Insurance Journal West 2017-11-20

WEST REGION Selling Cannabis Insurance in Calif.

Fallout in Wine Country Wildfires Colorado Workers’ Comp Rates

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Contents November 20, 2017 • Vol. 95 No. 22 • West

West

National

W1 Filing Approved for First Admitted Insurer in California to Sell Cannabis Insurance

8 Insurance Agents Make Gains to Organic Growth in Q2: Reagan

W2 Southern California Auto Shop Owner Sentenced to Prison in $180K Fraud Case

10 What to Expect for Commercial Insurance Pricing: Willis Towers Watson

W2 Chuck Norris Suing in California over MRI Chemical He Says Poisoned Wife

11 New Judicial Appointments Could Help Curb Shareholder Suits, Reduce D&O Losses

W4 Someone Else’s Wires May Have Started California Wildfires, PG&E Says W4 Pinnacol in Colorado to Drop Workers’ Comp Rates 7.4% in 2018

W6 GRAPES OF WRATH: INSURANCE FALLOUT

FROM THE WINE COUNTRY WILDFIRES

22 HOW SURETY BONDS IMPACT CONTRACTOR

AND AGENT RELATIONSHIPS

12 M&A Review: Deal Activity for 2017 on Record Pace: MarshBerry 16 Special Report: Senior Living Market in a Changing World 20 Closer Look: Top 50 Personal Lines Leaders

Idea Exchange

22 Spotlight: How Surety Bonds Impact Contractor and Agent Relationships

W6 Grapes of Wrath: Insurance Fallout from the Wine Country Wildfires 26 A Storm of Construction Claims Likely Following 2017 Hurricane Season 28 Tech Talk: Tech Tips to Reach Millennials 30 The Wedge: When Hiring Seek the Help of a Bad Cop 32 Hurricanes Highlight the Need for Digital Transformation 34 Minding Your Business:

Disaster Planning for Agencies

Departments

38 Closing Quote: Rebating Laws Should Not Apply to Broker Fee Agreements

9 Declarations 9 Figures

26 A STORM OF CONSTRUCTION CLAIMS LIKELY

FOLLOWING 2017 HURRICANE

4 | INSURANCE JOURNAL | WEST NOVEMBER 20, 2017

14 Business Moves 21 MyNewMarkets INSURANCEJOURNAL.COM

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Active Shooter and Senior Living Risks

O

Publisher Mark Wells mwells@wellsmedia.com

EDITORIAL

SALES

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

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

East Editor Elizabeth Blosfield eblosfield@insurancejournal.com

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

Chief Content Officer Andrew Simpson asimpson@insurancejournal.com

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

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

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

Advertising Coordinator Columnists Erin Burns (619) 584-1100 X120 Catherine Oak, Bill Schoeffler, Randy eburns@insurancejournal.com Schwantz, Tom Wetzel Insurance Markets Manager Contributing Writers Kristine Honey (619) 584-1100 X132 Bruce Allen, Richard Brown, khoney@insurancejournal.com

David Eggert, Bill Fox, Mark Hanna, Holly Harvey, James Koelzer, Social Media Manager Robert Meyers, Kyle Foltyn-Smith Ly Short (619) 890-7735 Lshort@insurancejournal.com IJ ACADEMY OF INSURANCE Director Classifieds, Jobs, Patrick Wraight Agencies Wanted/For Sale pwraight@ijacademy.com Sr. Sales & Marketing Coordinator Kelly De La Mora (800) 897-9965 X125 Associate Director kdelamora@insurancejournal.com Barbara Whiffen bwhiffen@ijacademy.com DESIGN/WEB Chief Technology Officer/ ADMINISTRATION Chief Innovation Officer Chief Financial Officer Joshua Carlson Mark Wooster jcarlson@insurancejournal.com mwooster@wellsmedia.com V.P. of Design MARKETING Guy Boccia Marketing Director gboccia@insurancejournal.com Derence Walk dwalk@insurancejournal.com Senior Web Developer Chris Thompson Marketing Administrator cthompson@insurancejournal.com Gayle Wells gwells@insurancejournal.com Web Developer Jeff Cardrant NEW MEDIA jcardrant@insurancejournal.com New Media Producer Bobbie Dodge Web Developer bdodge@insurancejournal.com Terrance Woest twoest@wellsmedia.com Videographer/Editor Ashley Waldrop awaldrop@insurancejournal.com

CIRCULATION

Circulation Manager Elizabeth Duffy eduffy@wellsmedia.com

ne area of emerging risk for many industries, including the long term care or senior living market, is active shooter risk. Not only are residents/patients at risk, but so are senior living facility employees.

“An active shooter event is something that no one wants to imagine happening in a senior living community, but the reality is that all places where people congregate, including senior living communities, are vulnerable,” said John Atkinson, managing partner, Senior Living practice, Willis Towers Watson. “This vulnerability calls for an increased need for preparedness,” he added.

In partnership with Sorensen, Wilder and Associates, Willis Towers Watson developed the Active Shooter/Armed Intruder Readiness Program. The program is designed to help senior living communities plan for, respond to and recover from active shooter events.

Organizations can access the material for free online and customize it for their own use.

The materials include: • Critical action steps training video; • Sample policy and procedure for active shooter/armed intruder; • Company and community readiness plan and checklist; and • Webinar for active shooter awareness in a senior living community.

‘There’s a fair amount of information for schools and workplaces but we felt that senior living/ long term care has unique exposures.’

Atkinson said the program spawned from conversations with members of Argentum, a national trade association serving senior living communities. (See page 16 for more on the senior living market.)

“They started looking for resources on active shooter training and guidance specific to senior living communities, and there wasn’t any,” he said. “There’s a fair amount of information for schools and workplaces but we felt that senior living/long term care has unique exposures. We wanted to make sure that we had tools available to train staff and be prepared.”

The preparedness program was released in late September and has so far been popular, he said. “We’ve been getting a lot of calls about it.” Atkinson said that WTW and its FOR QUESTIONS supporting carrier partners are providing the REGARDING SUBSCRIPTIONS: Call: 855-814-9547 training and video at no cost to the industry.

Outside the U.S., call 847-400-5951 or you may subscribe or change your address online at: To access the preparedness program, visit: insurancejournal.com/subscribe http://willis.com/Client_Solutions/Industries/ Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media Healthcare/SeniorLiving.

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 per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2016 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission.

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

Andrea Wells Editor-in-Chief

6 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

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National

Insurance Agents Make Gains to Organic Growth in Q2: Reagan

I

nsurance agencies and brokerage firms reported that their organic growth rebounded to 4.6 percent in the second quarter of 2017, a reversal from the 3.9 percent reported in the first quarter, which was the weakest growth rate since 2011.

Kevin Stipe, president of Reagan Consulting, the merger-and-acquisition advisory firm that issued the report, Reagan Consulting’s Organic Growth and Profitability (OGP) Survey, said several factors have influenced the change. They include a stronger-than-expected U.S. economy, more favorable property/casualty pricing, and organic growth gains in both commercial and personal lines.

“Agency and brokerage firms have shown remarkable resiliency after a disappointing first quarter of 2017,” Stipe said.

Organic growth in commercial lines rose to 3.9 percent from 3.1 percent a year earlier, while in personal lines it rose to 2.3 percent

from 1.7 percent — the fastest growth rate since 2013.

“What makes the personal lines result even more encouraging for agencies and brokerages is the fact that many observers suggest this business is vulnerable to technology-driven disruption and potential disintermediation,” Stipe said.

Profitability, defined as agent-broker earnings before interest, taxes, depreciation and amortization (EBITDA), also reversed course, rising to 24.6 percent in the second quarter, up from 23.1 percent in the same quarter last year.

In previous quarters, EBITDA margins had receded and first-quarter 2017 was the lowest among Reagan Consulting’s surveyed brokers in five years. Reagan Consulting said EBITDA margins tend to hit their highest level in the first quarter, due to the reporting of contingent income, and decline over the course of the year.

8 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

Firms participating in the OGP survey are reporting greater confidence, forecasting 5 percent growth for the rest of the year.

M&A activity remains very strong, with historically high deal volume over the last two years. Still, Reagan noted that the 2016 Agency Universe Study by FutureOne, a collaboration between the Independent Insurance Agents and Brokers of America and various insurers, found the number of agencies has actually increased during the last 10 years.

“Simply put, don’t count out agency and brokerage firms. They are showing great resilience and growth, and they continue to attract capital. The distribution channel has its challenges, but it’s as good a time to be in this business as it ever has been,” Stipe said.

Reagan Consulting’s survey uses submissions from more than 150 midsize and large agencies and brokerage firms.

INSURANCEJOURNAL.COM

Figures

309

Declarations

42

Poor Job with Opioids

“We do a pretty poor job of putting time into discussing these medications.”

— Michael Crooks with the healthcare consulting firm Alliant

The number of acres burned in a 2016 wildfire that a former Maine fire chief has pleaded guilty to setting. Ricky Plummer, 61, originally said he was elsewhere, but later said he accidentally started it while smoking. Per the plea agreement, he will receive a two-year sentence.

$61 BILLION

Health, speaking on the opioid epidemic. Crooks spoke at the University of Georgia College of Public Health’s annual “State of the Public’s Health” conference in October. Medicaid statistics show an especially high use of opioids in southeast and northwest Georgia, and counties north and east of Athens, Ga.

Highway Racetrack

“If the limit is raised to 75, they will be going 85 to 90 … I’m on the interstate three to four times a week, and it feels like I’m in a NASCAR race.”

— An Arkansas motorist, responding to a request for comment by state highway officials on whether to raise highway speeds to 75 mph. State legislators this year approved raising the speed on interstate highway to 75 mph and said other highways’ speed limits should be raised if it can be done safely.

Pipeline Protest

“I’m not opposing oil and gas … What I’m saying is that you should not go through populated areas when you put in a pipeline.”

— Gerard Neugebauer, mayor of Green, Ohio, wants a natural

gas pipeline being built by Calgary, Canada-based Enbridge and Detroit’s DTE Energy moved away from his community of 25,000 residents. The $2 billion, 255-mile-long NEXUS pipeline will go from the shale fields of Appalachia across northern Ohio and into Michigan and Canada. Unless moved, nearly 8 miles will go through Green.

The Worst The number of people who have died on Minnesota roads from Jan. 1, 2017 to Nov. 6, 2017. The state Office of Traffic Safety says 201 people were in motor vehicles, 52 were motorcyclists, 33 were pedestrians and five were bicyclists. Fifteen died in other vehicles.

Minnesota reported 340 road deaths by the same date the previous year.

$2.4 MILLION The amount a Georgia Vidalia onion producer must pay in damages and unpaid overtime to hundreds of workers. A federal judge ruled that Bland Farms Production and Packing LLC, owned by Delbert Bland, failed to pay overtime to 460 workers during spring harvest seasons from 2012 to 2017. The U.S. Department of Labor sued the company in 2014. The crop, grown in just 20 Georgia counties, was valued at $120 million in 2016.

INSURANCEJOURNAL.COM

The amount, plus change, the state of Texas needs from the federal government to rebuild public infrastructure damaged

by Hurricane Harvey and to cover projects to prevent future flooding, according to John Sharp, Texas’ Harvey recovery “czar.” Sharp said the figure was based on surveys of local officials and future U.S. Army Corps of Engineer proposals after the storm caused $180 billion in damages statewide.

“The cases involving contractors defrauding victims, to me, are the worst of the worse. You’ve got people down and out trying to put their lives back together. It’s like getting hit twice.”

— New Jersey Attorney General Christopher Porrino commenting on the more than 200 people charged in New Jersey with $11 million worth of Hurricane Sandy-related fraud. Most cases involved homeowners filing fraudulent applications for relief funds; others have been contractors. Some have been charged with fraud in New York. Authorities say they scammed federal loan programs after the storm, which occurred five years ago.

InsuranceJournal.com

Poll

Which of the following have you found to be the best source of new hires in your business?

$2.1 MILLION

Other insurance or financial services firms

Votes Percent

Schools and universities

25 3.81%

The amount Montana officials say they have secured in federal disaster aid for ongoing cleanup efforts in the town of Baker, where an October tornado tore up homes and left a lake covered in hundreds of tons of debris. The funding will come from the Federal Emergency Management Agency.

Referrals

61 33.7%

Industry conferences

2 1.1%

Online job boards, social or other digital media

13 7.18%

Word of mouth

30 16.57%

Help wanted advertising

4 2.21%

31 17.13%

Recruiters/employment agencies 12 6.63%

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 9

NATIONAL | News & Markets

What to Expect for Commercial Insurance Pricing for 2018: WTW’s Marketplace Realities

C

ommercial insurance buyers should brace for rate increases for 2018 as the industry continues to tally losses following one of the most financially disruptive hurricane seasons in history, according to global insurance advisor Willis Towers Watson.

According to WTW’s 2018 Marketplace Realities report, underwriters will be pushing for rate increases as they reconcile what is expected to be a significant earnings hit for many, and a potentially material capital hit for some. For underwriters needing to dip into capital to fund their losses, the pressure to raise rates to replenish that capital could be unyielding. For buyers, this may mean the long soft market for commercial property insurance could be over, at least temporarily. There may be upward pressure on rates in other lines of insurance,

according to the report.

Joseph C. Peiser, head of Broking for Willis Towers Watson North America, urged organizations to begin preparing now for changing market conditions.

“Now is the time for organizations to catalog the positive differentiators in their risk profile to set themselves apart from the pack at renewal time,” he said. He also recommended that insureds “define their risk tolerances so they know where their ceiling is” if rates and retentions spike.

In the property market, where insured losses from recent catastrophes are expected to exceed $100 billion, WTW experts expect “some type of market correction” after insurers have a chance to estimate their ultimate losses. However, the pricing impact to buyers will likely not manifest until the first or second quarter of

10 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

next year. While there is still a high degree of uncertainty, rates are forecast to potentially rise 10 percent to 20 percent for catastrophe-exposed risks, and 20 percent to 25 percent for catastrophe-exposed risks, with recent losses. Other property insurance buyers can expect flat rates or low single-digit increases.

Meanwhile, according to the report, several factors could dampen the upward pressure on rates, including still-abundant capacity and what experts view as “still eager” alternative capital providers.

Casualty rates, which had begun to drift downward for many organizations, are predicted to be flat or increase by small amounts as pressure from the catastrophe losses spills over into other lines. Auto rates for businesses will maintain their single-digit increases, while workers’ compensation rates are expected to be stable. For product recall, WTW experts predict rates to range from –5 percent to +5 percent.

The report anticipates many specialty insurance lines of business will “follow their own supply and demand curve.”

