption coverage from such events to cyber policies, but cyber underwriters are

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‘Who could have imagined vulnerabilities in older versions of the Microsoft Windows operating system could cause worldwide damage to companies that failed to use an update patch?’ grappling with how to value and underwrite this exposure.

Cyber underwriters need to do a better job of risk assessment.

They should approach business interruption with rigor and employ a multidisciplinary strategy that includes soliciting input from property underwriters versed in the firm’s industry.

Risk Management

Property requires the highest levels of risk management.

It’s not unusual for property underwriters to mandate risk mitigation measures to prevent losses and deny coverage when requirements aren’t being met. For example, one

property policy stipulated fencing be put around a new building construction site.

When the insured failed to do so and an intruder burned the building down two weeks before opening, the loss wasn’t covered. Cyber underwriters should take a similar risk management approach. In the aftermath of WannaCry, it’s easy to imagine mandating the insured fix holes in operating software within several weeks of notification or the policy won’t respond. Similar risk management mandates could be applied to financial transactions to minimize social engineering fraud schemes, whereby a duped employee wires money into a fraudulent account.

The risk management approaches already being utilized for property policies could go a long way toward protect all sides by encouraging insureds to take appropriate steps to mitigate risk.

Doherty is co-founder, president and CEO of Business Risk Partners. Phone: 860-903-0002. Email: ldoherty@ businessriskpartners.com.

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