Insurance Journal West 2018-11-19

WEST REGION California Drops Comp Pure Premium Pinnacol Lowers Workers’ Comp Rates What to Know Before Making Promises

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Contents November 19, 2018 • Vol. 96 No. 22 • West

West W2 California Insurance Commissioner Reduces Workers’ Comp Pure Premium

W2 CALIFORNIA INSURANCE COMMISSIONER

REDUCES WORKERS’ COMP PURE PREMIUM

W6 Pinnacol in Colorado to Drop Workers’ Comp Rates, Issue Dividend in 2019

National 10 Independent Agents Post Highest Growth Rate in Past 15 Quarters: Reagan 12 Can Commercial Auto Insurers Get to Profit Before Driverless Cars?

17 Closer Look: Senior Living Market Under Pressure

Idea Exchange W4 Expanded Duties: What an Insurance Professional Should Know Before Making Promises

19 Closer Look: Top 50 Personal Lines Leaders

28 THE CHANGING RISK AND

LIABILITY LANDSCAPE: NEW TECH, NEW LOSS SCENARIOS

28 The Changing Risk and Liability Landscape: New Tech, New Loss Scenarios

20 Spotlight: AFL Insurance Brokers Finds Cultural Fit with U.S. MGA Zodiac 24 Special Report: How Wholesale Brokers Are Winning Over the Next Generation

30 Tech Talk: Students Speak Out on Technology Issues 32 Minding Your Business: Preparing to Sell the Agency 34 The Rise of Risktech: How Startups Are Saving Lives and Property in Construction 38 Closing Quote: Insurance Is Doing It Right

Departments 11 Declarations

34 THE RISE OF RISKTECH: HOW

STARTUPS ARE SAVING LIVES AND PROPERTY IN CONSTRUCTION

6 | INSURANCE JOURNAL | WEST NOVEMBER 19, 2018

11 Figures 14 Business Moves 22 MyNewMarkets INSURANCEJOURNAL.COM

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OPENING NOTE

Write the Editor: awells@insurancejournal.com

Holiday Party Canceled

T

he economy is booming but that isn’t spurring a rise in holiday parties this year. This may be the result of the #MeToo movement, which has highlighted sexual harassment and assault in the workplace, according to a survey released by consulting firm Challenger, Gray & Christmas Inc. Only 65 percent of companies are holding a holiday celebration this year — the lowest percentage since 2009, the study reveals.

Nearly 27 percent of companies reported they never hold company parties, the highest since Challenger began the survey in 2004, while some 8 percent reported they are not holding a party this year for various reasons.

“The low number of corporate celebrations does not appear to be due to economic reasons. Companies are sitting on tax savings and generally report a thriving economy,” said Andrew Challenger, vice president of Challenger, Gray & Christmas Inc. In the survey, companies reported higher confidence in the economy than last year. Sixty-two percent of companies said the economy has improved over last year.

That’s compared to 48 percent who reported improvement in 2017. Nearly 29 percent reported the economy is on par with last year.

“We have never seen so many companies report that they never have holiday parties,” he said. “The number could be due to several factors, including potential liability following the #MeToo movement.”

Of those companies that are having a party this year, nearly 58 percent reported they have addressed the #MeToo movement with their staff this year, 33 percent of which have addressed or will address this issue prior to the party.

“Other reasons for fewer holiday parties could include that a company’s workforce is primarily remote and it’s too difficult to gather for a holiday party, or perhaps companies are having parties at other times of the year. However, the fact that nearly 60 percent of companies that are having parties have real concerns about inappropriate behavior shows that HR departments nationwide are responding to this particular issue,” said Challenger.

“In some cases, that response may mean FOR QUESTIONS eliminating the holiday party,” he added.

REGARDING SUBSCRIPTIONS: Call: 855-814-9547 The good news: if they get to have a compaOutside the U.S., call 847-400-5951 or you may subscribe or change your address online at: ny party, employees can expect a better party insurancejournal.com/subscribe this year. Nearly a quarter of companies plan Insurance Journal, The National Property/Casualty Magazine (ISSN: 00204714) is published semi-monthly by Wells Media to increase the budget for the party, the highGroup, 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 est since 2007, when 38 percent planned to per special issue copy, $195 per year in the U.S., $295 per year all other countries. DISCLAIMER: While the information in this pubbudget more than the previous year. lication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended The annual survey on holiday party plans 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 was conducted in October and polled 150 Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. human resources representatives across the Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Insurance Journal, country.

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‘The low number of corporate celebrations does not appear to be due to economic reasons.’

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Andrea Wells Editor-in-Chief 8 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

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National

Independent Agents Post Highest Growth Rate in Past 15 Quarters: Reagan Consulting

I

ndependent insurance agents and brokers can celebrate a four-year growth trend, according to Reagan Consulting.

In its third-quarter Organic Growth and Profitability (OGP) study, the agency consultant says that the sector’s organic growth rate in the third quarter was 6.1 percent — tied for the highest growth rate in the past 15 quarters. “This strong Q3 performance is another confidence builder for the industry,” says Harrison Brooks, vice president of the firm.

All lines of business contributed to the third quarter and to the strongest nine-month growth performance since September 2013, according to the survey of 200 midsize and large agencies and brokerage firms. The growth was led by commercial lines with 6.8 percent, surpassing group benefits, which grew for the first time since 2014 by 6.3 percent. Personal lines – at 3.8 percent growth – posted its

highest Q3 growth rate since the OGP survey began in 2008.

The survey found that brokers expect strong growth throughout 2018, estimating a full-year growth rate of 6.0 percent versus just 4.5 percent in 2017. “If history is any indication of future performance,” says Brooks, “strong GDP tailwinds are likely to continue to drive strong organic growth for agents and brokers.”

Reagan leadership did express one note of caution around agency profitability.

“It will be important to monitor EBITDA [earnings before interest, taxes, depreciation and amortization] margins, especially in larger agencies,” says Brooks. EBITDA margins declined slightly in Q3 2018 from last year, and it appears that contingent income, which dropped from 8.6 percent of revenue in 2017 to 8.0 percent of reve-

10 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

nue in 2018, was the primary driver.

The reduced spread between EBITDA margins and operating margins supports that conclusion, the Reagan consultant said. Operating margins exclude contingent income. The report showed an encouraging uptick in Q3 operating margins, sparking hope that the recent dip in EBITDA margins can be tempered by improving agency operating margins.

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West

California Insurance Commissioner Reduces Workers’ Comp Pure Premium

C

alifornia Insurance Commissioner Dave Jones earlier this month issued a revised advisory workers’ compensation pure premium rate, lowering the benchmark to $1.63 per $100 of payroll effective Jan. 1, 2019.

Jones has reduced the advisory pure premium rate by about 42 percent since January 2015, when he approved an average pure premium rate that was $2.81 per $100 of payroll.

With an average filed pure premium rate of $2.13 per $100 of payroll as of July 1, 2018, insurers were on average applying pure premium rates that were

roughly 19.7 percent more than the corresponding average advisory pure premium rate of $1.78 approved by the commissioner as of that date, according to the California Department of Insurance.

The indicated advisory pure premium rate level of $1.63 approved by Jones is about 23.5 percent lower than the industry filed average pure premium rate of $2.13 as of July 1, 2018, according to the CDI. “Savings for workers’ compensation insurers continue and all of those savings ought to be shared with employers,”

W2 | INSURANCE JOURNAL | WEST NOVEMBER 19, 2018

Jones said in a statement. “Cost savings in the workers’ compensation system have helped insurers and employers deserve to share in the cost savings through lower premiums. I renew my call on workers’ compensation insurers to pass along savings to employers.”

Jones’ decision results in an advisory pure premium rate that is below the $1.70 average rate recommended by the Workers’ Compensation Insurance Rating Bureau in its filing. Jones issued the advisory rate after a public hearing and review of the testimony and evidence submitted by stakeholders.