For example, the directors and officers (D&O) liability marketplace outlook is “not as soft,” as underwriters are mindful of potentially adverse D&O claims activity and looking for ways to avoid compounding the year-over-year impact of declining rate. For terrorism insurance, buyers should expect flat renewals rather than the decreases they have seen in recent renewals. Meanwhile, in the environmental insurance market, the high double-digit increases for combined environmental-casualty programs

have begun to ease.

In the cyber liability insurance market, demand continues to rise and supply of capacity is “more than keeping up,” according to the report.

Despite a string of high-profile breaches, cyber insurance program renewals for primary and excess cover are averaging only single-digit rate increases. Underwriters have offered premium decreases to organizations that can demonstrate increased levels of security and internal policy controls. The report forecasts rate increases of up to 5 percent for 2018.

Key price predictions for 2018, according to the report:

Property

• Non-cat risks: Flat to +5% • Cat-exposed risks: +10% to +20% • Cat-exposed with losses: +20% to +25%

Casualty • • • • • • •

General liability: Flat to +3% Umbrella: Flat to +3% Excess: Flat Workers’ comp: –2% to +2% Auto: +3% to +8% International: –10% to –5%; –5% to flat for Defense Base Act coverage

Executive Risks

• Directors and officers: –7% to flat • Errors and omissions: Flat to +5% (good loss experience) • Employment practices liability: Flat to +5%; +5% to +15% in California • Fiduciary: –5% to +5% (flat to +12% for large concentrations of stock in benefit plans

Marine

• Cargo, Hull: Flat to +10% • Liability: –5% to +10% INSURANCEJOURNAL.COM

West

Filing Approved for First Admitted Insurer in California to Sell Cannabis Insurance

T

he California insurance commissioner has approved the first filing by an admitted commercial insurance company to sell cannabis business insurance.

Insurance Commissioner Dave Jones in early November announced the approved filing from Golden Bear Insurance Co. “This is the first of what I hope will be many commercial carriers filing insurance products to fill insurance coverage gaps for the cannabis industry,” Jones said in a statement. “Consumers who visit cannabis businesses, workers who work there, businesses who sell products INSURANCEJOURNAL.COM

to or rent property to cannabis businesses, and the investors, owners and operators of cannabis businesses all should have insurance coverage available to help them recover when something goes wrong just as any other legalized business does.”

Jones launched an initiative earlier this year to encourage admitted insurers to write insurance to fill coverage gaps for the cannabis industry. Jones has convened meetings between commercial insurance company executives and cannabis business owners to educate the industry about the cannabis industry.

Jones has also organized tours for insurance executives at cannabis businesses.

Last month Jones held a public hearing to identify insurance gaps faced by the cannabis industry. Cannabis businesses and insurance industry representatives testified about the limited availability of insurance for cannabis businesses.

Many at the hearing said that while there is insurance available from surplus lines insurers, insurance coverage is limited in scope. Jones also announced that staff from the California Department of Insurance would be allocated to cannabis insurance filings.

NOVEMBER 20, 2017 INSURANCE JOURNAL | WEST | W1

WEST | News & Markets

Southern California Auto Shop Owner Sentenced to Prison in $180K Fraud Case

H

ani Abujudeh, 55, of Rancho Cucamonga, Calif., the reputed leader of an auto insurance fraud scheme, was sentenced to six years in state prison.

Abujudeh was sentenced earlier this month for his involvement with a scheme in which he filed more than 35 fraudulent claims, manipulated used car odometers and vehicle titles to make the vehicles appear more valuable and then used false identities of other victims to sell those cars on Craigslist and Auto Trader to unsuspecting customers.

Abujudeh pleaded guilty to seven felony counts including auto insurance fraud, money laundering, perjury, false impersonation and grand theft.

Abujudeh was required to make victim restitution in the full amount of $183,475.22. The victims included 15 individuals and four insurance carriers.

An investigation by the Inland Empire Auto Insurance Fraud Task Force, led by the California Department of Insurance,

revealed Abujudeh, owner and operator of Perfect Auto Detailers, filed more than 35 claims on his company insurance policy claiming various fictitious employees crashed customer vehicles as they were being moved.

Abujudeh claimed the vehicles were taken to his shop for auto detailing when the collisions occurred.

During a search conducted at Abujudeh’s residence, 25 fraudulent California drivers’ licenses were recovered with Abujudeh’s picture on them as well as evidence of the various fraudulent insurance claims and vehicle sales. By following the title transfers on each of these vehicles, the team began to unravel the complex web of fraud involving Abujudeh and his co-defendants.

Investigators revealed the licenses were

used by Abujudeh in various curbstoning and grand theft schemes.

Task force investigators found Abujudeh conspired with additional suspects Eduardo Hernandez, 27, of Rancho Cucamonga, Francisco Aguilera, 26, of Santa Paula, and Dane Santibanez, 29, of Rancho Cucamonga, to damage their vehicles in order to use the insurance proceeds to get their vehicles painted for free by Abujudeh.

Chuck Norris Suing in California over MRI Chemical He Says Poisoned Wife

A

ction star Chuck Norris took on medical device manufacturers in a lawsuit filed in California alleging a chemical used in MRI imaging scans poisoned his wife.

Gadolinium that doctors injected into Gena Norris to improve the clarity of her MRIs have left her weak and tired and with debilitating bouts of pain and a burning sensation, the suit filed in San Francisco Superior Court says.

Gadolinium is a metal found in so-called contrast agents used in many MRIs. Studies have shown it is retained by organs such as the brain, bones and skin. The American College of Radiology said in a statement last year that gadolinium-based contrast agents

have been used for diagnosis and treatment guidance in more than 300 million patients worldwide since the late 1980s and provide “crucial, life-saving medical information.”

The U.S. Food and Drug Administration said in May it found no evidence that retained gadolinium was harmful. A European Union agency reached the same conclusion in July but still recommended suspending some gadolinium contrast agents as a precaution.

The law firm representing the Norris’, Cutter Law, has filed numerous lawsuits weeks on behalf of people who it also says are suffering from gadolinium poisoning.

The Norris’ lawsuit acknowledges no official, publicly stated link between gadolinium and symptoms reported by people who believe the metal has affected their health.

W2 | INSURANCE JOURNAL | WEST NOVEMBER 20, 2017

But that’s in part because blood and urine testing for gadolinium only became available recently and most doctors were not aware of any disease that was associated with gadolinium other than one that affects people with kidney problems, the lawsuit said.

“One of the problems is this is a very misdiagnosed and underdiagnosed condition,” said Todd Walburg, an attorney for the Norris’.

The lawsuit accuses several manufacturers of gadolinium contrast agents of knowing about their risks, but failing to warn consumers. It seeks more than $10 million in damages, saying the Norris’ have had to spend millions of dollars on treatment for Gena Norris.

Chuck Norris starred in the TV series, “Walker, Texas Ranger.”

Copyright 2017 Associated Press.

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WEST | News & Markets

Someone Else’s Wires May Have Started California Wildfires, PG&E Says

T

he deadliest of last month’s wildfires in California’s wine country may have been started by electrical equipment not owned or installed by Pacific Gas and Electric Co., the utility said in a court filing earlier this month.

PG&E said in a legal filing that a preliminary investigation suggests that a private power line may have started the blaze that killed 21 people and destroyed more than 4,400 homes in Sonoma County.

Another 22 people were killed and at least 4,500 more structures were destroyed in Northern California wildfires that began Oct. 8.

Although the cause of the

fire that decimated a Santa Rosa neighborhood has not been determined, “preliminary investigations suggest that this fire might have been caused by electrical equipment that was owned, installed and maintained by a third party,” PG&E attorneys wrote in the filing with the Judicial Council of California, the policymaking body of California courts.

PG&E did not name the third party but referenced a location in neighboring Napa County where CalFire investigators

have zeroed in as they try to determine the cause of the blaze.

Lynn Tolmachoff, a spokeswoman for the California Department of Forestry and Fire Protection, said she couldn’t comment on the filing due to the ongoing inves-

tigation.

The filing comes in response to 15 wildfire-related lawsuits against PG&E. It gives no supporting evidence other than referring to an electric incident report that the utility submitted to state regulators on Nov. 2 where it documented 10 cases in Sonoma and Napa counties of toppled trees, downed lines and other damaged equipment.

The report does not say whether those incidents may have caused or contributed to the fires.

Copyright 2017 Associated Press.

Agribusiness Contributes $23B to Arizona’s Economy, Report Shows

Pinnacol in Colorado to Drop Workers’ Comp Rates 7.4% in 2018

esearchers with the University of Arizona say agricultural businesses contribute more than $23 billion in sales to the state’s economy.

A report released in early November by the university’s Cooperative Extension’s Economic Impact Analysis Team also states that agribusiness supports more than

he Pinnacol Assurance board has approved a 2018 decrease in workers’ compensation rates that will average 7.4 percent for the insurer’s 57,000-plus Colorado policyholders.

The decrease will become effective Jan. 1, 2018, and will make for the third straight year Pinnacol has dropped rates.

The board also announced its intent to issue a general divided of roughly $50 million to policyholders in 2018, marking its third straight year of general dividends.

While the Colorado Division of Insurance approved a 12.7 percent rate decrease for 2018, Pinnacol uses a longer historical experience period — 10 years, as opposed to two — to

R

138,000 direct and indirect jobs.

According to the report, Arizona ranks among the top states in the production of lettuce, spinach, broccoli, cauliflower, cantaloupe, honeydew and other commodities.

Researchers found that a number of counties rank in the top 1 percent of all U.S. counties when it comes to various measures of crop and livestock production, and the vast majority of Arizona farm operations are family-run operations and partnerships.

The findings are based on sales output in 2014 using the best available and most recent data.

Copyright 2017 Associated Press.

W4 | INSURANCE JOURNAL | WEST NOVEMBER 20, 2017

T

evaluate trends and determine its rates, according to the company.

The longer period prevents Pinnacol from reacting to short-term volatility, and accounts for the difference between Pinnacol’s rate and that approved by the DOI. In the two prior years, Pinnacol reduced its rates in excess of the approved DOI rates, the company said.

Barring a significant and unexpected financial loss in the fourth quarter of 2017, the dividend will match the $50 million Pinnacol distributed last year, according to the company. The dividend will be issued by the end of April 2018.

INSURANCEJOURNAL.COM

Idea Exchange

California Wildfires

Grapes of Wrath: Insurance Fallout from the Wine Country Wildfires

By Kyle Foltyn-Smith

N

ow that this October’s wine country fires have been contained, the ravaged San Francisco Bay area countryside can begin the rebuilding process.

The effects of the wildfires, however, will be further reaching than the communities directly touched by the flames.

While the region will recover and grapes will be back on the vines next year, the property/casualty insurance industry responsible for funding much of this recovery will feel the effects for years to come.

Rising Premiums

One of the things that everyone should expect to see on the horizon is rate increases in fire prone-regions. With 43 people killed and nearly 9,000 structures destroyed, the magnitude of damage from the wildfires will signal to carriers that their outstanding fire risk has increased.

Some have already seen a trend in recent years of increased damages arising from wildfires, and thus more risk to insurers.

From 1996 to 2015, fires and wildfires were less than 2 percent of insured catastrophe losses, roughly $7.3 billion during those years, according to ISO’s property claims services. That 20-year number, however, will potentially be exceeded by this October’s wildfires alone. Even excluding the recent wildfires, wildfires in 2017 occurring before October 6 had already

burned 43 percent more acres than in the entire 2016 year, according to the National Interagency Fire Center.

Homeowners and businesses in fireprone areas will see price increases when it comes time to renew their policies. For example, after a series of wildfires in San Diego in recent years, area homeowners saw multi-thousand dollar annual increases in their premiums, and in recent years some insurers have withdrawn from some high-risk areas by refusing to write new policies or declining to renew existing ones.

From 2007 to 2016, Allstate completely stopped writing new homeowners policies in California, stating that the decision was part of efforts to manage its catastrophic risk exposure. Other carriers have become increasingly selective about geographic areas in which they write.

After the October wildfires, expect to see more carriers questioning whether they want to stay in this high-risk market.

For those homeowners and businesses who do keep their policies, during annual inspections they will likely see carriers vigorously enforcing fire safety standards and demanding more fire prevention measures before renewing.

W6 | INSURANCE JOURNAL | WEST NOVEMBER 20, 2017

Going forward, fewer carrier options and higher insurance costs in wildfire-prone areas will price more purchasers out of the insurance market in California and inevitably increase the number of people turning to the California FAIR Plan for coverage.

The FAIR Plan program provides insurance as a last resort for those who cannot obtain coverage in the traditional market.

Another possible outcome of a coverage vacuum could be the rise of specialty policies and a larger local-carrier market in California. Something similar happened in Florida over the last decade as many large national players pulled back after an increase in catastrophic weather events.

What rose in their place was a cadre of local providers specializing in the risks unique to the region.

Reinsurance Shuffle

These wine country wildfires coupled with the recent hurricanes across the south and in Puerto Rico will impact insurer reserves. JLT was already predicting that the combined effects of hurricanes Harvey, Irma and Maria would cost insurers $100 billion and create upward pricing pressures.

continued on page W8

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Readily Available Admitted California Residential Flood

WEST | California Wildfires continued from page W6

In addition to rate increases, the reinsurance market will get more active with carriers realizing that annual wildfire-related losses will likely be in the billions of dollars in coming years, not the millions they’ve been accustomed to, and adjusting their risk assumptions higher.

Although the reinsurance part of the market appears to have learned important lessons from the catastrophic years of 2001 (9/11) and 2005 (Katrina) in maintaining sufficient capital positions, between this year’s hurricanes, earthquakes and wildfires, nobody should be surprised at higher risk perceptions and loss expectations in the coming years as this 2017’s large-scale catastrophes have overwhelmed some reinsurers’ annual budgets. JLT, however, has predicted that these price increases will be modest compared to the jumps seen in the ‘90s and ‘00s because, due to lessons learned then, the reinsurance market has adjusted towards firms maintaining robust capitalization levels.

Big Data Models

Back in the day, insurance companies priced out fire risk by examining several risk categories, such as availability of fire hydrants, annual rain activity, ZIP code and local fire department ratings.

Nowadays, insurers determine fire risk based on a mapping programs that make individualized risk determinations from a given property’s slope position, proximity to other buildings, surrounding brush, local wind patterns, building materials, etc. Whereas 20 years ago neighbors could expect to pay similar rates, now the distance of a couple of blocks can lead to dramatically different premiums.

For the wine country wildfires, we are seeing several companies providing initial global loss estimates. These estimates are based on an amalgamation of satellite imaging, property databases, coverage rates, weather patterns and other information. The various data points are plugged into modelling software powered by proprietary algorithms to produce loss estimates.

Although the insurance industry has always been data-driven and has enthusiastically shifted towards using big data mod-

elling, there is still some uncertainty about the predictive accuracy of the risk models offered by data analytics firms.

For example, AIR Worldwide estimated covered damages from the wine country wildfires in the range of $2 to $3 billion.

Yet RMS, a rival firm, recently upped its economic loss range from $3 to $6 billion to $6 to $8 billion, which they predict is representative of insured losses due to the high coverage level in the affected areas. Although both groups describe the limitations of their data and what factors are included, it is interesting that they have predicted dramatically different covered loss amounts.

This massive discrepancy highlights the limits of big data models, but will be a useful litmus test because, after all of the losses are accounted for, the accuracy, or lack thereof, of the various analytics firms’ predictive models will be more evident.

Also, depending on how the accuracy of these models turns out, there may be a stronger push within the industry to adopt more risk modeling technology such as brush mapping programs for predicting future risks. Moreover, due to the massive coverage of the wildfires, there will a lot of new data points to incorporate into the software, which will improve wildfire modeling accuracy.

covered contingent BI, ultimately leading carriers to reconsider how they define or handle a business interruptions.

The specific wording for this sort of coverage can vary from policy to policy, and that wording can make all the difference.

Furthermore, contingent BI terms typically fall under similar limitations to regular business interruption insurance.

Most BI policies require a “necessary suspension of operations” but do not define the term “suspension.” In California, appellate courts have interpreted that phrase to require a total cessation of operations. Under that interpretation, there is no coverage if the insured continues to operate despite a partial reduction or suspension in business activity.

In other states, however, similar policy language, such as “necessary interruption,” has been interpreted to require only that the business suffered some harm. As the California Supreme Court has not weighed in on this issue as it relates to traditional or contingent BI coverage, you can be sure there are creative lawyers out there currently trying to figure out how to get courts to lower the threshold for such coverage relating to these wildfires.

‘Homeowners and businesses in fireprone areas will see price increases when it comes time to renew their policies.’

Business Interruption Issues

Another issue likely to arise is whether a given business’s operations were sufficiently affected by the wildfires to activate coverage for contingent business interruption losses. It’s not a difficult case of business interruption when an insured’s property is completely destroyed by a wildfire, but a more difficult problem arises where an insured’s property is untouched by a fire, yet a supplier of components needed to conduct the insured’s business is burned to the ground and won’t be up and running again for months or years.

Due to the interconnected nature of the wine industry, we could see litigation regarding the scope of what constitutes a

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Cause and Response

One last thing to keep an eye on is what caused these wildfires. The direct impact on insurance companies may partly depend on whether these fires were caused by natural events or human negligence.

Although investigations into the cause of the wildfires are ongoing, there are already multiple lawsuits filed against Pacific Gas & Electric accusing the company of gross negligence.

With the fires contained, the next conflagration will be in the courts. Without even reading the tea — or if you prefer, grape — leaves, we may be able to refer to the next phase as “Grapes of Wrath.”

Foltyn-Smith is an associate in Locke Lord’s Los Angeles office. Email: kyle.foltyn-smith@lockelord.com.

Phone: (213) 687-6737 INSURANCEJOURNAL.COM

News & Markets | NATIONAL

New Judicial Appointments Could Help Curb Shareholder Suits, Reduce Director & Officer Liability Losses

By Mark Hollmer

D

irectors and officers (D&O) insurance has faced major losses in recent years, due in part, to what some call a significant increase in shareholder securities class action lawsuits.

But a slew of new judicial appointments through the Republican-led Congress could help reverse this, speculates a securities litigator and white-collar criminal attorney.

“The judiciary is changing,” said Jorden Eth, co-chair of Morrison & Foster LLP’s Securities Litigation, Enforcement and White-Collar Criminal Defense Group. “A lot of judicial appointments are coming [and those] judges are going to rule in all of these cases.”

Eth spoke on a panel at the PLUS conference in Atlanta and explained that these judges, are likely “not going to be pro-plaintiff judges in general,” and that they could impact longer-term D&O lawsuit trends.

Darrin Robbins, a founding partner of Robbins Geller Rudman & Dowd LLP, a firm that handles securities class actions for shareholders, disagreed with the assessment. “We have a president INSURANCEJOURNAL.COM

[President Donald Trump] who believes himself a populist,” and argued that as a result, “some court appointments won’t necessarily reflect pro-corporate interests.”

The panel discussion focused on why there has been an explosion in D&O security class action lawsuits, and panelists offered a variety of perspectives.

Jeremy Lieberman, managing partner with Pomerantz LLP, has represented shareholders in a number of these kinds of lawsuits. He said that in the wake of a series of shareholder suits relating to the financial crisis of 2007 to 2008 being settled, plaintiffs have increasingly broadened their perspective on what fraud actually is.

That broadened legal argument now encompasses “anything that could impact stock prices, something that the company has a duty to disclose,” Lieberman said.

He added that his firm has looked more expansively at what defines securities fraud than in “a lot of traditional cases.”

In other words, there is an expanding view of what is material in terms of fraud lawsuits, Lieberman added.

Robbins said that he has seen securities fraud lawsuits rise much less than some

have argued. He said there has been a modest uptick, but asserted that perceptions of a huge rise have been “driven by a mass focus on securities claims by large institutional investors.”

Lieberman said he expects any increases in D&O shareholder securities class action suits to taper off, as he said that the types of cases in this category ebb and flow over time.

One thing that could help, according to Robbins, is dialogue, negotiating for settlements sooner rather than later.

Some D&O shareholder lawsuits have moderated within specific categories.

Kristen Kraeger, managing director at Aon, explained that she has seen a correction regarding shareholder suits relating to mergers and acquisitions (M&A) cases.

As M&A activity has moderated, “the insurance market has corrected with respect to those M&A cases,” Kraeger said.

She added that lawsuits in the M&A space increased, in large part, due to the “sheer numbers” of M&A transactions.

“From my perspective and brokerage perspective it is a matter of risk differentiation, really getting into the type of case that is being brought,” Kraeger said.

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 11

NATIONAL | M&A Review

Deal Activity on Record Pace

By Christopher Darst

D

eal count is on record pace for the first nine months of 2017 (year-todate, Sept. 30, 2017). There were 357 transactions during this period. By comparison, 334 transactions closed during the same year-to-date period in 2016, and 352 deals year-to-date closed during the same period in 2015.

Deal count for the third quarter (Q3) of 2017 was down relative to Q3 for both 2015 and 2016. There were 95 announced transactions in the

Q3 2017, compared to 112 in Q3 2016 and 11 in Q3 2015. Thirtyseven deals closed in July, 29 in August, and 29 transactions occurred in September. By comparison, historical Q3 deal counts during the past five years averaged 91.8 per year.

For year-to-date (Sept. 30, 2017), 48.7 percent of acquired agencies were property/casualty firms, 30 percent were multiline agencies and 21.3 percent were employee benefits firms.

Specialty distributors made up 14.8 percent of the activity year-to-date, a decrease from Sept. 30, 2016’s 15.8 percent.

Private equity-backed buyers continue to drive the market with 174 closed transactions year-to-date, Sept. 30, 2017, which is slightly higher than the 171 transactions that closed during the same time-period in 2016. This represented 48.7 percent of all deal activity in the first nine months of the year. Independent agencies

completed 112 transactions and public brokers accounted for 32 deals over the indicated period.

Insurance carriers, banks and other buyers closed 39 deals year-to-date, Sept. 30, 2017.

The top five buyers this year represented 36.1 percent of total deal activity through the first three quarters of 2017 and the top 10 accounted for 44.8 percent. Acrisure LLC was the most active acquirer so far in 2017. Acrisure is listed as having 30 announced transactions.

However, Acrisure has a strategy of not announcing deals to preserve autonomy post-closing. It can likely be assumed that Acrisure has closed more deals than what has been announced to the marketplace.

Hub International Ltd. was the second most active acquirer with 27 deals year-to-date, Sept. 30, 2017. Historically, Hub has been the most active acquirer during the past five years with 146 announced transactions since 2012.

BroadStreet Partners Inc. was the third most active acquirer,

Announced Deals (U.S. Transactions)

Note: All transactions in this presentation are announced deals involving public companies, private equity backed brokers, private companies, banks, insurtech companies as well as others including private equity groups, underwriters, specialty lenders, etc. All targets are U.S. only. 2017 Q1 has been updated to reflect current deal count. MarshBerry estimates that only 15 to 30 percent of all transactions are made public.

12 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

with 23 deals closed as of Sept.

30, 2017. BroadStreet typically applies a co-ownership structure to its acquisitions and allows agency owners and/or key employees to retain some ownership in the agency. The principals operate autonomously, and the agency preserves brand identity.

Arthur J. Gallagher & Co. (AJG) was the fourth most active acquirer and the most active public broker with 21 deal closings in the first nine months of 2017. In the past five years, AJG has been the second most active acquirer with 143 closed transactions.

There was a tie at the fifth spot between NFP Corp. and Seeman Holtz Property and Casualty Inc., each with 14 announced deals.

Seeman Holtz, a new buyer to the marketplace, increased its deal flow from two in 2016 to 14 for the first nine months of 2017.

Seeman Holtz, headquartered in South Florida, is a retirement planning company that received private equity backing and is aggressively focused on expanding its product lines through acquisition.

Rounding out the top 10 are AssuredPartners Inc. (10), RSC Insurance Brokerage Inc. dba Risk Strategies Company Inc. (8), Hilb Group LLC (7), OneDigital (6), and Confie Seguros Inc. (6).

Darst is senior vice president at MarshBerry. Securities offered through MarshBerry Capital Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Co. Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (phone: 440-354-3230). Except where indicated, the information provided is based on matters as they exist as of preparation. Past performance is not necessarily indicative of future results.

INSURANCEJOURNAL.COM

Merger Announced and Acquisition Activity Date Buyer Announced Date

07/01/17 07/01/17 07/01/17 07/01/17 07/01/17 07/03/17 07/07/17 07/07/17 07/10/17 07/11/17 07/12/17 07/13/17 07/14/17 07/17/17 07/17/17 07/17/17 07/19/17 07/19/17 07/20/17 07/24/17 07/25/17 07/25/17 07/25/17 07/25/17 07/25/17 07/25/17 07/25/17 07/26/17 07/26/17 07/26/17 07/27/17 07/28/17 07/31/17 07/31/17 07/31/17 07/31/17 07/31/17 07/31/17 08/01/17 08/01/17 08/01/17 08/01/17 08/02/17 08/03/17 08/03/17 08/04/17 08/07/17 08/07/17 08/08/17 08/08/17 08/09/17 08/09/17 08/10/17 08/10/17 08/11/17 08/14/17 08/14/17 08/14/17 08/15/17 08/16/17 08/16/17 08/17/17 08/17/17 08/18/17 08/21/17 08/23/17 08/29/17 08/30/17 09/01/17 09/01/17 09/01/17 09/01/17 09/01/17 09/01/17 09/01/17 09/01/17 09/01/17 09/05/17 09/05/17 09/06/17 09/06/17 09/07/17 09/07/17 09/07/17 09/11/17 09/11/17 09/13/17 09/14/17 09/14/17 09/15/17 09/18/17 09/19/17 09/21/17 09/21/17 09/22/17 09/25/17 09/25/17 09/25/17 09/26/17 09/27/17 09/28/17

Buyer

Fleming & Riles Insurance NFP Corp.

NFP Corp.

BroadStreet Partners Inc. BroadStreet Partners Inc. U.S. Risk Insurance Group Inc. Pioneer Savings Bank McGowan Companies Engle-Hambright & Davies Inc. Hub International Ltd. Alliant Insurance Services First Choice Bank Morse Insurance Agency Inc. General Indemnity Group LLC JenCap Holdings EverGuard Insurance Services Inc. Seeman Holtz Property and Casualty Inc. Nexus Underwriting Management Ltd. Prime Risk Partners Inc. U.S. Risk Insurance Group Inc. AssuredPartners Inc. G.F.H. Insurance Agency Inc. Leavitt Group Enterprises Inc. OneDigital Health and Benefits Risk Strategies Company LLC U.S. Risk Insurance Group Inc. Ryan Specialty Group LLC OneDigital Health and Benefits Windermere Insurance Group LLC Markel Corporation Hudson United Insurance Services LLC Oak Hill Capital Partners Acrisure LLC Acrisure LLC Byars|Wright Inc. Hub International Ltd. InterWest Insurance Services LLC DeWitt Insurance Agency Inc. Fred C. Church Inc. NFP Corp.

Hub International Ltd. TrueNorth Companies LLC Hub International Ltd. Brown & Brown Inc. TowneBank Hub International Ltd. Seeman Holtz Property and Casualty Inc. Palmer & Cay LLC Hub International Ltd. NSI Insurance Group Hub International Ltd. BroadStreet Partners Inc. Rothenberger Insurance Services LLC Schinnerer Group NFP Corp.

Acrisure LLC AssuredPartners Inc. Brown & Brown Inc. RightSure Insurance Group Higginbotham & AssociatesInc. Seeman Holtz Property and Casualty Inc. Arthur J. Gallagher & Co. Seeman Holtz Property and Casualty Inc. U.S. Risk Insurance Group Inc. Brown & Brown Inc. World Insurance Associates LLC Evergreen P&C Insurance Agency Inc. Element Risk Management Acrisure LLC Alera Group Inc. Alera Group Inc. Aquesta Bank First Light Program Managers Inc. Hilb Group LLC Sunstar Insurance Group LLC U.S. Retirement Partners U.S. Retirement Partners Hub International Ltd. Risk Strategies Company LLC Lake Michigan Credit Union Tokio Marine HCC Arthur J. Gallagher & Co. AssuredPartners Inc. Hub International Ltd. Arthur J. Gallagher & Co. Hub International Ltd. Seeman Holtz Property and Casualty Inc. Aquiline Holdings LLC Seeman Holtz Property and Casualty Inc. Seeman Holtz Property and Casualty Inc. Hub International Ltd. Risk Strategies Company LLC OneDigital Health and Benefits Seeman Holtz Property and Casualty Inc. Seeman Holtz Property and Casualty Inc. Arthur J. Gallagher & Co. Ashley Insurance Inc. Seeman Holtz Property and Casualty Inc. U.S.I. Holdings Corp.