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Idea Exchange

Expanded Duties

Expanded Duties: What an Insurance Professional Should Know Before Making Promises

By Stephen M. Murphy and Katrina L. Smeltzer

T

he majority of states require an insurance professional to act with reasonable skill and ordinary diligence after agreeing to procure an insurance policy requested by a client. Usually, this duty imposed by the law stops upon delivery of the requested policy.

However, services may not be limited to just procuring a policy. To differentiate themselves from the pack, insurance professionals often market that they will be a trusted adviser or ensure the client has the right coverage. Broad promises such as these may help get more clients in the door, but if the insurance professional does not deliver on the promises, such efforts to attract and retain clients may also open the door to expanded liability under the law.

Insurance professionals should be aware of the risks before making promises beyond procuring a policy.

General State of the Law

Courts agree insurance professionals owe a duty to procure the requested policy.

In most states, insurance professionals do not typically owe any legally imposed duty beyond procurement.

Nevertheless, even where courts do not recognize a legally imposed duty beyond procurement, those courts commonly find under certain circumstances an insurance professional may have expressly or

impliedly agreed to expanded duties, and thus, can be held liable for not fulfilling those duties. Two examples of expanded duties that often come into question are whether the insurance professional agreed to: (1) advise the client of the need for certain coverage or (2) monitor the status of the policy.

Courts refusing to impose such duties have found it is unrealistic to expect an insurance professional to stay abreast of its clients’ ever-changing needs or to constantly monitor a policy to ensure it does not lapse. Instead, these courts place that responsibility on the client. But, if the insurance professional either expressly or impliedly agreed to undertake these responsibilities, then courts likely will find the insurance professional is required to exercise reasonable skill and ordinary diligence in discharging those duties.

There are primarily three factors courts consider before finding expanded duties: (1) written representations; (2) oral representations; and (3) the nature of the relationship.

Written Representations

If an insurance professional represented in writing it would undertake to do something for the client and failed to fulfill that promise to the detriment of the client, then the insurance professional may be liable for breach of contract or negligence. Some insurance professionals employ written contracts with clients that can clearly expand the insurance professional’s duties.

But not all contracts are so obvious.

For example, if the insurance professional made representations about services on a website and if the client establishes reasonable and detrimental reliance on those representations, the insurance professional may be held liable for failing to fulfill those promises. The same can be said for all print and electronic promotional materials. These expanded duties

W4 | INSURANCE JOURNAL | WEST NOVEMBER 19, 2018

may be imposed even if the insurance professional and client never specifically discussed them.

Promoting the insurance professional as an expert on a certain type of coverage or that the coverage can be customized for the client’s needs may also inadvertently expand the insurance professional’s duties.

This is what happened when an insurance professional advertised it was an expert in dental office insurance. A court found a jury could find such advertisements expanded the insurance professional’s duties to include a duty to advise the client on coverage needs.

Oral Representations

Similarly, if an insurance professional orally made representations about services, a court may hold the insurance professional liable for failing to fulfill those promises. Notably, these promises may be binding even if they were made before a formal relationship formed.

Oral representations may also expand duties if the insurance professional confirms coverage is adequate after questioned by the client. If the client reasonably relied upon this representation, then the insurance professional may be liable if the coverage was not in fact adequate.

For example, where the client made a business interruption claim only to discover the limits were insufficient, the court found the insurance professional had agreed to expand his duties beyond

continued on page W6

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WEST | News & Markets

Pinnacol in Colorado to Drop Workers’ Comp Rates, Issue Dividend in 2019

P

innacol Assurance’s Board of Directors has approved a plan to decrease workers’ compensation rates in 2019 by an average of 10 percent.

The decrease will go into effect on Jan. 1, 2019, and will be the fourth straight year Pinnacol has decreased rates. Pinnacol’s board also declared its intent to issue a general divided of roughly $70 million in 2019.

The Colorado Division of Insurance has approved a 16.7 percent average statewide loss cost decrease for the 2019 policy year based on recommendations from

the National Council on Compensation Insurance.

Pinnacol said its rate change reflects longer-term underlying loss and expense trends to minimize short-term volatility and create marketplace stability for Colorado employers.

The general dividend is a portion of Pinnacol’s surplus returned to its customers that earn it through successful workplace safety records controlling claims costs.

Pinnacol provides workers’ comp to 57,000 Colorado employers.

continued from page W4 simply procuring the requested policy. The court noted the insurance professional and client specifically discussed business interruption coverage, the insurance professional assured the client the limits were adequate, and the insurance professional pledged to review the coverage annually to adjust as the business grew.

Nature of the Relationship

The nature of the relationship may also create an expanded duty. While the length of the relationship alone is not enough, a longer relationship tends to give way to other factors such as knowledge and custom.

The longer the relationship, the more likely the insurance professional had greater knowledge of the client’s business affairs and needs. The more knowledge the insurance professional had, the more likely a court may find it reasonable for the client to have expected expanded services from the insurance professional.

Other factors such as the number and types of products purchased and the frequency and quality of the contact between the insurance professional and client may also be considered.

A course of conduct may additionally develop during a relationship. If the client detrimentally relied on prior conduct, then

the insurance professional may be liable for not acting in the same manner at some future time. By way of illustration, if the insurance professional had previously notified the client about a potential lapse to remind the client to pay the premium, then the client is more likely to successfully argue it was reasonable to expect the insurance professional to always do so. Consequently, there may be liability in the future for failing to contact the client before another potential lapse.

Extra compensation above the allotted percentage of the premium can also serve as evidence of a special relationship that expanded duties. Longer relationships also tend to encourage more arguments by the client that the relationship was one of trust, and therefore, the insurance professional owed an even higher duty of care because there was an expectation of service beyond merely procuring a policy.

This is especially true when an insurance professional handles all of a client’s insurance, including personal and business insurance.

aware of what acts and representations may expose him or her to expanded duties.

Accordingly, the insurance professional should be cognizant of what representations he or she is making in promotional materials, on websites, and during client pitches.

If the insurance professional decides the rewards are worth the risk and undertakes expanded duties, the insurance professional should engage in direct communication with their client to clarify what services they are agreeing to provide. This clarification should be in writing. Once there is a clear understanding of the agreed-to services, the insurance professional should be prepared to fulfill on these promises and document all efforts to do so.

A longer relationship tends to give way to other factors such as knowledge and custom.

Tips on Expanded Duties

The insurance professional should be

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Murphy is a shareholder and Smeltzer is a senior associate with Sandberg Phoenix & von Gontard, P.C. Murphy focuses his practice in the area of business litigation, with a particular emphasis in insurance law (coverage and bad faith) and professional liability.

He is located in the St. Louis office. Smeltzer focuses her legal work on matters involving non-medical professional liability, business litigation, and insurance coverage analysis and litigation. Smeltzer is located in the Kansas City office.

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Figures

Declarations

270

Electric Evidence

“They did it because they’re faced with insurmountable evidence that it’s their responsibility.”

The number of new volunteer firefighters that have joined rural fire departments in Oklahoma in the three years since the 45-year-old age limit for new volunteers was eliminated. HB 2005, which took effect Nov. 1, 2015, also gave volunteers the ability to join a department without the requirement that they be added to the state's pension plan.

$17 BILLION

The estimated cost to North Carolina from Hurricane Florence. The damage estimate, released Oct. 31 by the North Carolina Office of State Budget and Management, includes data from the North Carolina Department of Insurance.

The storm made landfall in North Carolina on Sept. 14 as a Category 1 storm, and dropped more than 30 inches of rain in some part of the state. Widespread flooding damaged tens of thousands of homes and other buildings.

$900,000 $350,000 The amount of damages sought in a lawsuit against Portland Public Schools by two employees assigned to assist special needs students in the classroom who claimed the district ignored pleas for help as violent students repeatedly assaulted them.

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The amount for which local Virginia education officials have been sued by a student who says he suffered serious long-term injuries in gym class. Javonte Smith’s suit stems from when he played “Sharks & Minnows” in 2016 at Indian River High School.

Court documents say he was sprinting to avoid being tagged when he severely fractured both wrists.

— Robert Curtis, an attorney representing 450 victims of a fire that tore through California’s central coast last year and resulted in mudslides, said he believed that Edison admitted fault for the fire because witnesses already have come forward to say they believe the utility’s equipment was involved.

Workers’ Comp Costs

“This steady drop – nearly 50 percent over the last five years – has helped business owners with one of their critical operating costs – workers’ compensation insurance.”

— Connecticut Insurance Commissioner Katharine L. Wade said in a press release after the Connecticut Insurance Department approved a nearly 17 percent decrease in workers’ compensation insurance rates, marking the fifth consecutive year rates have dropped in the state.

Fake Certificates

“Respondent charged each customer approximately $100-$125 cash for a false certificate of insurance, placed the money in Advasure’s cash drawer and took the money home at the end of the day.”

— Michigan Department of Insurance and Financial Services (DIFS) alleged in an order that Dillen Leonard of Flint, created and sold false auto insurance certificates to customers who knew they were fakes. The DIFS said Leonard created the documents at Advasure Insurance Agency, where he worked. DIFS fined Leonard $25,000 and revoked his insurance producer license.

Not If, When

“It’s not a matter that the dam will break. … It’s when it will break.”

— Mike Oglesby, who lives in a camper at Lake Sandy in central Arkansas, comments on reports that the lake’s dam has many safety issues that indicate a lack of maintenance and could cause the structure to collapse. The Lake Sandy Property Owners Association acquired the dam in 1992 and had its last meeting in the mid- to late-1990s, and residents believe that’s when dam maintenance stopped.

No Worse Time

“Everything was just ready to harvest, so it couldn’t have been a worse time.”

— Ron Lee, a cotton farmer in Southwest Georgia who suffered major losses from Hurricane Michael. The storm, which entered Georgia as a Category 3 hurricane after making landfall in Florida as a Category 4 on Oct. 10, is expected to cost the state’s agriculture industry nearly $3 billion in damage.

First Arrival

“It is an open question regarding which will arrive first: autonomous cars and trucks or underwriting profits for CAL [commercial auto liability] underwriters.”

— Nick Durant, managing director, Guy Carpenter, wrote in a commentary published in conjunction with the recent Property Casualty Insurers Association of America Annual Meeting in Miami.

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 11

NATIONAL | News & Markets

Can Commercial Auto Insurers Get to Profit Before Autonomous Vehicles Arrive?

By Susanne Sclafane

C

ommercial auto insurance hasn’t produced an industrywide combined ratio below 105 in the United States since 2010, according to a Guy Carpenter analysis, which says the line’s poor performance is a key factor in overall property/casualty underwriting results.

“It is an open question regarding which will arrive first: autonomous cars and trucks or underwriting profits for CAL [commercial auto liability] writers,” wrote Nick Durant, managing director, Guy Carpenter, in a commentary published in conjunction with the recent Property Casualty Insurers Association of America (PCI) Annual Meeting in Miami.

“Although carriers have been aggressively raising their rates, the increases have not been adequate enough to bring the

combined ratios down below 100 percent.”

Industry CAL underwriting results have been deteriorating — both on a calendar-year and accident-year basis — for the past decade, Durant wrote, pointing to an unexpected acceleration in claims frequency related to increased mileage and congestion as one cause.

As for what caused the congestion, he pointed to the ride-sharing explosion fueling increased exposures and loss emergence, and to more delivery vehicles on the nation’s roadways. “[A]s the Internet economy and online purchasing grow to levels never anticipated, more trucks and delivery vehicles are sharing the roads, causing congestion and increasing the potential for more accidents,” he wrote.

Other factors include distracted and impaired driving, the commentary says, noting

12 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

that while the incidence of drunk driving is lower, marijuana use by drivers is up.

Breaking down factors leading to higher severity, Durant’s commentary points to rising jury awards and medical costs as well as inexperienced drivers behind the wheel.

While insurance price hikes haven’t been enough to counter all these negative loss-contributing trends, there are other measures carriers can take, suggests Guy Carpenter, a global risk and reinsurance specialist and a wholly owned subsidiary of Marsh & McLennan Companies. Perhaps predictably, one of the recommended solutions presented in Durant’s commentary is the purchase of reinsurance to address frequency and severity of loss.

Another is managing limits.

Durant had some special advice for carriers that write commercial package policies and multiple casualty lines, saying that they “should avoid the temptation to use CAL to over-subsidize other casualty lines, such as workers compensation and general liability.”

Explaining the comment in a follow-up email to Carrier Management, Durant referred to the fact that “CAL loss ratios and combined ratios are materially higher today than they were from 2003 to 2009— and the line continues to see adverse development.

“Given this, the return on

capital for CAL has decreased in recent years. So, those writing commercial package policies or multiple casualty lines cannot depend on underwriting profits from CAL to support under-performance in other lines like workers comp and GL,” he stated.

These days, workers' comp is actually performing well for most carriers, Guy Carpenter said in a separate report published this month. In fact, more than 60 percent of carriers have achieved an underwriting profit since 2013, even as rates continue to decline, the firm said in its 2018 Risk Benchmarks Research Report.

Durant sees the prospect of more accurate commercial auto insurance pricing and underwriting on the horizon as carriers use sophisticated predictive models to analyze new and existing data—and even telematics. “Telematics can help insurers deploy behavioral profiling for auto insurance that enables pricing that is dynamic and elastic,” he wrote.

Suggesting that carriers use data on vehicle type, driver demographics and motor vehicle records to feed predictive models, Durant noted that public filings data from the National Transportation Safety Board and third-party sources are rich data sets for understanding markets and drivers, with information on industry miles driven, new commercial truck sales, road density information, fuel prices, the impact of new vehicle technologies and repair cost indices.

This article was originally published by Carrier Management, a publication of Wells Media Group Inc. INSURANCEJOURNAL.COM

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NATIONAL | Business Moves LLC company. The acquisition marks MMA’s first in Louisiana.

Insgroup, Fred Brown Insurance Brokerage

Seeman Holtz Property & Casualty, Redel Insurance, Allstar Assurance

Boca Raton, Florida-based Seeman Holtz Property & Casualty Inc. has acquired Redel Insurance Agency Inc., headquartered in Ballwin, Missouri.

Redel Insurance Agency has been operating in Missouri for three-quarters of a century.

The agency offers personal and commercial insurance, from auto and life insurance to employee and workers’ compensation.

Led by a team boasting more than 140 years of collective experience, Redel Insurance Agency is one of Missouri’s longest running insurance agencies.

In a separate deal, Seeman Holtz also acquired Allstar Assurance, headquartered in Weston, Fla. Allstar Assurance has been serving south Florida for over 14 years offering multi-line property and casualty insurance coverage for commercial, personal and financial industries.

The Seeman Holtz family of companies provides comprehensive financial and insurance advice to clients across the country.

Insgroup Inc. has acquired Houston, Texas-based Fred Brown Insurance Brokerage to enhance its Employee Benefits offering to large employer groups. Insgroup also acquired Fred Brown Property Casualty.

Terms of the deal were not disclosed.

All Fred Brown Companies’ employees will join Insgroup.

Houston-based Insgroup’s areas of specialty include the real estate, construction, manufacturing/processing, transportation, and technology/professional services industries, as well as not-for-profits.

Marsh & McLennan Agency, Eustis Insurance & Benefits

Brown & Brown, FNI Management Group

Marsh & McLennan Agency LLC, the middle market agency subsidiary of Marsh, has acquired Eustis Insurance & Benefits, a Louisiana-based independent insurance agency.

Terms of the acquisition were not disclosed.

Founded in 1946 and headquartered in Metairie, Louisiana, Eustis’ 109 employees provide property/casualty, personal lines, and employee health and benefits solutions and expertise to midsize businesses throughout Louisiana, with particular expertise in the hospitality, construction, wholesale, education, and distribution industries.