Alliant Insurance Services OneDigital Health and Benefits

July 1, 2017 to Sept. 30, 2017 Seller Seller

Brown Detherage Insurance DGU Insurance Associates, LLC Roux Agency, Inc. Book of Business Certain Insurance Assets IMS London American Brokerage & Underwriting Capital Region Strategic Employee Benefit Services, LLC North American Professional Liability Insurance Agency, LLC Whalen Insurance Associates, Inc. Unilite Insurance Agency, Inc. Whitboy, Inc./Boynton & Boynton NorthBridge Insurance Agency, Inc. Quaglia Insurance Agency Surety Support Services, Inc. Special Risks Facilities, Inc Anchor Bay Insurance Managers Behrooz Meimand Insurance Services, Inc. Zon Re Personal Accident (“PA�) Treaty Reinsurance Green Owens Insurance Strategic Insurance Underwriters Front Range Insurance Group, LLC Peyton Cheely & Woodle Inc. Volk & Associates Insurance Agency, Inc. The Benefits Agency at JJ Wade & Associates Anderson Corporate Solutions, Inc. Strategic Insurance Underwriters N-Surance Outlets Legacy Capital Group Greenspon and Associates, Inc. State National Companies, Inc. Rockland Insurance Agency EPIC Insurance Brokers & Consultants Undisclosed Insurance Agency Undisclosed Insurance Agency Junkins Yarbrough Corporation Undisclosed Insurance Agency EPIC Petaluma Book of business Darley Insurance Agency, Inc. Duble & O'Hearn, Inc. Beacon Insurance Group, Inc. East West Insurance Services Inc. Nimble Financial Services, Co Steve Mariani Insurance LLP Clairmont Financial Group, LLC W. A. Moore & Company, Inc. Bianchi & Assoc., Inc. R. Wine Insurance Agency Millennium Benefits Consulting, Inc. Rogers, Gunter, Vaughn Insurance, Inc. Southeast Insurance, Inc. Coordinated Resources Group, LLC Widerman & Co. Advocate Insurance, Inc. International Catastrophe Insurance Managers LLC Teifeld & Company Insurance Services, Inc. Northrim Benefits Group, LLC Naught - Naught Insurance Agency, Inc. Shenkel Insurance Agency, Inc Arizona Economy Insurance, Inc. Dike Company, Inc. Primera Capital Auto & Tax Services Ballard Benefit Works, Inc. Agency Acquisitions, LLC B&H Risk Services, Inc. Herronpalmer, LLC Bruen Deldin Didio Associates Inc. Micah Bleecher Insurance, Inc. Russell Insurance Agency, Inc. Professional Group Marketing, Inc. West Park Insurance, LLC Zinn Insurance Agency Paladin Insurance Group, LLC Piedmont Transportation Underwriters, Inc. Mid-State Insurance Agency Inc. P&C Insurance business Chimienti & Associates, Inc. SF&C Ins. Assoc. Inc./Select Bnfts Comms Grp LLC Executive Risk Management Limited Cornerstone Professional Liability Consultants, Inc. Muskegon Insurance Agency, Inc. Bail USA, Inc. Lincoln Financial Management, LLC Herlong Bates Burnett Insurance, Inc. Monarch E&S Insurance Services Franklin-Case Agency, LLC Stellarus Benefits Inc. Stirling Insurance Services, Inc. Liberty Financial Resources, Inc. Mark Ellis Insurance Company Dern & Company Benefit Advisory Group LLC Anderson & Jacoby Insurance Consultants Zenefits David/Greg Insurance Consultants, Inc. RateGenius Insurance Agency Inc. Premier Insurance, LLC dba Lutgert Insurance Harrington Insurance, Inc. Insurance Solutions Group, Inc. David M. Banet & Associates, Inc. Kohlberg Kravis Roberts & Co. L.P. Group Benefit Solutions, Inc.

Source: S&P Global Market Intelligence, Insurance Journal, other publicly available sources and MarshBerry proprietary databases Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only.

INSURANCEJOURNAL.COM

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 13

NATIONAL | Business Moves Hub International, Graffam Insurance Group, Axella

AmWINS, Willis Towers Watson

Specialty insurance broker AmWINS Group reported that it has completed the previously-announced acquisition of 15 insurance programs from Willis Towers Watson. Terms were not disclosed.

The programs will become part of AmWINS Program Underwriters (APU), a managing general agency specializing in affinity and program management that underwrites 20 programs with more than $150 million of premium and has locations in Camp Hill, Pa.; Charlotte, N.C.: Dallas; and Farmington, Conn.

The 15 acquired programs have a team of more than 115 employees with offices in Portsmouth, N.H.; Burlington, Vt.; Tampa, Fla.; Detroit; Denver; Salt Lake City; and Hartford, Conn.

Among the people from Willis Programs who will be joining AmWINS are Debbie Stanley, chief operating officer; Jim Kelley, underwriting officer; Dan Curran, underwriting officer; Bo Adams, MountainGuard program man-

ager; and Tim Hendrickson, MountainGuard program manager.

AmWINS said decisions on offices for the combined program business will be made after the acquisition closes.

The complete list of the 15 programs that are part of the transaction is as follows: • MountainGuard • DealerGuard • RecycleGuard • ResortGuard • Health Care • WorkCompGuard • FeedLot & Dairy • CAR-PAC • PizzaGuard • Rent-ItGuard • MAPP • Lawyers Regional • UtilitySure • WellGuard • WorkTruckGuard The sale will leave Willis Towers Watson with a handful of select programs, the company said.

AmWINS has more than 4,300 employees in 12 countries and handles more than $14 billion in annual premium placements.

14 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

Hub International Ltd. (Hub), a global insurance brokerage, has acquired the assets of Graffam Insurance Group LLC (Graffam). Terms of the acquisition were not disclosed.

Based in Cumberland Center, Maine, Graffam specializes in employee benefits and services businesses in Maine and New Hampshire.

In a separate deal, Hub annnounced it also acquired the assets of San Diego-based Axella Insurance Services Inc. Terms of the deal were not disclosed.

Martin Khalaf, president and CEO of Axella, will join Hub California and report to Daniel Kabban, executive vice president of Hub California.

Axella is a multiline insurance brokerage serving both individuals and businesses.

Hub International, headquartered in Chicago, provides property and casualty, life and health, employee benefits, investment and risk management products.

Kueny Insurance, KMRD Partners

Kueny Insurance, a Warrington, Pa.-based insurance company, has merged with KMRD Partners, a boutique risk management and human capital solutions firm also based in Warrington.

The merger brings three new team members to KMRD with experience in small-to mid-size business and personal lines, said KMRD Principal and Co-Founder Bob Dietzel.

Kueny Insurance has been serving more than 1,000 commercial and personal clients in the Philadelphia and surround-

ing regions for more than a quarter century.

Frenkel & Company, EPIC Insurance Brokers & Consultants

Frenkel & Company, a New York-based, full-service independent insurance broker, and EPIC Insurance Brokers & Consultants, a national retail insurance brokerage and employee benefits consulting firm, have joined forces.

Frenkel & Company has been delivering strategic guidance and service around the risk management, insurance and benefit consulting needs of its clients for nearly 140 years, said President and CEO John F. Kelly.

Joining EPIC will help it to deliver a broader and deeper set of capabilities and added value to clients, he said.

The firm will operate as Frenkel & Company – a Division of EPIC. Frenkel & Company’s leadership team will play active roles within the integrated EPIC organization.

EPIC CEO John Hahn stated that the Frenkel locations and teams in New York, Jersey City, N.J., Boston, and Los Angeles, are expected to create opportunities for employees’ long-term growth and career success.

Frenkel & Company will also provide a platform in the Northeast to extend EPIC’s risk management, property and casualty insurance, international client services, employee benefits consulting, program solutions and private client services to companies across the region, nationally and internationally.

Reliance Partners

Chattanooga, Tenn.-based INSURANCEJOURNAL.COM

commercial insurance provider, Reliance Partners, is expanding in the Midwest by opening a new office in the Chicago area.

Edgar Mercado will lead the new Chicago office.

Mercado started his career at Reliance in Chattanooga and has emerged as a leader.

A Chicago native, he is familiar with the area and anticipates rapid growth in the Midwest market.

Reliance Partners has locations in Chattanooga; Birmingham, Ala.; Chicago; Buffalo, N.Y.; and Victoria, Texas.

Hilb Group, BKC Insurance Agency

The Hilb Group LLC (THG) has acquired BKC Insurance Agency (BKC), based in Cheboygan, Mich.

In addition to Cheboygan, BKC has an additional location in Indian River, Mich.

The agency provides property/casualty and employee benefits solutions for businesses and individuals, including specialized programs for farms and other agricultural services in Michigan, Ohio and Indiana.

BKC’s associates, including managing partners, Joseph Breed, Ken Pletcher and Pete Patrick, will join THG and continue to service clients from their existing offices.

The acquisition of BKC expands THG’s geographic footprint in the Midwest and is BKC THG’s 39th acquisition since 2009.

The Hilb Group is headquartered in Richmond, Va., and is a portfolio company of Boston-based private equity firm, Abry Partners.

WSS, a Plano, Texas, wholesale broker and managing general agency (MGA) including Western Security Surplus Insurance Brokers Inc. and its managing general underwriting program division West-Pro. Terms were not disclosed.

WSS serves retail agencies through placement of general liability, package liability, difference in conditions (DIC), property and other policies through binding authority contracts with U.S. and Lloyd’s markets and through open market wholesale brokerage.

WSS is licensed in 20 states with producers located in Texas, California and Florida.

West-Pro is a provider of coverage for bar and taverns through wholesale insurance brokers in over a dozen states.

XPT was formed by industry veterans Tom Ruggieri, the former CEO of Swett & Crawford along with Jeff Heath, who founded Heath XS before selling it to Hallmark and Mark Smith, formerly an executive with RT Specialty, AmWINS and Stewart Smith.

XPT is backed by investors led by B.P. Marsh & Partners, the London-based specialist private equity investor2:26 in early USA12043.qxd 1/4/08 PMstage Page insurance and financial services compa-

nies.

WSS was formed in 1981 by Richard Polizzi, who will step down as the chairman of WSS but remain with WSS to launch a new program that is already under development.

Polizzi’s nephew, Kyle Stevens, took over as president of WSS in 2008 and obtained majority interest of WSS in 2014, and will remain as president of WSS and West-Pro after the acquisition by XPT. WSS will continue to operate under its established brand name.

Seeman Holtz Property & Casualty, Confimex Services Insurance

Seeman Holtz Property & Casualty Inc., based in Boca Raton, Fla., has acquired Confimex Services Insurance, headquartered in Tomball, Texas.

For eight years, Confimex has provided the Tomball and Waller, Texas, areas, with auto, home, health, commercial and life insurance products and services.

Confimex will be joining Seeman Holtz’s Primera Capital team in Texas.

With the addition of Confimex Services Insurance, Seeman Holtz has acquired 21 1 agencies this year.

Evergreen, Pro Surety Bond

Evergreen Insurance & Risk Management has acquired the assets Pro Surety Bond Inc. of Las Vegas, Nev. Terms of the deal were not disclosed.

Pro Surety Bond delivers web-based insurance solutions with a focus on performance and surety bond services throughout the U.S. Evergreen Insurance is a national independent insurance agency headquartered in Monsey, N.Y.

XPT Group, WSS, West-Pro

A new insurance distribution partnership XPT Group reports it has acquired INSURANCEJOURNAL.COM

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 15

NATIONAL | Long Term Care/Assisted Living

By Andrea Wells

T

he aging U.S. population will create unprecedented demand for the senior living industry for decades to come and that opens the door for agents and brokers to grow their business in this sector. But understanding the changing landscape in the complex long-term care and senior living market is critical, according to insurance experts in this field.

From a specialization standpoint, knowledge is the best tool to finding success in this market, says Bruce Dmytrow, vice president, aging services and national programs, healthcare, at CNA. Knowledge is helpful when speaking with senior care facility leadership teams and the boards of directors. “It’s where you can truly add value by knowing the segment, knowing the risks, knowing the underwriting challenges, knowing the models of care, [and] knowing the trends that are happening. It gives you more credibility.”

Agents and brokers don’t have to be experts, but they should have a solid understanding of what’s going on in the healthcare industry, says Caroline

Clouser, executive vice president, for Chubb Healthcare. “Whether it’s the ongoing repeal-and-replace efforts [for the Affordable Care Act] or the CMS guidelines [Centers for Medicare & Medicaid Services], agents really need to showcase their understanding of the emerging topics related to risk and we can help them to do that.”

According to the U.S. Census Bureau,

16 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

when the last of the baby boomers reach age 65 in 2029, the boomer population will represent more than 20 percent of the total U.S. population, numbering nearly 60 million people.

And about 70 percent of that 65-plus population - including many people with cognitive impairment disorders requires some form of long-term care, according to the U.S. Department of Health and Human Services.

Growth in the senior living industry tracks closely with the older adult population in the United States in recent years, according to Argentum, a national trade association serving companies in senior living communities.

In a report titled, Getting to 2025: A Senior Living Roadmap, published in 2016, Argentum wrote that between 2001 and 2014, the number of senior living communities increased 39 percent. “During the same period, the U.S. population aged 85 and older rose 43 percent. As a result of the similar growth rates, the number of senior living communities as a proportion of the senior population has been relatively steady.”

Argentum predicts that the number of INSURANCEJOURNAL.COM

senior living establishments will grow to 29,700 facilities, an increase of 21 percent since 2014. The number of seniors 85 years old or older will also increase by 21 percent, Argentum predicted, to more than 7.5 million people, up from 6.2 million in 2014.

Challenges Ahead

While the demand for services is leading to an expansion in the number of senior living facilities there are challenges that insurance providers must solve in today’s healthcare industry.

CNA’s Dmytrow suggests that to solve those challenges, insurance specialists must first understand the industry.

“Understand the litigation environment in the geographic areas you will serve.

Know the trends that are happening, both from a risk standpoint and from a standpoint of what new services are being offered by the facilities,” he said. (See, Liability Costs Continue to Rise for Long Term Care Industry, on page 18) The long-term care industry is facing other challenges as well.

“We are experiencing more individuals or seniors who want to age in their homes.

As this trend continues, some facilities are expanding to be able to provide additional services, including home care, which differentiates organizations and changes their risk profile,” Dmytrow said.

Declining federal reimbursements from

Source: 2017 Long Term Care General Liability and Professional Liability Actuarial Analysis by Aon Risk Consulting

Medicare and Medicaid are also taking a toll on long term care facilities.

“The reimbursement levels definitely aren’t going up but the cost and the overall expenses of running these facilities are,” said Don Tejeski, senior vice president, AmWINS Brokerage of Pennsylvania.

Not all costs have been going up.