As part of MMA, Eustis will maintain its existing office locations in Metairie, Mandeville and Baton Rouge, and operate as Eustis Insurance & Benefits, a Marsh & McLennan Agency

14 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

Brown & Brown of Kentucky Inc., a subsidiary of Brown & Brown Inc., has acquired substantially all of the assets of FNI Management Group, according to an announcement

by Scott Penny, chief acquisitions officer of Brown & Brown, Inc., and Howard Brinn and Mike Mitchell, the principals of FNI. FNI provides F&I products and training to enhance dealer financial performance in the Chicagoland market. FNI has annual revenues of approximately $1.5 million. Brinn and Mitchell will become part of the Brown & Brown auto, RV and powersports practice, working with the Automotive Development Group team. The entire practice operates under the leadership of Mike Neal, president of Brown & Brown of Kentucky Inc.

Brown & Brown Inc., through its subsidiaries, offers a range of insurance products and related services.

Hub International, Jones Retirement

Hub International Investment Services Inc., member FINRA/SIPC, and a subsidiary of Chicago-based global insurance brokerage Hub International Limited (Hub), has acquired the Oklahomabased retirement plan consulting and financial services business of Felix Jones, Jones Retirement. Terms of the transaction were not disclosed.

Located in Tulsa, Jones Retirement specializes in longterm investment solutions focused on qualified plans, which adds to Hub’s foundation and expands the firm’s capabilities in the retirement plan space. Felix Jones will join Hub Mid-America as director of Retirement Plan Services, reporting to Stuart DeSelms, president of Hub Mid-America.

Marsh & McLennan, JLT

Marsh & McLennan Cos. Inc. announced that its £4.3 billion ($5.6 billion) acquisition of broker Jardine Lloyd Thompson Group plc has been approved

by JLT’s shareholders.

Of those shares voted, 99.9 percent voted in favor of the transaction, said MMC in a statement.

Following the deal announcement on Sept. 18, 2018, the U.S. Federal Trade Commission and Justice Department in October concluded their competitive review of the proposed acquisition, which permitted

continued on page 16

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NATIONAL | Business Moves continued from page 14

the transaction to proceed.

The deal remains subject to additional antitrust, financial regulatory and UK High Court approvals, MMC said.

EPIC Insurance Brokers & Consultants, Total Management Corporation

EPIC Insurance Brokers & Consultants, a national retail insurance brokerage and employee benefits consulting firm, has acquired the assets, employees and operations of Total Management Corp.

Based in Melville, N.Y., with a second office in Manhattan, TMC has created customized, specialty programs for notfor-profit and social services organizations and a range of other industries for more than 50 years. The addition of TMC adds 19 new team members to EPIC’s operations in the Northeast region and across the country, according to a company press release.

Upon joining EPIC, the business will operate as TMC Group – a Division of EPIC, and TMC’s leadership will play an active role within the northeast.

SASCO Insurance Services, Otterstedt Insurance Agency

SASCO Insurance Services of Hackettstown, N.J., has recently merged with Otterstedt Insurance Agency Inc., headquartered in Englewood Cliffs, N.J. SASCO Insurance has been providing customized insurance coverage plans for commercial and personal lines clients since 1984.

Otterstedt has served a range of clients since 1919 and will be celebrating its 100th anniversary next year. It has experience as an agent and broker in the areas of property, casualty, life, health and surety for a range of personal and commercial clients, including numerous public entities at all levels of government.

According to a joint statement issued by the SASCO and Otterstedt agencies, the combination of resources and expertise will offer clients of both agencies expanded services.

The Hilb Group, DBR Group

The Hilb Group LLC has acquired Massachusetts-based

16 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

DBR Group Inc. The transaction became effective October 1, 2018.

Founded in 2004, DBR is an employee benefit and actuarial consulting firm providing a range of benefits consulting and brokerage services to organizations of all sizes, including corporations, non-profits, TaftHartley funds and public sector employers.

Following the acquisition, DBR will continue to operate out of its Framingham, Mass., location under the direction of its founding leadership – Paul Desrosiers, Chris Bean and Jim Roche.

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

USI Insurance Services, Beneficial Insurance Services

USI Insurance Services, a provider of insurance brokerage and risk management services, has acquired Philadelphia, Penn.-based Beneficial Insurance Services, a wholly owned subsidiary of Beneficial Bancorp Inc. Founded in 2005, the insurance brokerage provides commercial property and casualty, personal risk and employee benefit products to clients in the Mid-Atlantic region. Terms of the transaction were not disclosed.

Headquartered in Valhalla, N.Y., USI delivers property and casualty, employee benefits, personal risk and retirement services to large risk management clients, middle market companies, smaller firms and individuals.

Insurance Technologies Corporation, Assurance Systems

Texas-based Insurance Technologies Corporation, a provider of websites, marketing, rating and management software and services, has acquired Assurance Systems Inc., an insurance technology provider in the southeastern United States.

Founded in 1986, Assurance Systems product offerings include AccuAuto, its auto insurance comparative rating system; AccuAgency, its agency management system; and AgencyThrive, its website platform. The acquisition of Assurance Systems will extend ITC’s market share into the southeastern United States, including Alabama, Florida, Georgia, Mississippi and South Carolina.

Through this acquisition Assurance System’s comparative rating users will be able to utilize TurboRater’s additional feature set that includes homeowners and motorcycle quoting, integrated digital agency marketing, advanced reporting, package policies, and extended carrier availability.

AgencyThrive customers will have access to ITC’s agency website platform, Insurance Website Builder, as well as ITC’s team of social media and SEO experts.

Based in Carrollton, Texas, ITC helps independent insurance agents and insurance carriers through its websites, marketing, rating, and management software and services.

Its product offering includes Insurance Website Builder, AgencyBuzz, TurboRater and InsurancePro. INSURANCEJOURNAL.COM

Assisted Living/Long Term Care | Closer Look | NATIONAL

Senior Living Market Under Pressure

T

he senior living and long-term care market is under pressure.

Prices in this market continue to harden, ranging from +5 percent to +30 percent, due in part to rising frequency and severity of claims. That trend is leading some carriers to exit the market. In this interview with Insurance Journal’s Andrea Wells, John Atkinson, managing director of the senior living and long term care, Willis Towers Watson, answered a few questions about market conditions today and what’s driving some challenges.

The senior living market is undergoing some transformation. Where are you seeing challenges?

John Atkinson: The part that’s

really hardening is the general and professional liability sector….

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The general professional liability sector has undergone a lot of pressure over the last 18 to 24 months. We started seeing it become much more intense in Q2 and Q3 of last year, and that’s continuing to develop into significantly greater pressure on rates, and some constriction of capacity.

There have been some notable exits from the marketplace and that has resulted in fewer options, particularly for certain size operators - larger operators. The appetite for the larger operators is a little bit less robust than the smaller regional operators, which I think tend to enjoy more underwriting favor. It’s a little bit of a mixed bag, but generally speaking, we are seeing a significant amount of pressure on rate.

Given some recent exits in the large operator space, what

markets are left to focus on it?

Atkinson: London remains a

strong player in the mid- to larger-size operators, although London is undergoing a bit of a change in how it views certain lines of business. There’s more pressure on Lloyd’s syndicates by regulators in London so not all of their business plans have been approved. Not just in the healthcare/long-term care sector, but property.

‘For the first time in the history of the space, we see the average severity of an assisted living claim eclipsing the average severity of a skilled nursing claim.’

They’re all under pressure to make sure that they’re performing better. But London does remain a good marketplace for this business.

Ironshore, Berskire, CNA are strong players in the large account space. And we see other carriers that tend to be a little bit more focused on the middle market or smaller regional operators. For example, Swiss Re has introduced a product in the marketplace.

They are becoming a factor in terms of new capacity.

Church Mutual is expanding its appetite in the space. MMIC is expanding its appetite.

Nationwide is another company that’s expanding its appetite in the space…Another larger account underwriter is MedPro, a Berkshire company, and Berkshire, both compete in this space separately.

There are carriers who have publicly announced they’re no longer writing this kind of business. Markel is not writing North American senior living business on a primary basis.

Markel’s Bermuda operation, for excess casualty, will continue to write in this space, but the U.S.-based Markel business is basically out of writing senior-living/long-term care…

Lexington, part of AIG, is no longer writing this business, and they publicly announced that.

Willis Towers Watson’s recent report, “Marketplace Realities 2019,” shows the senior living and long-term care market seeing prices continue to harden some +5 to +30 percent. What’s driving that trend?

Atkinson: The average severity continued on page 18

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 17

NATIONAL | Closer Look | Personal Lines Leaders continued from page 17

per claim is increasing fairly significantly, and frequency is also increasing. For the first time in the history of the space, we see the average severity of an assisted living claim eclipsing the average severity of a skilled nursing claim. So you have that higher acuity venue in skilled nursing, but in assisted living, the claims are trending higher...Underwriters are starting to see that losses are trending poorly, but they don’t really have a good handle on why other than they know that certain venues are performing badly. So rates are going up, but it was a little bit unexpected.

We started seeing it in 2015 and 2016.

There have been increases in construction for senior living facilities in recent years. How is that affecting the facilities?

Atkinson: There has been a

significant amount of development over the last four or five years. If you look at the public statements of the publicly-traded operators, you will hear them all talk about the fact that there’s overcapacity. So the occupancy is generally down, primarily because of increased inventory…There’s still good demand, but there are occupancy pressures which are driving a challenging operating environment for a lot of these companies today...One thing to understand about the sector is you’re looking at significant workforce development issues that the industry’s facing. You have an industry that is traditionally plagued with high turnover, a growing wage environment, and you have a challenging occupancy scenario, so that does put operating pressure on these companies. That

increases expenses at a time when your top-line revenue is being constrained by these occupancy challenges. So we have been working very closely with our clients to really focus on risk management.

What area of risk management is most helpful in reducing claims in this sector?

Atkinson: Falls are the num-

ber one driver of claims in the industry. It’s the highest frequency of claims and they tend to be, not necessarily the highest severity, but they’re always within a hair of the highest severity. So when you can impact the number of falls, how you manage a fall, a resident who’s had a fall, after they’ve had a fall, you can really minimize the impact of these types of claims which will drive down your loss cost. Our clients are proactively trying to engage in strategies to improve

18 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

their best practices and drive down the incidents of loss and put in the quality of care.

When they do that, they have the ability to take on a little bit more risk so they’re taking on larger retentions, and they’re able to manage their costs effectively.

There are certain venues, regions of the country, that have been traditionally more litigious and difficult for this sector. Has that changed over the years?

Atkinson: Traditional urban

areas where we started to see significant litigation patterns beginning in this sector in 1999-2000, Miami, Broward County, Los Angeles, now what we’re starting to see…is that these trends are spreading out into the suburbs and exurbs of these areas. So, for example, Cook County used to be the notorious Illinois venue for

medical malpractice. Well now, we’re starting to see the same negative trends in those suburban and exurban areas. Carriers are seeing it in their books…

There is also pressure on auto rates. Within the senior living sector, what compounds that, is the fact that residents are being transported in multi-passenger vehicles, and if they’re not properly secured in those vehicles, a sharp turn can result in a resident being dislodged from their seat, falling in the vehicle and sustaining an injury. You don’t even ever have to have an auto accident to have an auto claim. So we see more pressure on the auto line of business, which is already distressed. But you know, the good thing is that you can manage the risk. You can become better and you can improve the quality of life for residents and improve your operations and lower your costs.

INSURANCEJOURNAL.COM

NATIONAL | Closer Look | Personal Lines Leaders

Personal

Lines Leaders

About the Personal Lines Leaders: The 2018 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 2017 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 2017 Personal Lines Revenue

2018 2017 Rank Rank Agency Name

2017 Personal Lines Revenue

2017 Total P/C Revenue

2017 Total Other Than P/C Revenue

2017 Total P/C Premiums Written

No. of Full-Time Employees

Main Office

1

1

Confie

$515,600,000

$515,600,000

$0

$1,654,500,000

4,500

Huntington Beach, Calif. www.confie.com

2

2

HUB International

$309,487,000

$1,357,083,000

$500,869,000

$10,036,095,000

10,190

Chicago, Ill.

www.hubinternational.com

3

4

Acrisure LLC

$120,495,003

$747,628,431

$290,192,296

$7,030,450,753

4,388

Caledonia, Mich.

www.acrisure.com

4

5

AssuredPartners Inc.

$109,909,387

$610,969,843

$416,220,690

$4,290,986,340

5,100

Lake Mary, Fla.

www.assuredpartners.com

5

3

AIS Insurance*

$89,000,000

$91,150,000

$515,000

$570,000,000

515

Cerritos, Calif.

aisinsurance.com

6

16

NFP

$77,400,000

$258,000,000

$1,071,000,000

$1,500,000,000

4,300

New York, N.Y.

www.nfp.com

7

8

BroadStreet Partners Inc.

$77,200,000

$471,154,000

$74,891,000

$3,688,691,000

2,770

Columbus, Ohio

www.broadstreetcorp.com

8

7

USI Insurance Services

$75,005,300

$600,917,117

$489,305,709

$4,970,675,196

7,155

Valhalla, N.Y.

www.usi.com

9

9

Westwood Insurance Agency*

$70,290,596

$70,290,596

$0

$390,910,377

130

West Hills, Calif.

westwoodinsurance.com

10

10

TWFG Insurance Services

$58,921,389

$73,651,389

$3,518,565

$497,676,037

105

The Woodlands, Texas

www.twfg.com

11

new

UniVista Insurance

$52,595,183

$56,205,719

$7,478,115

$360,527,748

232

Miami, Fla.

www.univistainsurance.com

12

11

Cross Financial Corp., dba Cross Insurance

$39,000,000

$117,100,000

$23,000,000

$900,000,000

820

Bangor, Maine

www.crossagency.com

13

12

Leavitt Group

$33,717,000

$168,661,000

$87,147,000

$1,331,379,000

1,645

Cedar City, Utah

www.leavitt.com

14

15

Eastern Insurance Group LLC**

$29,200,773

$64,297,757

$19,265,538

$389,642,483

400

Natick, Mass.

www.easterninsurance.com

15

14

Risk Strategies Company

$26,589,000

$209,710,000

$49,500,000

$2,650,000,000

1,075

Boston, Mass.

www.risk-strategies.com

16

17

Premier Group Insurance Inc.

$25,578,075

$28,749,100

$813

$205,350,714

25

Denver, Colo.

www.pgiagents.com

17

19

HomeServices Insurance

$23,000,000

$23,000,000

$0

$23,000,000

175

Minneapolis, Minn.

homeservicesinsuance.com

18

20

PayneWest Insurance

$20,557,205

$95,249,555

$23,105,235

$788,864,179

727

Missoula, Mont.

www.paynewest.com

19

21

Insurance Office of America Inc.

$19,937,486

$171,579,999

$22,047,028

$1,662,783,938

1,077

Longwood, Fla.

www.ioausa.com

20

27

Baldwin Risk Partners

$18,772,576

$41,172,732

$16,601,017

$345,000,000

300

Tampa, Fla.

www.baldwinriskpartners.com

21

18

Gowrie Group Inc.

$18,262,675

$40,325,851

$1,800,500

$306,222,188

177

Westbrook, Conn.

www.gowrie.com

22

22

Lockton Companies

$17,535,000

$1,073,929,000

$490,360,000

$8,050,353,000

7,000

Kansas City, Mo.

www.lockton.com

23

28

Atlas Insurance Brokers LLC

$16,610,456

$21,025,894

$210,258

$135,688,607

150

Rochester, Minn.

www.aibme.com

24

25

Marshall & Sterling Enterprises Inc.

$15,058,964

$59,026,579

$18,432,632

$353,790,246

431

Poughkeepsie, N.Y.

www.marshallsterling.com

25

23

Professional Insurance Associates Inc.