“The insurance capacity has been so plentiful in this space and so cheap that it has allowed operators to still operate profitably in a time of cuts to their reimbursement,” said Matthew Wasta, vice president for AmWINS Program Underwriters. “They can cut on services and staff and if something goes wrong, they’ve got [insurance] cheap protection in place to help them.”

But things are changing, Wasta said. “It’s going to become a real issue for operators that don’t run their businesses well,” he said. “They’re looking at Medicare and Medicaid cuts and they’re not going to be able to get that cheap [insurance] protection any longer, especially in the tougher

Source: 2017 Long Term Care General Liability and Professional Liability Actuarial Analysis by Aon Risk Consulting

INSURANCEJOURNAL.COM

venues. That’s going to be a big change for them.”

'It's going to be interesting to see how a decrease in federal reimbursements will affect the market.'

“It’s going to be interesting to see how a decrease in federal reimbursements will affect the market,” Dmytrow said.

Another area causing concern for underwriters and facilities is the talent crunch.

Attracting, developing, and retaining talent is one of the biggest challenges facing senior living communities today. That challenge will be intensified by the industry’s expected future growth and cuts to federal reimbursement, Dmytrow said. “As the industry continues to grow and change, it is paramount that staff turnover is minimized and new talent is recruited.”

Adequate staffing is critical for proper risk management, noted Clouser. “We look at staffing ratios as well as management objectives to keep and retain talent in the underwriting process,” she said.

“This [type of work] is not something that machines can take over. We need people, and well-trained people, plus good compensation to retain the top talent.”

Wasta said while staffing is an expensive line item in operational costs, quality staff can save an organization from being hit with costly lawsuits.

“From my perspective, so much of risk management comes down to staffing levels,” Wasta said. “My advice to agents would be to have their insureds focus on staffing. A common plan of attack from plaintiff lawyers is to argue that they

continued on page 18

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 17

NATIONAL | Long Term Care/Assisted Living continued from page 17 didn’t have enough staff, especially if it’s a for-profit entity.” Making sure that their staffing levels meet or exceed the state averages, at least, is critical.

Another important risk management tip: document properly.

Documentation is another key to preventing a loss, Wasta adds. “When a claim is filed, if it’s not staff, the plaintiff lawyer often goes after holes in the documentation. They can’t prove that they actually did adhere to best practices if it’s not documented.”

Disaster Preparedness

When addressing senior living facility operators, agents should offer assistance

with disaster preparedness plans. Agents can help their clients develop the plan together with their insurance carrier partners, Chubb’s Clouser said.

One recent requirement is the new federal regulation from Centers for Medicare & Medicaid Services (CMS) that went into effect on Nov. 15, 2017. The rule requires that providers comply with and implement regulations under the Emergency Preparedness Requirements for Medicare and Medicaid Participating Providers.

Clouser says an emergency preparedness plan must have four main elements:

1. A comprehensive communication plan.

“This is a clear communication guideline

to be used to interact with staff, other providers, families, and emergency services during the storm and after the storm,” Clouser said. “A list of all the facility details is key.”

2. An evacuation plan. “This plan includes information about transportation, shelter, staffing of the evacuation and how everything’s going to work.”

3. Contracts. “This includes all contract information between the facility and the receiving facility during a disaster. That’s all the vendors to transport, law enforcement, fire, all emergency management services involved in the evacuation.”

4. Documentation and Drill. “The plan

Liability Costs Continue to Rise for Long Term Care Industry

T

he cost of liability continues to increase for the long term care profession, according to the 2017 Long Term Care General Liability and Professional Liability Actuarial Analysis by Aon Risk Consulting and the American Health Care Association (AHCA).

The overall loss rate is expected to increase by 6 percent, with claim frequency driving the increase at an expected 2 percent growth rate and claim severity driving growth by 4 percent.

“Consistent with past year’s reports, we are seeing some pretty strong increases year-over-year in the loss rates,” said Christian Coleianne, associate director and actuary from Aon Global Risk Consulting.

“Our 2017 finding is that loss rates are increasing at a 6 percent clip, which is pretty strong growth year-over-year,” Coleianne said.

The findings translate to a 2018 forecasted loss rate per bed of some $2,450, he said. “That means if our operator has a 100-bed facility then we believe they should accrue about $245,000 for liability costs in the coming year, which is

pretty big number.”

Also, consistent with prior years’ studies is amount varies significantly by state/jurisdiction.

“The top cost states are West Virginia, Florida and Kentucky and they have much higher per bed loss rate than some other states,” Coleianne said.

In West Virginia, the study found the loss rate stood at $8,380, which translates to $838,000 in liability costs projected in 2018 for a 100-bed facility.

That compares to the lowest cost state, Massachusetts, which has a loss rate of just $520, which translates to $52,000 on an annual basis for a 100-bed facility.

One data set that is new to the report this year is a comparison of a facility’s CMS rating and its loss rates, he said.

The Centers for Medicare & Medicaid Services, or CMS, offers a five-star rating system for long term care facilities. The best facilities rate at a five star, he said.

We tried to segment our experience historically by that CMS rating and then took a look at the loss rates, frequency and severity for each group,” he explained. “As the five star rating decreased (toward a one star), we expected to see higher loss rates and the

18 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

lowest loss rates would be for the five star facilities. But what we found was that one star quality rated facilities did indeed have a higher loss rate but there wasn’t much of a difference for facilities rated two through five stars.”

Coleianne said that one driver of one star quality facilities having higher loss rate was frequency of claims. “They had more claims,” he said. However, the severity was similar for all facilities no matter their rating.

Coleianne added that the data is not clear to point to a one star quality rating facility leading to higher claim frequency, but it’s possible that one star rated organizations are more often targeted by plaintiff attorneys.

Approximately 19,300 individual non-zero claims from long term care facilities were aggregated.

The 28 providers represented in the national study operate approximately 200,011 long term care beds, consisting of skilled nursing facility beds and a number of independent living, assisted living, home health care and rehabilitation beds. They represent approximately 16 percent of the beds in the United States.

INSURANCEJOURNAL.COM

requires documentation of each of those plans as well as different preparedness drills around the plans.”

Facilities that fail to comply with these new emergency preparedness guidelines face the loss of their accreditation status, Clouser added. “And without accreditation they would not get reimbursed by the government, which could have a huge impact on an organization” as reimbursements often equate to the largest funder for these facilities, she said.

“In today’s world our insureds have to do more with less – comply with regulation, comply with smaller margins, so anything that the agents and brokers can do in partnership with carriers to help develop the plan, evacuation plans, staff training, anything, will go a long way,” she added.

Hurricane Preparedness

The recent hurricane season was a reminder of the importance of an evacuation plan. But a plan that hasn’t been vetted isn’t much good.

Agents should ask facilities: “Has it been tested? Do all employees know proper protocol? How quickly can you evacuate if necessary?” said Jordan Connelly, senior vice president, Worldwide Facilities LLC. Hurricanes Harvey and Irma provided a few lessons for Connelly.

He offered one familiar lesson, urging agents to partner with an insurer that knows the long-term care industry.

“There was a glaring difference between insurers who have long standing experience in the long term care space versus the newer entrants to the long-term care market,” he said. “Our carrier partners who are proven in the space sent out hurricane preparedness articles and links to resources to assist us, the broker, in helping our clients.”

Connelly said some insurers provided him with a list of clients who had facilities in the direct path of the storm to ensure that those facilities were well prepared.

“I think we learned from Harvey that many healthcare

facilities were grossly under-prepared given the number of facilities that were forced to close due to flooding,” he said.

But the timing of Irma helped better prepare Florida facilities, he added. However, extended power outages took a toll on Florida facilities and their residents. “Many lost their lives in Florida due to extended power outages.”

Connelly also advises that knowledge is key when it comes to proper risk management strategies.

“Know the facilities that you partner with and follow the path of impending storms,” he said. “If the facility has a risk manager be sure to contact them as soon as possible to remind them of coverage highlights in their policy form. Remind them of any hurricane preparedness or risk management tools that they may have at their disposal.”

Brokers should always make sure that evacuation expense is included in coverage and offer as much coverage as possible.

“This is a critical coverage for any longterm care facility,” he said.

Insurance Preparedness

Like most other industries, long-term care facilities have seen softer rates and plenty of availability when it comes to buying property/casualty coverage. But times are changing.

“It’s a unique market,” said CNA’s Dmytrow. “I call it unpredictable.” That means while there is new capacity coming into the market, at the same time, old capacity is exiting the market and/or changing or differentiating their risk strategies, he said.

AmWIN’s Wasta concurs with that assessment.

“We’ve seen some competitors either pull out or pull back in the last 12 months or so,” he said. But there’s always new entrants coming in as well. There’s still plenty of competitive markets available for quality accounts, he adds. “One agent mentioned to me the other day they had no less than 20 quotes on a particular account,” he said. But for the harder venues or those accounts considered less desirable due to claims history, the market has tightened up.

In the tougher “legal” venues, such as New York, Florida, Illinois, California, the states that have the largest number of skilled long-term care facilities, prices are trending up whether it’s a good facility or a bad facility, said AmWINS’s Tejeski.

“It really depends on where you are and what you’re looking at as far as how competitive or how much capacity is available in the market,” Wasta added. “But in general, it’s still a well-funded marketplace with a lot of alternatives.”

Insureds have a choice in today’s P/C insurance market, without a doubt, said Chubb’s Clouser. But the best choice, in her view, is a choice that offers partnering with a carrier that has a broad expertise on a multiline basis. “The best choices are the carriers that have multiline options within long term care,” Clouser said.

Seek out industry specialists, advises Karen K. Jordan, vice president, program management, Affinity Insurance Services, Inc., Aon Affinity/Healthcare Division.

“I think it’s important to work with insurance companies and program administrators that specialize in aging services because risk mitigation techniques differ from standard risks,” she said.

For example, “we have our own risk management program, Aon Quality Institute, designed specifically for senior service accounts.”

Specialists in this segement are the ideal choice, Jordan added.

“Work with someone who understands the total cost risk and can help understand the challenges they face. ”

NATIONAL | Closer Look | Personal Lines Leaders

Personal

Lines Leaders

About the Personal Lines Leaders: The 2017 Personal Lines Leaders in this report are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2016 personal lines numbers of the independent agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact: awells@insurancejournal.com.

Top 50 Personal Lines Agencies Ranked by Total 2016 Personal Lines Revenue

2017 2016 Rank Rank Agency Name

2016 Personal Lines Revenue

2016 Total P/C Revenue

2016 Total Other Than P/C Revenue

2016 Total P/C Premiums Written

No. of Full-Time Employees

Main Office

Website

1

1

Confie

$515,600,000

$515,060,000

$0

$1,654,500,000

4,500

Huntington Beach,Calif.

www.confie.com

2

2

Hub International

$256,910,000

$1,107,702,000

$380,364,000

$8,191,839,000

11,554

Chicago, Ill.

www.hubinternational.com

3

3

AIS Insurance *

$86,614,312

$87,953,450

$0

$544,913,100

505

Cerritos, Calif.

www.aisinsurance.com

4

8

Acrisure LLC

$85,920,189

$478,614,530

$121,418,378

$5,064,469,075

2,798

Caledonia, Mich.

www.acrisure.com

5

6

AssuredPartners

$85,675,904

$546,904,035

$294,208,901

$7,825,556,098

4,239

Lake Mary, Fla.

www.assuredpartners.com

6

4

Answer Financial *

$78,000,000

$80,000,000

$2,000,000

$645,000,000

531

Encino, Calif.

www.answerfinancial.com

7

5

USI Insurance Services

$74,436,352

$574,963,909

$455,160,360

$4,984,602,611

4,353

Valhalla, N.Y.

www.usi.com

8

7

BroadStreet Partners Inc.

$65,989,000

$338,700,000

$51,600,000

$2,750,000,000

2,400

Columbus, Ohio

www.broadstreetcorp.com

9

10

Westwood Insurance Agency *

$65,416,042

$64,430,785

$0

$385,238,744

121

West Hills, Calif.

www.westwoodinsurance.com

10

9

TWFG Insurance

$48,126,418

$62,747,669

$2,223,400

$418,317,795

100

The Woodlands, Texas

www.twfg.com

11

13

Cross Financial Corp., dba Cross Insurance

$32,000,000

$107,100,000

$23,000,000

$851,300,000

760

Bangor, Maine

www.crossagency.com

12

12

Leavitt Group

$30,962,009

$145,976,185

$62,568,997

$1,327,056,225

1,92

Cedar City, Utah

www.leavitt.com

13

14

Crystal & Co.

$24,347,000

$143,928,000

$20,822,000

$1,236,000,000

469

New York, N.Y.

www.crystalco.com

14

16

Risk Strategies Co.

$24,200,000

$153,300,000

$46,745,000

$1,459,000,000

905

Boston, Mass.

www.risk-strategies.com

15

15

Eastern Insurance Group LLC **

$23,694,000

$51,028,000

$24,365,000

$348,000,000

370

Natick, Mass.

www.easterninsurance.com

16

11

NFP

$21,049,638

$214,013,378

$755,586,224

$1,250,000,000

3,600

New York, N.Y.

www.nfp.com

17

18

Premier Group Insurance Inc.

$19,883,500

$22,038,100

$0

$151,380,000

21

Denver, Colo.

www.PGIAgents.com

18

30

Gowrie Group

$18,026,800

$39,604,500

$1,800,500

$280,537,000

177

Westbrook, Conn.

www.gowrie.com

19

new

HomeServices Insurance

$18,000,000

$18,000,000

$0

$131,000,000

150

Minneapolis, Minn.

www.pcgagencies.com

20

17

PayneWest Insurance Inc.

$16,848,445

$78,255,327

$21,466,741

$607,983,240

675

Missoula, Mont.

www.paynewest.com

21

new

Insurance Office of America Inc.

$15,404,693

$147,588,675

$18,764,016

$1,538,414,369

1,064

Longwood, Fla.

www.ioausa.com

22

28

Lockton Cos.

$15,086,000

$1,000,411,000

$425,840,000

$7,428,780,000

6,500

Kansas City, Mo.

www.lockton.com

23

20

Professional Insurance Associates Inc.

$15,000,000

$42,000,000

$0

$320,000,000

52

San Carlos, Calif.

www.piainc.com

24

23

Prime Risk Partners

$14,669,000

$62,465,000

$15,265,000

$551,069,543

475

Alpharetta, Ga.

www.primeriskpartners.com

25

19

Marshall & Sterling Enterprises Inc.

$13,333,985

$51,737,448

$15,084,504

$667,118,173

427

Poughkeepsie, N.Y.

www.marshallsterling.com

26

21

Integro Group Holdings LP

$12,473,000

$188,637,000

$88,824,000

$1,850,000,000

1,064

New York, N.Y.

www.integrogroup.com

27

25

Baldwin Risk Partners

$12,100,000

$21,200,000

$13,500,000

$243,000,000

237

Tampa, Fla.

www.baldwinriskpartners.com

28

new

Atlas Insurance Brokers LLC

$11,477,303

$14,826,864

$228,104

$112,231,702

125

Rochester, Minn.

www.aibme.com

29

34

The Hilb Group LLC

$10,886,169

$60,478,719

$24,511,684

$491,029,596

503

Richmond, Va.

www.hilbgroup.com

30

26

Starkweather & Shepley Insurance Brokerage Inc. $10,742,968

$40,184,002

$3,779,478

$298,239,884

230

East Providence, R.I.

www.starshep.com

31

40

Higginbotham

$10,149,471

$96,439,097

$58,612,966

$671,871,000

871

Fort Worth, Texas

www.higginbotham.net

32

29

Lawley Insurance

$9,325,303

$38,511,685

$17,746,852

$313,701,750

344

Buffalo, N.Y.

www.lawleyinsurance.com

33

36

Wortham

$9,101,300

$105,498,000

$21,896,000

$927,509,000

526

Houston, Texas

www.worthaminsurance.com

34

49

Alliant Insurance Services Inc.

$9,041,479

$656,293,229

$245,476,528

$5,252,492,321

2,806

Newport Beach, Calif.

www.alliant.com

35

33

Rogers & Gray Insurance

$8,752,300

$18,691,700

$2,359,000

$129,800,000

146

South Dennis, Mass.

www.rogersgray.com

36

31

The Advantage Group LLC

$8,725,010

$16,157,425

$1,292,494

$102,011,170

103

Edmonds, Wash.

www.theadvantagegroupllc.com

37

35

Tompkins Insurance Agencies Inc.

$7,697,000

$18,873,000

$7,802,000

$273,167,000

179

Batavia, N.Y.

www.tompkinsins.com

38

new

Kaplansky Insurance

$7,613,140

$9,610,692

$45,246

$67,467,615

68

Needham, Mass.

www.kaplansky.com

39

42

Ansay & Associates LLC

$7,560,000

$22,474,000

$6,215,000

$205,000,000

225

Port Washington, Wisc.

www.ansay.com

40

37

John M Glover Agency

$7,231,884

$18,601,967

$0

$137,345,000

175

Norwalk, Conn.

www.johnmglover.com

41

new

Scirocco Financial Group Inc.

$7,111,261

$25,085,709

$2,843,589

$193,279,052

108

Hasbrouck Heights, N.J.

www.sciroccogroup.com

42

39

Robertson Ryan & Associates Inc

$6,989,000

$31,812,000

$3,515,000

$270,000,000

225

Milwaukee, Wisc.

www.robertsonryan.com

43

38

INSURICA Inc.

$6,964,961

$63,144,913

$15,821,796

$526,713,096

529

Oklahoma City, Okla.

www.insurica.com

44

50

The IMA Financial Group Inc.

$6,789,404

$125,039,862

$29,596,533

$1,310,076,472

654

Denver, Colo.

www.imafg.com

45

44

Foy Insurance

$5,900,000

$9,000,000

$530,000

$59,000,000

75

Exeter, N.H.

www.foyinsurance.com

46

new

Eagan Insurance Agency LLC

$5,815,905

$20,661,507

$1,124,823

$109,083,067

88

Metairie, La.

www.eaganins.com

47

new

Shepherd Insurance

$5,718,316

$23,428,616

$5,232,887

$179,346,830

240

Carmel, Ind.

www.shepherdins.com

48

47

Hays Companies

$5,700,000

$91,700,000

$101,700,000

$1,030,000,000

750

Minneapolis, Minn.

www.hayscompanies.com

49

48

Frenkel & Co.

$5,635,000

$46,977,000

$25,041,000

$561,490,000

160

New York, N.Y.

www.frenkel.com

50

new

Heffernan Insurance Brokers

$5,615,000

$91,947,700

$28,009,100

$673,150,000

409

Walnut Creek, Calif.

www.heffins.com

Editor's Note: *=Carrier Owned Agency; **=Bank Owned Agency

20 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

INSURANCEJOURNAL.COM

MyNewMarkets | NATIONAL Dealer Open Lot - Dealer Physical Damage

Construction Wrap-Up

Market Detail: M.J. Hall & Company Inc.’s (www.mjhallandcompany.com) coverage is available for owners, developers, construction managers and general contractors who face a host of insurance uncertainties with every project. While no silver bullets can eliminate every uncertainty, a controlled insurance program (wrap-up) can improve coverage without blowing budgets by consolidating into one program insurance coverages for all project contractors and subcontractors.

These wrap-ups can be sponsored by a project owner or developer, a construction manager, or general contractor.

The programs have historically included workers’ compensation, employers liability, general liability and excess liability. However, wrap-ups are commonly designed to include only general and excess liability. Other project-specific coverages, such as builders risk, environmental liability and professional liability, may also be added to the wrap-ups. MJ Hall has market availability and product knowledge for wrapups designed for general INSURANCEJOURNAL.COM

and excess liability.

email: phlysales@phly.com

admitted and nonadmitted available States: Alaska, Ariz., Calif., and Nev. Contact: Aimee Bernadicou at 209-870-2978 or email: aimee@ mjhallandcompany.com

CANNARISK

Available limits: As needed Carrier: Unable to disclose,

Cover-Pro

Market Detail: Philadelphia Insurance Companies (www. phly.com) provides comprehensive professional liability coverage to a variety of professions, including computer consultants, management consultants, career coaches, marketing consultants, interior designers, telecommunications consultants and more. Phly’s policy addresses claims filed by clients resulting from negligent acts, errors or omissions, and personal injury arising from the provision of professional services.

Available limits: As needed Carrier: Unable to disclose, admitted and nonadmitted available States: All states except La. Contact: Phly Marketing Department at 800-873-4552 or

Market Detail: Cannarisk

(www.cannarisk.com) provides insurance for Washington state I-502 recreational marijuana producers, processers and retailers.

Available limits: Minimum $1 million, maximum $3 million Carrier: Lloyd’s States: Washington only Contact: 800-606-2003

Homeowners and Dwelling

Market Detail: Global Century Insurance Brokers (www.gcib. net) offers coverages the same as or additional coverages from most admitted carriers. In addition to the use of standard ISO forms and endorsements, coverage can be customized.

Same-day or 24-hour quotes and policies available.

Available limits: Minimum $100,000, maximum $7.5 million Carrier: Lloyd’s States: Ariz., Calif., D.C., Dela., Ind., Ky., Mich., Mont., N.C., Neb., N.J., Nev., Okla., Ore., Texas, Utah, Va., and Wash.

Contact: 925-493-7525

Market Detail: Market Search Insurance Services offers (www.marketsearchinsurance. com) coverage for dealer physical damage (dealers open lot), including car dealers and used car dealers.

Available limits: Minimum $250,000 any one unit, maximum $2 million any one loss.

Carrier: Unable to disclose, nonadmitted States: California only Contact: 888-273-0165

Lessor’s Risk; Building Owners Coverage

Market Detail: CID Insurance Programs Inc. (www. cidinsurance.com) writes up to $5 million in property coverage in California and up to $3 million in other states. Mixed use buildings, general liability, property on package or monoline policy are available. Quote turnaround within 48 hours.

Available limits: As needed Carrier: Admitted and nonadmitted available States: Ariz., Calif., Colo., Md., Neb., N.M., Nev., Ore., Pa., Tenn., Texas, Utah, Va., and Wash.

Contact: Elizabeth Gaida at 800-922-7283, ext. 2059. Email: elizabeth@cidinsurance.com This section brought to you by Insurance Journal’s sister website: www.mynewmarkets.com

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NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 21

NATIONAL | Spotlight | Contractors & Builders

How Surety Bonds Impact Contractor and Agent Relationships

By Bruce M. Allen

E

ven though the surety industry is only a fraction of the total property/ casualty marketplace, the importance of surety bonds to contractors and their impact on their relationship with insurance brokers is significant.

A surety bond line can be a critical component of a commercial contractor’s business plan. From the contractor’s perspective, the bond program is a priority compared to the property/casualty insurance program. Insurance agents who can provide surety support through their own markets or coordinate the bonding through a surety specialist can strengthen their relationships with their contractor clients and protect their accounts.

With that reality as a starting point, it’s always helpful for agents to refresh themselves on the basics and process of contract bonds. In addition to the basics, I’ll provide a quick overview of the SBA Surety Bond Guarantee Program that supports contractors who cannot qualify for bonds in the standard market.

Bonding 101 What’s the difference between Bid Bonds, Performance Bonds and Payment Bonds?

Bid bonds are required for all public bids. These bonds are usually in the amount of 10 percent or more of the contractor’s bid price. Bid bonds guarantee the contractor will enter into a contract with the owner or forfeit the bid bond as compensation to the owner if

22 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

the job must be rebid or awarded to the higher-priced second bidder Performance bonds are required on public contracts in the amount of 100 percent of the contract price. The performance bond guarantees the contractor will fulfill the terms of his construction contract.

This includes the basic contract but also the job’s plans and specifications. If the contractor cannot meet this obligation, the surety is required to complete the job per the contract using the balance of contract funds and paying for any shortfall a completion contractor will charge.

Payment bonds are required in conjunction with the performance bond. Payment bonds are typically in the amount of 100 percent of the contract price. They guarantee all direct job-related bills will be paid.

If the contractor cannot meet this obligation, the surety is required to pay these bills under the payment bond. The payment bond covers subcon-

tractors and suppliers who are second and third tier to the prime contractor.

Maintenance bonds are typically in the amount of 10 to 20 percent of the contract price.

These bonds are issued when the job is 100 percent complete and run for one to two years from that date. They provide a guarantee to the owner that the contractor will address any construction issues that come up during that time frame.

All bonds are underwritten on a per-project basis in conjunction with the overall position of the account with their surety. The contract bond is a three-party agreement where the surety guarantees the project owner (obligee) that the contractor (principal) will perform in accordance with the contract documents and pay all legitimate bills on the project to subcontractors and suppliers. It’s important to note surety is an indemnity-based concept, similar to a banking relationship, rather than an insurance one. Any loss the

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surety sustains will trigger the indemnity agreement, whereby the contractor is obligated to reimburse the surety for these losses.

The Underwriting Process

The surety agent typically walks a contractor through the multiple steps of securing a bond or bond line and advises them on the specific issues and documents needed to accomplish this goal. Working with multiple sureties, the surety agent will match up the contractor’s needs with the program that fits. Currently the bond market is segregated into three levels:

Quick Application – Credit-Based Programs • Single bonds up to $1 million/aggregate bonds up to $2 million

Standard Surety Programs •

•

Standard Underwriting Complete bond file needed to underwrite Single bonds from $1 million to billions

Specialty Underwriting •

Small Business Administration (SBA), funds control, seed money, collateral, deeds of trust, third-party indemnitors, teaming agreements

Each of these surety submarkets has specific underwriting requirements and analytics, but a similar process is followed: Step One: Surety broker and insurance agent together meet with contractor.

Step Two: Surety agent gathers necessary information and submits to several key markets.

Step Three: Surety underwriter reviews paperwork and INSURANCEJOURNAL.COM

interviews contractor personally or via conference call.

Step Four: Bond line is established to support normal bid bond needs.

Step Five: Bond file is updated quarterly or semi-annually to support ongoing bond line.

Underwriting Documents

In addition to the surety interview, the scope and analysis of the underwriting documents are critical to the decision-making process of the underwriter. Character assessment, corporate reputation, internal management systems, financial strength and past track record are explored in detail. The traditional keys of character, capacity and capital still represent the foundation of suretyship. A basic bond file will generally include: • Past three-year fiscal financial statements (CPA compilation, review or audit); • Current interim financial statements (Prepared internally or by CPA); • Current personal financial statement on owners; • Latest corporate tax return; • Current work-in-process report; • Copy of bank line of credit documents’ • Contractor surety questionnaire; • References from past owners or architect’s/engineer’s; • Financial statements or tax returns on affiliate companies; • Resumes/organization chart • Basic or extended business plan; and • Company’s website.

These items will get the contractor and surety specialist

established with a bond relationship, but active bidders need professional handling of their bid and performance bonds regularly.

SBA Surety Program

Insurance markets can be temperamental, and surety is no exception. Emerging contractors may not be able to secure sufficient bonding from the standard market, and troubled accounts may be asked to exit a standard program for a specialty one.

Many small contractors face difficulty securing their first bonds or establishing enough bond support to handle their growing business plans. As an insurance agent, you should know there are specialty bond programs available that require collateral, funds control or subcontract bonds to mitigate the underwriting risk to the surety.

A viable option to these onerous tools is the SBA Surety Bond Guarantee Program.

Started in 1972, the Small Business Administration’s mission is to help small accounts secure bonding levels they cannot get in the standard market.

Providing up to a 90 percent guarantee to the surety, the SBA minimizes any loss exposure to the surety. Bonds are written by the surety, with the formal backup guarantee from the SBA working behind the scenes. Historically, this program was focused on federally certified contractors with 8(a), HUBZone, SDVOB and other disadvantaged credentials.

However, the program is now open to any small business that meets the SBA’s requirements.

General contractors with threeyear average revenues of $36.5 million and trade contractors

at $15 million qualify. Single bonds of $6.5 million are available under the program.

An important factor in the SBA Program is the allowance of available bank lines of credit being considered part of the working capital calculations.

The SBA just increased its own Quick App Program to $400,000 on a single bond.

This SBA credit-based program helps accounts with low credit scores that cannot qualify for the standard programs.

Summary

Over the years, surety bonding has fluctuated between liberal (easy to get) to conservative with a limited marketplace.

Credit-based programs have worked well, and single-sized bonds under these programs have increased to over $1 million on a single project.

Several standard sureties have established affiliated specialty programs to handle their challenging accounts, and the SBA is robust and competitive in both its pre-approval and preferred guarantee programs.

Standard underwriting has moved toward a focused analytical process where the agent needs to understand accounting, finance, legal and operating issues for its accounts.

Surety specialists can prove to be a valuable partner to agents to protect accounts and better service contractor clients. Share this article with

a colleague.

IJMAG.COM/112CO Allen is president of KOG International Inc. KOG specializes in construction bonds and related insurance products.

Email: bruce@KOGBonds.com. Website: www.KOGBonds.com.

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 23

Idea Exchange

Contractors & Builders

A Storm of Claims Likely Following 2017 Hurricane Season

By James P. Koelzer

and Holly S. Harvey

T

he aftermath of this year’s hurricanes includes massive reconstruction across the impacted areas, which in turn creates an increased possibility for construction defect claims that would affect the liability insurance market.