$15,000,000

$50,000,000

$0

$350,000,000

55

San Carlos, Calif.

www.piainc.com

26

24

Prime Risk Partners Inc.

$14,904,553

$79,201,558

$17,595,820

$534,349,084

583

Atlanta, Ga.

www.primeriskpartners.com

27

29

Hilb Group

$14,873,299

$74,366,496

$37,977,679

$540,126,996

667

Richmond, Va.

www.hilbgroup.com

28

new

Towne Insurance**

$14,020,660

$45,711,697

$14,488,881

$327,025,676

312

Virginia Beach, Va.

www.towneinsurance.com/

29

26

Integro Insurance Brokers

$12,460,000

$183,357,000

$91,784,000

$3,959,000,000

1,118

New York, N.Y.

www.integrogroup.com

30

30

Starkweather & Shepley Insurance Brokerage Inc. $12,416,096

$50,177,012

$5,020,948

$327,014,154

233

East Providence, R.I.

www.starshep.com

31

34

Alliant Insurance Services Inc.

$12,368,805

$782,577,900

$309,565,154

$5,484,433,677

3,032

Newport Beach, Calif.

www.alliant.com

32

31

Higginbotham

$11,659,000

$110,184,000

$62,661,000

$767,629,000

925

Fort Worth, Texas

www.higginbotham.net

33

35

Rogers & Gray Insurance

$11,368,500

$22,175,000

$3,100,000

$150,300,000

150

Kingston, Mass.

www.rogersgray.com

34

new

BXS Insurance**

$11,304,000

$90,439,000

$27,978,000

$664,825,201

635

Tupelo, Miss.

www.bxsi.com

35

32

Lawley Insurance

$11,075,803

$45,858,150

$25,530,775

$331,293,675

399

Buffalo, N.Y.

www.lawleyinsurance.com

36

39

Ansay & Associates

$9,243,299

$28,541,727

$7,252,238

$184,292,778

260

Port Washington, Wisc.

www.ansay.com

37

38

Kaplansky Insurance

$9,228,740

$13,069,041

$127,333

$76,770,375

71

Needham

www.kaplansky.com

38

36

The Advantage Group LLC

$9,011,488

$17,002,807

$1,700,289

$113,352,047

106

Edmonds, Wash.

www.theadvantagegroupllc.com

39

43

INSURICA Inc.

$8,781,258

$83,186,632

$14,699,321

$597,198,733

572

Oklahoma City, Okla.

www.insurica.com

40

37

Tompkins Insurance Agencies Inc.**

$8,637,000

$21,401,000

$7,148,000

$151,319,000

171

Batavia, N.Y.

www.tompkinsins.com

41

44

IMA Financial Group Inc.

$8,632,117

$125,222,732

$32,766,498

$1,401,472,659

672

Denver, Colo.

www.imacorp.com

42

new

TRICOR Inc.

$8,166,000

$29,446,000

$4,389,000

$163,780,000

212

Lancaster, Wisc.

www.tricorinsurance.com

43

40

John M. Glover Agency

$8,114,236

$22,468,503

$487,000

$143,567,000

175

Norwalk, Conn.

www.johnmglover.com

44

42

Robertson Ryan & Associates Inc.

$8,102,660

$33,624,418

$3,455,870

$305,000,000

245

Milwaukee, Wisc.

www.robertsonryan.com

45

47

Shepherd Insurance

$7,730,124

$36,105,520

$8,211,330

$302,852,700

310

Carmel, Ind.

www.shepherdins.com

46

new

Relation Insurance Services

$7,098,000

$48,145,000

$49,305,000

$418,652,000

469

Walnut Creek, Calif.

www.relationinsurance.com

47

new

SouthGroup Insurance Services

$6,131,935

$17,919,486

$1,136,000

$122,791,594

136

Ridgeland, Miss.

www.southgroup.net

48

45

Foy Insurance Group

$5,900,000

$11,000,000

$600,000

$75,000,000

70

Exeter

www.foyinsurance.com

49

new

The Horton Group Inc.

$5,786,409

$43,751,056

$28,669,846

$338,722,833

376

Orland Park, Ill.

www.thehortongroup.com

50

new

Atlas Insurance Agency

$5,548,991

$21,040,887

$3,137,786

$163,847,252

97

Honolulu, Hawaii

www.atlasinsurance.com

Website

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

INSURANCEJOURNAL.COM

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 19

NATIONAL | Spotlight | Managing General Agencies

AFL Insurance Brokers Finds Cultural Fit with U.S. MGA Zodiac

By L.S. Howard

North American MGA Platform

It was always part of AFL’s plan to find a North American MGA platform with a specialty focus, Finch said.

“Our acquisition of a majority stake in Zodiac is a milestone in AFL’s growth as we further execute our strategy to diversify into the MGA space,” said AFL Chairman Toby Esser in a statement issued by the company when the acquisition was announced. “Demand for bespoke products and specialty programs is increasing in the USA and internationally.”

The strong business that Wash has created with Zodiac “is an excellent platform for further expansion…,” added Esser.

(Financial details of the transaction were not disclosed.)

Entertainment Specialty

Zodiac President David Wash

A

FL Insurance Brokers, the Londonbased Lloyd’s broker, was looking for an MGA platform in the United States and found the perfect partner when it purchased Zodiac Insurance Services, which specializes in professional, entertainment and event insurance.

It wasn’t a quick decision because both companies wanted to make sure they had a good business and cultural fit before they embarked on a more permanent relationship. After all, cultural issues are often cited as the biggest reason that mergers fail to create long-term value.

“We’ve taken our time. This isn’t something we’ve put together over three months,” said Zodiac President David Wash, who founded the Shamong, N.J.headquartered company in 2011. It provides specialty products as an insurer, broker and Lloyd’s coverholder, licensed in 48 states.

“We first met almost a year ago, and we

have spent the better part of a year traveling between London and the States. We’ve gotten to know each other personally; we’ve gotten to know each other professionally….” said Wash.

Traditionally, in the world of mergers and acquisitions, people tend to focus on how much they can get for the deal. But, in the case of AFL and Zodiac, Wash said, the companies focused on more important considerations, such as “Do we like doing insurance together?”

“I can tell you, after a year, that we do,” he added. “And I would put 99 percent of my prediction that the venture will be successful on the fact that we took our time upfront, everybody dove in, we’ve seen each other, warts and all, and we’re still excited about moving forward together.”

Bob Finch, AFL’s CEO, agreed that the Zodiac acquisition works both strategically and professionally, while “it really does work on a personal level as well.”

20 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

Zodiac specializes in entertainment insurance for mobile rides and amusements, including inflatables, zip wires and trampolines – anything that can be packed and transported in a truck.

“We have clients that go to places like the White House,” Wash said.

Zodiac also provides some professional liability classes for insurance professionals such as reinsurance intermediaries, captive managers and MGAs.

At the Beginning

The courtship between AFL and Zodiac began when Zodiac hired AFL as its London broker. Wash said: “We wanted to see how did they do what they do!”

Finch noted that AFL was impressed with Zodiac’s underwriting discipline, its methodology and the team of people that Wash has built. “We found a first-rate operation and thought it was a fantastic foundation upon which to build.”

Wash emphasized that the only partner Zodiac would have considered was a company in the London market. “Over the past five years, our business model has morphed into wanting to be a coverholder first and an MGA second – meaning the center of our world is the London market,” he affirmed.

“So for me, it was not so much about selling an interest in the company as it INSURANCEJOURNAL.COM

was about having a London desk, having a boots-on-the-ground relationship,” Wash said, noting that such a relationship provides quicker turnaround of a risk.

Importance of London Foothold

Wash said that a London foothold is the best way to build programs and maintain programs. “We do difficult classes, and knowing that insurance companies can be fickle, London is really the only way to go if you want to build something that’s going to last.”

He explained that the way London syndicates risk (with a panel of company market insurers and Lloyd’s underwriters) is an absolute necessity “because if an appetite for a risk changes then your whole program won’t be sunk and it’s just one component that has to be replaced,” Wash said. “If you have a good product, and it’s making money, you’ll replace that component pretty easily.”