When Hurricane Harvey swept over large portions of Texas, wind, rain and floods caused heavy damage to land, buildings and other improvements, and also to the inventory of lumber yards and other suppliers.

Hurricane Irma then did much the same in Florida.

Hurricanes Irma and Maria devastated Puerto Rico, which has additional challenges in getting ready to rebuild due to its island setting and financial situation.

Louisiana and other states have also suffered, most

recently from tropical storm Nate.

Texas and Florida already are among the nation’s leaders in new construction, consisting primarily of home building.

Before this hurricane season, home construction in both states was already rebounding from the 2006-2008 slump and subsequent dips.

In the one-year period from June 2016 to June 2017, the Dallas-Fort Worth area had the most new, single family homes under construction nationwide, followed by the Houston area in second place nationally.

Adding more residences, some Texas developers began experimenting with single family communities for rentals rather than sales. North Texas last year was second after New York City in the construction of new apartments. Hurricane Harvey temporarily halted construction in the impacted areas of the state, but builders are getting back to work.

Florida’s increase in new construction is slower but remains steady, with residential construction far outstripping commercial and public projects.

New construction inevitably leads to construction defect claims. The claim volume projected before the storms should now increase. Following the recent storms, developers may soon see suits which allege that existing property suffered additional damage during a hurricane due to poor construction or design. Moreover, partial reconstruction, extensive repair, and new construction to replace destroyed property

26 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

seems likely to propagate yet more construction defect suits in the near and distant future.

Most states allow a property owner from four to 10 years to discover a latent defect and make a claim for it, starting from when the work was completed or from when the property was thereafter first sold or certified fit for occupancy. In that context, the consequences of the 2017 hurricane season will likely be felt for at least another 10 to 15 years, if not longer, in the claims arena.

Texas and Florida both have strong consumer protection laws, comparable to California, Arizona and Nevada (other states with high home construction rates and periodic natural disasters

that have resulted in mass claims against builders). They both have long-established Right to Repair Acts creating pre-litigation procedures for construction defect claims that have spawned litigation about the duties of an insurer to be involved during the pre-litigation stage.

In Texas, the 1989 Residential Construction Liability Act (RCLA) encourages home builders and contractors to make repairs rather than contesting claims with mandatory pre-litigation procedures. It has been expanded and liberally interpreted over the years, backed by the Texas Deceptive Trade Practices Act. Texas courts find coverage for those repairs when

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interpreting the builders’ and contractors’ policies. Yet, to date, no Texas court has found a duty to defend the statutory pre-litigation procedure under typical comprehensive general liability (CGL) policies, creating the anomalous situation where the insurer is liable for claims it need not defend.

Creating a further incentive to participate, the Texas Supreme Court in a 2013 decision, Lennar Corp. v.

Markel Am. Ins. Co., found coverage under a CGL policy for a developer’s repair work on hundreds of homes pursuant to settlements under the RCLA based on a finding that the settlements, entered into without the insurer’s consent, did not prejudice the insurer and thus would not justify a denial of coverage under the standard policy condition that

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“no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense . . . without [the insurer’s] consent.”

Florida’s 2003 Construction Defects statute establishes a pre-suit process for commercial and residential property. It has been repeatedly revised, most recently in 2015. The Florida pre-suit procedure extends the time to file a construction defect lawsuit. The statute requires a claimant to serve a notice of construction defects on the construction professional as a condition precedent to filing a lawsuit, and allows multiple, alternative responses to the notice, including an offer to make repairs and/or pay money “that will not obligate the person’s insurer” and a statement that the amount of money “will be determined by the person’s insurer within 30 days,” giving the insurer the option to respond if the claimant agrees to be bound by the insurer’s determination. If the claim is not settled, the claimant may file a lawsuit. The statute also states that providing a copy of a notice of construction defects to the recipient’s liability insurer “shall not constitute a claim for insurance purposes unless the terms of the policy specify otherwise.” The question whether a notice under the statute constitutes a “suit” triggering an insurer’s duty to defend is currently pending before the Florida Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co. Historically, California, Arizona and Nevada have been the hotbeds for construction defect litigation. But, with the

consumer-friendly backdrop, and the increase in construction following the 2017 hurricane season, circumstances are ripe for Texas and Florida to become more like the Southwest states with respect to construction defect claims.

Insurers would do well to start applying the lessons learned in the Southwest now.

Insurers should be prepared for insurance coverage disputes arising out of construction defect litigation.

Claims in the Southwest have taught insurers how to manage high volumes of construction claims more effectively. As the cost of the hurricane driven claims is likely to increase, insurers will be even more motivated to streamline the claims process in search of efficiency, perhaps in part by the use of new technology.

News sources repeatedly refer to a shortage of materials and labor in Texas and Florida before the hurricanes. The storms make both shortages worse by reducing the supply of material while raising the cost of bringing supplies into the area and also diverting labor. This is driving up the cost for labor and materials.

When combined with already rising volume of construction, especially home construction, and strong impetus to get repairs done as quickly as possible, the cost of construction could further increase, which will further inflate the cost of construction defect cases to insurers.

Insurers should be prepared

for insurance coverage disputes arising out of construction defect litigation.

Florida’s “Civil Remedy” statute codifies insurance claims handling standards in a statute which creates a direct right of action against insurers, one means of asserting a “bad faith” claim against an insurer.

In 2003, Texas enacted what is known as the Prompt Payments Act, which awards 18 percent interest and attorney fees to an insured that shows unreasonable delay.

This statute is part of extensive legislation adding various forms of consumer protection to the Texas Insurance Code, including typical standards for claims handling and duties to disclose claim information to the insured.

Courts in both states have recognized causes of action for a range of insurer behavior that may give rise to extracontractual damages in addition to policy payments owed, separate from statutory claims. The consequences of any oversight or misstep in claims handling in these states (and others) can be costly and long lasting.

The likely cascade of claims arising from these hurricanes will last a very long time. We encourage insurers in the construction market for the southeastern United States, and especially their local claim handlers, to be prepared for high volume and high costs in these challenging environments.

Share this article with a colleague. IJMAG.COM/112HU

Koelzer and Harvey are partners at Clyde & Co., a global law firm. Harvey is based in Florida and Koelzer is based in California.

NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 27

Idea Exchange

Tech Talk

Tech Tips to Reach Millennials

I

ndependent agents are slowly accepting the fact that they need to reach out to millennials more effectively. Much of the generation that is now between the ages of 20-36 is entering its prime earning years and starting families and buying homes. Many agencies struggle with appealing to millennials because they rely more on shoe leather and phone solicitation and less on digital marketing.

Face-to-face contact with millennials is critical on the back-end, but not without a robust, continual digital component on the front-end.

To better understand what strategies and tactics work with millennials and, just as importantly, what doesn’t work, we talked with Tony Cañas, co-founder and chief motivational officer at InsNerds.com

(https://insnerds.com). The group’s website contains many of the elements millennials prize — it’s highly readable, visually appealing, plenty of authentic testimonials and asks questions to draw visitors in.

Cañas is a self-described insurance nerd with industry credentials (he’s also a middle-market underwriter with Liberty Mutual) and a passion for “insurance, technology and especially helping the insurance industry figure out how to retain and engage the younger generation of insurance professionals.”

“Some agents still hold the perception that digital marketing is still a fad and that it doesn’t bring in business,” says Cañas.

“Many agents struggle just to stay alive, but a key reason for their difficulties with millennials is that success in this market depends more on astute marketing than on hard sales pitches.”

“For one thing,” he said, “I hate phone calls and so do other millennials. I don’t want to make phone calls and I don’t want to receive calls that I have not asked for. Speed is a major issue — voicemail is a turnoff. If I have to make a call, I want to get the answers I’m looking for right then.”

Cañas says that agents need a variety of ways for millennials to com-

28 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

municate with them, including chat and texting as well as drop-down forms on the agency website.

“The agency website is not just an online brochure — it must be fully functional and mobile-optimized for any type of device and easily findable, meaning it must be SEO-optimized.” he said. “Sadly, so many are not.”

Social media is also essential, according to Cañas.

“Every agency needs a Facebook page and needs to post regularly with original content,” Cañas said. He also advises that agencies “take full advantage of reviews on Yelp. “Millennials talk to each other when they are looking for businesses to patronize and want to see what others are saying.”

Cañas says one website he likes is Santa Rosa, Calif.-based Barber Insurance Agency’s website (http://www.barberinsurance.com). He says the agency uses a variety of techniques to engage visitors and incentivize them to take action.

“Our goal is to draw visitors in, speak their language and then educate them about the need to have insurance protection that’s built around their needs,” said Cheryl Fassenden, a partner at the agency.

“Millenials want quick answers, however, we will use examples they can relate to so they can realize the most value for their policy.”

The agency’s website features coupons from local businesses (“View Our Partners"), which Fassenden says their commercial clients love. The agency runs regular contests and uses social media, including Facebook, Twitter, Pinterest, LinkedIn and YouTube. Share this arti-

cle with a colleague.

IJMAG.COM/112TE Longtime insurance communicator Tom Wetzel heads his own insurance marketing firm that specializes in website design and social media programs for agents through its Social Media Content Roadmap©. Website: www.wetzelandassociates.com. Email: twetzel@ wetzelandassociates.com.

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Idea Exchange

The Wedge

When Hiring Seek the Help of a Bad Cop not you. You get emotionally involved and a relationship begins. You project: “I bet they would do fine in this role.” But, in many cases they won’t.

When you find that out, it’ll be too late: You’ll have spent a ton of money training them. And then, they will resign or you’ll fire them. Or even worse, you’ll let them hang on to a job they don’t want.

The swamp just gets dirtier, nastier and well, swampy.

So what are you going to do?

By Randy Schwantz

I

checked my email first thing this morning and got a resignation letter from someone on my team; a relatively new hire. She couldn’t put up with the ambiguity of working for a small entrepreneurial business.

Having come from working with architects and engineers, she is now aware, she likes the square box.

Over there, it was simple… there was a deadline for RFPs to go out. All she had to do was meet that deadline and her life was great. Creativity, not her bag.

I should have seen this, but I was blind.

She gave me a hint when I met with her after she was hired. I was telling her about some of the projects I wanted to get done and the many opportunities we have here to spread your wings and fly.

Her head almost exploded (but I didn’t acknowledge it).

She told me she was a checklist lady and I thought: “That’s good.” Then I was back to a creative idea I wanted to get out of my head, before it exploded.

That’s why I needed a bad cop. Someone who didn’t care if she got hired. Someone who had one objective — find out who she really was. You could probably use a bad cop, too, for hiring producers.

The problem with hiring is that you get fatigued interviewing people. You start to miss stuff that is apparent to others, but

push back, dig deep, make the candidate do exercises.

The bad cop knows that if this producer candidate won’t prospect, it’s going to be a bad hire.

They know that if this producer candidate isn’t smart, it’s going to take forever to learn the business. They know that if this producer candidate isn’t good at relationships, no one will want to hire them as an agent.

Bad Cop 101

Hire a bad cop to help you out.

Bad cops have a cool job. They get to dig in deep, ask probing questions and do it all with no guilt, remorse or shame if the candidate gets up and walks out the door.

By the way, they never walk out the door, but it could happen.

Bad cops have a cool job.

They get to dig in deep, ask probing questions and do it all with no guilt, remorse or shame if the candidate gets up and walks out the door.

And you want your bad cop to be edgy enough to where it’s always a threat.

Someone might walk out. Here’s why.

In the dating phase of any relationship, everyone is putting their best foot forward.

You want a great employee. They want a great job. The problem is that there is a lot of mutual persuasion at hand.

You’re selling them on your firm. They are selling you on their capabilities.

Generally, there’s a lot of smiling and courtesies extended, such as, “Could we offer you some coffee or a bottle of water?” And the “real them” gets missed. It’s like fake news, only this is a fake candidate.

Duties of a Bad Cop

So, what does the bad cop do? They

30 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

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And that’s when it gets really dangerous — when the candidate is good at relationships, but not much else. A bad cop won’t fall for it when someone else would.

How a Bad Cop Works

We call it evidence-based exercises.

If this were basketball instead of selling, it would be easier. We’d give you a basketball, and put you and a defender out on the court. We’ll quickly see your speed, your ball handling skills, and how well you shoot. All visual evidence that you either can or cannot play basketball.

In selling it’s a little more difficult, unless you want to ask them to take a day off work and go make some physical cold calls. That is very time-consuming, although very powerful, in terms of the evidence it will produce.

One of the things we recommend is to have the producer candidate read a sales book and do an executive summary.

It produces several things, that have proven worthwhile: 1. Can they follow through with an assignment? (Follow-through, follow-up is big for salespeople.)

2. Can they write? (Written communications — could be emails to prospects or executive summaries for underwriters — is a very powerful skill for producers.)

3. Can they express their point? (You’ll quickly find out if they can get their point across, which is at the heart of selling.)

Once you get that executive summary, you can now read excerpts and ask them to explain it. This has the ability to create a lot of pressure on the candidate, which opens the door to who they really are.

After all, these are their words, their summary, their thoughts. Digging into this reveals a lot about how they think, what

they consider important and a fair amount about their intelligence.

Sometimes entrepreneurs have to get out of their own way by getting someone that is totally objective to ask the tough questions and press the issue. That’s why it’s good to have a bad cop on your hiring team.

You want to know with great certainty: 1. Will this candidate prospect?

2. Can they sell?

3. If they can, you should hire them.

If they can’t, it’s easier to take a pass.

If you want to improve your new producer hiring, here’s a powerful resource: Share http://thewedge.net/blueprint-ij.

this article with a colleague. IJMAG. COM/112BA Schwantz is founder of The Wedge Group. Phone: 214-446-3209. Website: www.thewedge.net. Email: randy@thewedge.net.

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NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

Technology

Recent Hurricanes Highlight the Need for Digital Transformation in Insurance

By Bill Fox

T

he claims for Hurricane Irma are starting to pour in and they’ll be big, $25 billion to $35 billion, forecaster AIR Worldwide says.

The scenes of flooding, displaced people, wrecked homes and disrupted communities are all too familiar, as are concerns about insurers managing claims and their own financial futures, too.

Homeowners and business owners affected by Hurricane Irma will probably go through many of the same processes as Floridians affected by Hurricane Andrew 25 years ago. Claims stations sprouted up on street corners, adjusters poured into the area, some walking down streets not quite

sure which houses they even insured. Until Irma, Andrew was Florida’s most destructive storm, causing $27 billion in damage.

The New York Times reported 22 insurers failed, leaving a million policyholders without coverage.

As these events become more common, insurers, which touch practically every consumer, must catchup to other industries and build resilience into their systems and technology. Like healthcare, insurance is an industry slow to change and is often hindered by legacy IT and regulation.

Insurance is also an industry built on neighborhood agents, face-to-face interactions.

Time is of the essence and face-to-face doesn’t scale during a disaster. Irma-sized disasters underscore the risks of not changing and instead being stuck with outdated, time-consuming and inefficient processes.

Homeowners should be able to take photos, hook into the adjuster via Skype, do virtual walk-throughs, then have data uploaded to databases that draw insights from data on other homes on the same street, or from homes constructed the same way with the same materials.

Homeowners update homes and contents all the time, but how often do insurance policies get updated? Not nearly as

often, in part, because it’s a cumbersome process to do so. That points to the need for easier, online ways to update policies and coverage amounts.

In the wake of disasters, communication is often difficult. Some insurers have mobile apps. Others communicate via Twitter.

Consumers should be able to access insurers through any available channel, and be assured that the information they share — in effect their data — gets to the right place and is then easily accessible and shareable to speed claims processing.

Disruptive technologies and innovators will help push the rest of the industry forward.

Digital transformation is imperative, so insurers and consumers can communicate and transact across any available channel.

With large disasters, face-to-face meetings don’t always scale. People can’t wait that long to get their money. It’s an inefficient use of resources and it is increasingly not the way consumers want to interact with companies.

Instead, they’re embracing the AirBnB, Amazon Prime, Netflix-level of streamlined, on target and convenient service.

Insurance should be no exception.

Digitization Benefits Industry, Too

Everyone benefits from having a healthy, competitive, financially stable insurance industry. Accenture Research estimates that digital transformation offers insurers in mature markets the chance to increase profits by up to 100 percent.

Companies clearly see the challenge.

Seven in 10 European insurers say a failure to innovate will restrict growth or result in them falling behind the competition, research firm Pierre Audoin Consultants recently found.

Health insurer Aetna even ranked num32 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

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ber five on a Harvard Business Review list of the 2017 Transformation 10. It followed digital leaders Amazon, Netflix, Priceline and Apple. What’s Aetna doing right?

Building a narrative about future possibilities and how to get there, HBR says.

In another part of the world, Australia’s MLC Life Insurance is spending $300 million to upgrade its technology to provide greater digital functionality and to digitize processes.

Meanwhile, smaller “insurtech” companies are starting from scratch with disruptive business models. The Texas-based startup, Bestow, underscores the potential.

It claims that 85 percent of Americans believe they should have life insurance, but only 41 percent do. Why not?

Consumers don’t understand it, don’t like the perceived cost or the hassle of purchasing. That’s why Bestow is readying what it says will be the “consumer-first” life insurance solution driven by analytics and technology.

Look for many more such announcements, and not only from the insurance industry but from technology and consumer innovators, too.

Bestow, for instance, describes itself as a “band of finance experts, tech specialists, and data nerds.”

Homeowners battened down the hatches before Irma to minimize losses.

Insurers who take steps to transform their technologies and business models now will be much stronger when the next storm hits — which will be good for both

“

the victims and the insurers.

Share this

article with a colleague.

IJMAG.COM/112DI Fox is the vice president of healthcare, life sciences and insurance, Global CTO at MarkLogic.

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Big Disasters Needs Big Helpers

Disruptive technologies and innovators will help push the rest of the industry forward. But with disasters as big and broad as Irma, Harvey and others, the need for agile incumbent “big” insurers is obvious.

Given the size of losses to insurers following the most recent storms, there’s concern that some may cut back on innovation and digital transformation investments.

That would be a mistake. Sticking with decades-old technologies will only add up in terms of lost efficiency, lost productivity and inability to prevent fraud.

Sticking with old technologies will also lock insurers out of one of the largest trends continuing to sweep through our economy: personalization. To tap insights within that data to better personalize customer service, insurers need new IT and database technologies.

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NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Minding Your Business

Disaster Planning for Agencies

By Catherine Oak and

Bill Schoeffler

N

orthern California and specifically Sonoma and Napa Counties have experienced the worst wildfires in the history of California. Most of these fires began around Oct. 8, 2017, during night with extremely high winds, that knocked power lines out in hills and sparked many fires that burned for almost 10 days.

The manpower to fight these multiple and widespread fires was not available.

The local teams of firemen and police could only handle evacuations and saving lives, until more help arrived from all over the United States, including Canada.

Close to 9,000 structures (homes, out buildings, businesses, etc.) were burned to the ground along with 150,000 acres from all the fires in Northern California. The current death toll stands at 43 with more than a dozen people still missing.

During times like this the insurance industry needs to demonstrate that it is a leader. The question is, as insurance agents, do we “walk the talk?” Are insurance agents and brokers prepared for disasters any more than the average business?

The main purpose of insurance is to provide financial support to the policyholder in the case of some problem or disaster.

A building burns down and the insurance policy provides the money to rebuild the facility.

Property is stolen and insurance reimburses the owner.

The weakness is that insurance does not guarantee that the business or homeowner will recover or be made whole again. This is especially a problem if limits are not high enough and if replacement cost coverage is not purchased.

In the case of the California fires if businesses were not burned or had smoke damage, they likely needed business interruption coverage. The fires impacted tourism and the ability to access many businesses because some areas had road closures for seven to 10 days. Businesses and individuals often had no power leading to food storage and supply disasters for grocery stores, restaurants, and the like.

Overall losses from worldwide natural catastrophes in 2016 totaled $175 billion, up from $103 billion in 2015. Only 30 percent, or about $50 billion was insured, according to Munich Re. In the United States, natural disasters in 2016 totaled $23.8 billion, up from the $16.1 billion total for 2015. The 10-year absence of a major

34 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

U.S. hurricane making landfall ended in 2017 with hurricanes Harvey and Irma, both of which caused substantial damage.

Severe thunderstorms are typically the most frequent natural disaster.

Each year, businesses and individuals are impacted by disasters. However, a disaster does not have to be widespread to paralyze an agency. Every business (including ents) should your clihave a disaster preparation and recovery plan.

The better the plan, the better the chance the business will quickly recover. Unfortunately, many businesses are not prepared in the face of a disaster.

Besides creating their own disaster plan, insurance agents and brokers that educate their clients in this matter will gain the competitive edge.

The survival of a business depends upon having a written customized plan with documented procedures, developed and reviewed with all of the staff. Part of the plan needs to include regularly scheduled tasks and drills. Finally, the business needs to have the proper insurance.

The plan should have: • Employee and catastrophe team duties and responsibilities; • Emergency response and operation procedures; • List of suppliers and vendors for backup equipment, repair services, insurance companies and organizations to be contacted; and • Maps of alternate routes to the office, emergency office or rally point and offsite storage location.

continued on page 36

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Idea Exchange continued from page 34 Things to Consider

There are a lot of things to consider when developing a plan.

First, what are assets and resources that the agency must have to continue to function? Human resources are at the top of the list.

Second, the information that is collected and stored should be in various media.

Third, the list should include the actual equipment, furniture and facilities.

Next, a general assessment must be made of the most likely disaster scenarios.

Every business (including your clients) should have a disaster preparation and recovery plan.

Minding Your Business non-functioning equipment?

In the case of the California wildfires, many insurance agencies in Napa and Sonoma Counties were without power for almost a week. What can the agency do if the office is shut down and the producers and staff cannot access the files or answer the phones?

In the case of the wildfires, back-up generators had to be brought in and because of evacuations, some offices could not be accessed at all. Employees had to go elsewhere to gain internet access, like coffee shops, etc. In some cases, agency employees had to have claimants call the carriers direct, but were often afraid of the lack of customer support and service from the agency in the clients’ hour of need.

There are various sources that a busi-

ness owner can use to develop an effective disaster plan. A good place to start is with government organizations such as the Federal Emergency Management Administration (FEMA).

There are also many private firms that offer advice and support. Some insurance associations have planning guides as well. Keep in mind that assisting clients with their disaster plan (after the agency completes its own) will give the firm a value-added service it can advertise.

Even if a formal written plan is not drafted, each business owner should still take the time to review and think about disaster preparation and recovery.

Backup Files

For the typical agency a disaster plan

Situations such as floods, earthquakes, fires and storms are what usually come to mind. However, businesses now face disasters such as energy blackouts and computer viruses, as well. A disaster could also be the sudden death of key employees.

The impact on the agency’s resources and assets by each of the probable disaster scenarios must be analyzed. A flood or a fire can destroy equipment and information assets, but will less likely cause the loss of employees. An earthquake or storm can impact employees, equipment, facilities and possibly the information assets.

Problems such as blackouts, ransomware and computer viruses have a relatively high probability of occurring and should have the most comprehensive plan.

An earthquake, flood or fire has a lower probable risk and the problems they create are highly variable. Plans for these types of disasters need to be flexible and should contain less detail.

Also, some disasters will impact just the agency, such as the loss of key employees or a fire, while a storm, flood or earthquake will have a wide impact. In the case of the former disasters, the agency will have its typical workload, while the latter scenarios will mean a major increase in workload activity. Is the agency prepared to handle 10 or 20 times the calls with less staff and 36 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

INSURANCEJOURNAL.COM

often starts with one main thing — backing up data. Cloud-based agency management systems are the best approach.

For those agencies that have their agency management systems on computers, not cloud-based technology, the data should be backed up into the cloud using an online backup service. Manual backups are no longer necessary with cloud-based systems, and are not recommends because of human failure to perform them daily.

What steps will the agency take in the case of a blackout, computer virus or ransomware?

Hardcopies of client names and numbers should be available, so that some business can still be handled. Non-computer work can still be done in the absence of a working electronic database.

Most agencies still have some of their client’s information stored in paper files.

What is being done to protect these files?

Does the agency have fireproof file cabinets and are they closed every night? If the agency is paperless and there is no internet, how can the agency access client information?

Determine how clients and carriers can contact the agency after the disaster.

Today with the internet and easy access to offsite voicemail, this problem has been mitigated. The real issue is informing every one of the contact alternatives.

Without the staff in place, there would be no work done. Management needs to make sure that each employee follows the agency’s workflow procedure so that there is consistency from desk-to-desk. That way if one employee dies or even quits suddenly, another employee can pick up where the former employee left off with little interruption.

It is also important that management discuss with employees what they should do during major disasters such as fires, storms and earthquakes. Who should they contact and is there an offsite meeting place? What should the agency do to contact the employee’s family if the disaster strikes during work?

Management should also consider keeping a list of backup or temporary employees that could be available to help handle the workload during a large local disaster.

For example, if disaster strikes and the agency experiences an enormous spike in workload, perhaps family or friends can pitch in to help handle the claims and other work that needs to be done.

Finally, the business must have the proper insurance in place. This is good advice for an insurance agency as well as the agency’s clients. An agency owner must take and utilize the same advice it offers its clients regarding insurance.

Review the current coverage for gaps.

Check out the availability of business interruption coverage.

Summary

Humans are usually motivated into action only when faced with an actual INSURANCEJOURNAL.COM

event or significant threat. Needless to say it is better to be proactive rather than reactive. An agency owner spends much of their lives building up their business.

Spend the time necessary to develop a plan to fully recover from a possible disaster.

Share this article with a colleague.

IJMAG.COM/112CA Oak is the founder of the international consulting firm, Oak & Associates, based in Northern California.

Schoeffler is an associate of the firm. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. Phone: 707-935-6565. E-mail: catoak@gmail.com.

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NOVEMBER 20, 2017 INSURANCE JOURNAL | NATIONAL | 37

Closing Quote Rebating Laws Should Not Apply to Broker Fee Agreements

By Richard A. Brown

A

negotiated retail broker agreement is a contract between a retail producer and an insuranace buyer whereby the parties agree to a total package of services for a fee that takes account of the broker’s commission compensation for procuring insurance — as well as for other “value-added” services that may extend beyond the specified terms of the various insurance policies.

Broker fee agreements are negotiated at arm’s length between the broker and client.

Unlawful rebating is solely in the eyes of the state insurance regulator. There is no clear definition that makes any sense in the context of today’s insurance markets.

Moreover, there is no public policy or legitimate regulatory reason to scrutinize commercial broker fee agreements through the lens of state rebating laws.

Most states deal with rebating as an unfair business practice largely modeled on the National Association of Insurance Commissioners

Model Unfair Trade Practices Act. Section H provides in relevant part: Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any life insurance policy or annuity, or accident and health insurance or other insurance, or agreement as to such contract other than as plainly expressed in the policy issued thereon, or paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as an inducement to such policy, any rebate of premiums payable on the policy … or other benefits thereon, of any valuable consideration or inducement whatever not specified in the policy …or anything of value whatsoever not specified in the policy.

(See, Why Regulators Should Dump Anti-Rebating Laws, Insurance Journal, Sept. 18, 2017).

None of the historic justifications for anti-rebating

38 | INSURANCE JOURNAL | NATIONAL NOVEMBER 20, 2017

laws have any applicability in today’s insurance markets. Not to mention that many state rebating laws seem primarily concerned with how many broker-monogrammed pens the broker may give out without those “gifts” being an “unlawful inducement.”

Commercial Clients

Commercial clients seek to control costs through one-stop shopping for their insurance needs through a negotiated fee agreement with the broker.

They want the broker to apply its knowledge and expertise to negotiate with insurers. They also want a bundle of other professional services beyond insurance placement called “value-added” services, all included for a negotiated fee.

Value-added services may include loss control, risk management, claims management, and other possible services.

Broker fee agreements, like any professional services

contract, are subject to renegotiation if the client’s needs change.

It goes without saying that the retail insurance broker must make full disclosure of its commission compensation for procurement of insurance and its charges for “value-added” services.

With full disclosure, broker fee agreements resolve the realistic economic interplays between the client’s needs and those of the broker. Neither party wishes to earn too little or pay too much.

Retail producers generate the business that drives the wholesale markets, including surplus lines. Negotiated fee agreements therefore ripple up the distribution chain and put pressure on everyone to contain costs. That is all to the insurance buyer’s benefit.

Regulatory Solution

It is far from clear what state rebating laws accomplish under any circumstances. It is, however, clear that arm’s length negotiated commercial broker fee agreements offer no grist for the rebating mill.

Does providing more cost-effective professional broker services to a client constitute illegal rebating? And how could a regulator possibly quantify the amount of the purported cost control rebate?

Regulators should strike broker fee agreements off the anti-rebating list.

Brown is an insurance regulatory attorney. Email: RAB@InsuRegulatory.com.

Website: www.InsuRegulatory.com INSURANCEJOURNAL.COM

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