Zodiac’s management team will remain in place, and the company will retain its independence as an MGA, operating as a separate legal entity.

Finch said AFL hopes to bring huge value to Zodiac and vice versa, offering the quote: “The whole is greater than the sum of the two parts.”

“We can help Dave grow his business but also revolutionize the way that it’s transacted, bringing efficiency with our technology, as well as giving Dave the support and guidance that he hasn’t had to date,” he said.

“I know first-hand, having recently brought in partners at a senior level and surrounding myself with a great leadership team, how much of an impact that can have personally and for the business,” Finch emphasized.

Finch said his team also will be introducing the team at Zodiac to overseas brokers and relationships. “We’ll be using our London market access and capacity relationships to help design and produce new products and lines for Dave to distribute.”

AFL will be providing Zodiac with its technology-driven solutions, which Finch described as the “DNA and at the heart of everything we’re doing – from operations

and back office to the frontline, for both retail and wholesale.”

Further, he said, everything that AFL learns about insurtech and is able to integrate into its London business will now benefit Zodiac.

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And last but not least, Zodiac will benefit from AFL’s membership of the Worldwide Broker Network, the largest global network of independent brokers that enables larger independents with multinational clients to offer meaningful solutions, he said.

9/5/18 1:41 6/12/18 1:46 PM PM

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 21

NATIONAL | MyNewMarkets ers can be written. Most class codes are acceptable except those involved in roofng, logging, tree pruning and oil/gas.

Trucking coming soon.

Available limits: As needed Carrier: Unable to disclose States: Ark., Ga., Iowa, Ind., Ks., La., Md., Mich., Minn., Miss., N.C., Neb., Okla., S.C., S.D., Tenn., Texas, Va., and Wisc.

Contact: Jeff Valentine at 804-418-3201 or e-mail: jeff@ solepro.com

Fire Protection Contractors

Market Detail: McNeil & Co.’s

FireWatch Program (www. mcneilandcompany.com) is a comprehensive insurance and risk management program. The program offers specialty insurance products to the complete fire protection market including firms that engage in the sales, service, and installation of fire suppression systems, fire extinguishers, burglar and fire alarm systems, and those involved in selling or distributing fire equipment or emergency apparatus.

Available limits: As needed Carrier: Arch Insurance Co. States: All states except Ala., Hawaii, and Wyo. Contact: Customer service at 800-822-3747

Lessor’s Risk Program Market Detail: Myron Steves

(www.myronsteves.com) offers new business opportunities through its Lessor’s Risk Program. Offered by a specialty carrier, rated A+XV by A.M. Best for buildings leased or rented to others for commercial occupancy. Property and liability coverages available on a monoline or package basis.

Coverage features include: CGL primary limits up to $3 million occurrence/$5 million aggregate; $5,000 medical payments coverage included; additional interests - $100 each; hired and non-owned auto; excess or umbrella limits up to $25 million; no deductible required; property; building; business personal property; business income; basic, broad or special form; replacement cost or ACV; equipment breakdown; accounts receivable; computer equipment; outside signs; and valuable papers. Crime coverage inside the premises – theft of money and securities; inside premises; outside premises.

Available limits: As needed Carrier: Unable to disclose States: All states Contact: Greg Rubel at 214545-6709 or e-mail: grubel@ myronsteves.com

and South Carolina). Property and casualty coverages include: general liability; property; inland marine; environmental; and professional lines.

Coverages can be written as a package, or on a standalone basis. Popular classes: Transportation – contractors; dump trucks; tow trucks; truckers; church vans; taxis/ limos; school buses; used car sales; heavy truck sales. P&C classes: contractors, habitational; restaurants; social services; exercise/health clubs; beauty/ barber/tan salons; vacant property; contractor’s equipment; truckers & warehouse GL. Available limits: As needed Carrier: Unable to disclose States: N.C., S.C., and Va. Contact: Customer service at 888-495-4950

Transportation

(www.solepro.com) offers an affordable workers’ comp program for insureds with one or more employees (full time or part time). The owner can choose to include or exclude themselves. Optional accident policy available. Payroll that generally falls under the minimum amounts for most carri-

Market Detail: Tow Trucks

Strickland Insurance Brokers (www.sibrokers.com) offers the following coverage lines: transportation – auto liability; physical damage; cargo; bobtail; on-hook; dealer’s liability/ open lot; garage liability/GKLL; Umbrella (in North Carolina

22 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

Workers' Comp

Market Detail: Solepro Inc.

Homeowners

Market Detail: Regency Insurance Brokerage Services NY LLC (www.

RegencyInsuranceBrokerage. com) has the expertise to assist in placing your customer’s homeowners coverage.

Targeting: primary/secondary/ secondary seasonal home; rental/short term rental property; log homes; condo/renters; one and two family occupied homes; personal umbrella and flood. Package policies (home, auto, and umbrella all in one policy) offers.

Available limits: As needed Carrier: Unable to disclose States: Conn., Dela., Mass., Maine, N.H., N.J., N.Y., Pa., R.I., and Vt. Contact: Dan Larsen at 800982-1895 or e-mail: dlarsen@ ribsnyllc.com This section brought to you by Insurance Journal’s sister website: www.mynewmarkets.com

Need a Market?

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NATIONAL | Special Report | Young Wholesalers

Young Brokers Think the Wholesale Business Is Sexy

By Andrea Wells

C

“

ool. Sexy. Rewarding. Fascinating. Flexible. Better than ESPN.” That’s not some googley-eyed entrepreneurial hotshots talking about the latest insurtech. That’s young brokers talking about the wholesale insurance business.

While college students rarely start out expecting to enter wholesale, proactive and attractive wholesale firms are catching their attention through recruitment efforts, internships and other outreach activities.

Young wholesale brokers say the surplus lines insurance segment, which is about 14 percent of the overall property/ casualty business, is an exciting and prosperous career choice that they highly recommend to new recruits. They even find it sexy.

One reason young wholesalers find surplus lines sexy, cool and fascinating is because it offers opportunities to help solve complex coverage problems involving unique insurance risks for customers.

24 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

INSURANCEJOURNAL.COM

Another is the people they encounter and relationships they develop working with independent agents and carrier partners.

They also appreciate the entrepreneurial culture, workplace flexibility and advancement opportunities that can lead to a financially rewarding future.

And it’s better than working at ESPN because young recruits don’t have to wait long before they can anchor top positions of responsibility and reward.

‘Changed My Life’

He had no plans to work in the insurance industry. The only exposure he had to the industry was purchasing his auto and renter’s policies. That changed when his alma mater offered a scholarship to a new risk management class. Josh Ammons, 34, is today senior vice president, property broker at AmWINS Group based in Charlotte, N.C. “I wanted to go to law school and then become a sports agent,” Ammons said.

But when Appalachian State University began building its risk management program, the department offered some of its best-in-class students the chance to earn a $500 scholarship to participate in its principles of risk management course. Ammons was attending the school on a full academic scholarship, so he felt confident he’d do well, earning another $500 to help pay the bills.

“I took this one class, and at the time I didn’t know anything about insurance, not one personal connection to the industry,” he said. “But they were offering a $500 scholarINSURANCEJOURNAL.COM

ship if you made a B or better.

So, I attended a lecture that evening,” he said. “I wasn’t expecting it to change my life.”

The guest speakers that night included AmWINS’ Steve DeCarlo, then CEO of firm and now executive chairman and chairman of the board. Another speaker was Kristin L. Downey, chief administrative officer of the firm.

“Steve being the dynamic speaker he is started talking about his background and what the wholesale sector was all about,” he said. “At that point, I thought I had figured out what I wanted to do but that hourlong conversation with those two speakers changed it for me.

I literally walked to the library 10 minutes after that conversation and sent them an email.”

He told them he didn’t know anything about insurance except what he just learned that day but that he would love to learn more because he believed he could be successful in this industry and possibly even at their firm.

DeCarlo and Downey responded immediately and soon Ammons secured a summer internship in the firm’s

Josh Ammons

Charlotte office. He returned as an intern, and later was offered a full-time job when he graduated.

“I always joke that I’ve been at AmWINS ever since the beginning and I’m proud to say that I don’t have a resume – I’m going to retire as an AmWINS employee.”

Today, Ammons is helping other young students find careers in insurance as vice chairman of the board of advisors for the Brantley Risk & Insurance Center at Appalachian State University, a risk management and insurance program.

After 12 years, Ammons’ enthusiasm hasn’t waned. “It’s different than what I thought insurance was at the time,” he said. “It’s a people business, a relationship business, and there’s no ceiling for how well you can do in it – financially or in responsibilities. And it’s fun – it’s the sexy side of the business with tough and unique risks.”

Desire to Specialize

Ryne St. Marie, 25, comes from a family with a long legacy in retail insurance. “My grandfather started his own retail agency in the mid-60s and my dad now owns the same agency,” he said. “I was born in the insurance industry.”

He knew he would one day enter insurance, but he also always knew the retail side of the business wasn’t for him.

“With two generations in the insurance industry, I wanted nothing to do with the retail side of business,” he said.

St. Marie had no idea he would wind up in the wholesale sector when he attended the University of Mississippi

Ryne St. Marie and graduated from its risk management and insurance program. That’s where he was recruited by All Risks. He is today a property broker for the wholesaler.

“All Risks has a really good training program out of college called the All Risks University,” he said. The eight-week program provides a crash course on the excess and surplus lines business. Shortly after completing the program, he began working fulltime in All Risks’ Dallas office in 2015.

For St. Marie, the wholesale business is a good fit for his personality and interests.

“I enjoy digging deeper into risk and as a specialist that’s what we do,” he said. “I feel like a lot of retailers have to be a jack-of-all-trades and work on many different kinds of businesses, but I really wanted the ability to just dive into one or two lines of coverage and become a specialist.” He believes that is what retailers are looking for from their wholesalers. “If your wholesaler is a jack-of-all-trades, then you’re probably working with the wrong wholesaler.”

continued on page 26

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 25

NATIONAL | Special Report | Young Wholesalers continued from page 25 St. Marie was also attracted by the opportunity to build a successful career.

“If I was the guy who sat in an office and had to work 40 hours a week and I made the same amount of money whether I was really good at my job or really bad at my job, I would probably find the least amount of work to do to keep my job,” he said. “But if I’m in a sales position where I can make more money by how hard I work, that’s the kind of job I want to be in.”

Retail agents have the same opportunities, but St. Marie believes in surplus lines, “the get up and go period” is quicker. “You can make as much money as you want in this industry. You can make $2 million, $3 million a year or you can also make $40,000 a year.

It’s on you and how hard you’re going to work.”

It also helps that wholesale brings in the “sexier” accounts, too, he added. “We get to look at some really cool, complex accounts.” And he spends his day talking to people that understand the business. “I can go work with somebody who does exactly what I do,” he said. Retail agents and insurance carriers – those are his clients.

Finding the Right Place

For Mary Mullen, finding the right spot in the industry took some time.

Mullen, 36, joined Chubb right after college. After a few years in underwriting high net worth business, she joined the retail agency world.

Working as a retail agent seemed a good fit: first at a smaller agency – Chartwell Insurance – and then moving

into a management role at Willis.

Mullen said she has always had a passion for learning about all aspects of the industry, “but I knew if I ever made another move it would be into wholesale.”

So, when Burns & Wilcox in Chicago asked her to join their team, she took the plunge into wholesale.

“What I love about the wholesale sector is that there’s something brand new every single day,” Mullen said, who now serves as underwriting manager, assistant vice president, personal lines for Burns & Wilcox. “On the carrier side we had a specific appetite for a certain risk, so it wasn’t terribly interesting day-in and day-out.

On the retail side, I loved my clients, but it was the same type of client with a similar profile [high net worth clientele].”

At Burns & Wilcox, it’s something new every day. “At the start of a coverage problem in wholesale, it’s sometimes stressful,” she explained. “You often don’t know where to go with it, or how to solve it. But once you actually resolve the issue, there’s a feeling of satisfaction that comes with solving the problem – and it’s wonderful.”

She believes that her past experiences as a retail agent and underwriter have helped make her a better wholesaler.

“I can relate to retailers’ frustrations because I’ve been in their seat before,” she noted.

As much as she loves the E&S business, she’s not blind to its flaws. Mullen thinks that the time it takes to place a policy in E&S can be burdensome for agents. There is a “lack of

26 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

Mary Mullen urgency” in the E&S industry that is frustrating, even for Mullen. “Sometimes it takes a lot longer than other industries I’ve worked in and that pace sometimes drives me nuts.”

But that’s where good wholesalers can stand out from the rest, she says.

Mullen still recommends a career in wholesale for anyone looking for a challenging and exciting career. “It’s a place where you learn a lot in a short amount of time, so you have to be ready,” she said. “You will see things you hadn’t before it’s fascinating,” she said.

“I’m very optimistic about the future of wholesale but I think that it will only exist if we add value to the chain for our retail agents,” she added.

‘It Was Cool’

From sports broadcasting to insurance. Not a typical career path but that’s the road that 30-year-old Kevin Ware, senior vice president, RT Specialty, Property/Stock Throughput/ Construction, took. Although insurance was always in his blood.

“The real reason I got into insurance is my dad,” he said,

who was a founding member of Mesirow Insurance Services in Chicago (sold to Alliant in 2016). Ware’s mom also worked for the agency, so dinner table conversations about insurance were a daily occurrence.

“I just always thought it was cool,” Ware admitted. “It was really intriguing to be around, such a people business. I love talking to people.” Working for his dad seemed like a good fit, but Ware says his dad always encouraged him to venture out.

That’s how he landed at RT Specialty.

Ware’s father introduced him to Tim Turner, chairman and CEO for RT Specialty. “I didn’t even know it was a job interview.” But after their conversation, Turner offered Ware a job.

In just a few short years, Ware has accomplished more than he could have ever dreamed of at ESPN, he says.

“In insurance, people don’t care if you’re 24 years old, 30 years old or 60 years old,” he said. “If you are able to provide them with the solutions they need, and provide them with top-notch service, they’re going to come to you no matter what.” That just doesn’t happen in other industries. “At ESPN, I wouldn’t have gotten to announce Monday Night Football until I was 60 years old, if I even ever got to then.

You’re just not allowed to do it.”

Insurance is an entrepreneur’s dream, he added. “I’ve always been an entrepreneurial person and the wholesale world, especially at RT, they allow you to be creative. They allow you to go out and build your book. No one’s going to say you can’t do this, or you can’t do that,” he said.

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But Ware says it’s not just wholesale, the entire insurance industry is full of opportunity for young people. “Wholesale broker, agent, underwriter, loss adjuster – anything – it is a wonderful industry,” he said.

“It’s a stable industry, and if you work hard, you can build a very successful career, make good money, provide a good life. There are very few industries that are as good as insurance.”

A Place to Live

Andrea Ward admits that she knew very little about the insurance industry until her senior year of college. Her parents advised her that on the day she graduated college there would be no more dental insurance to cover the cost to remove her wisdom teeth.

“I could go on spring break vacation or get my wisdom teeth pulled while still being insured,” she said.

She had contemplated going into pharmaceutical sales after college but that thinking changed after she landed an on-campus interview with General Reinsurance. Wisdom

Kevin Ware INSURANCEJOURNAL.COM

teeth sealed her path. That experience helped her realize the value of insurance coverage and made her curious. She took a job with General Re where she worked as an underwriter before landing in the wholesale business. After a few years, she took a position as an E&S underwriter.

“That was my first experience with wholesalers, and I thought ‘I would be good at that,’” she said. “I was 30 at the time and I knew I needed to pick a place to live.”

Ward, 38, is now assistant vice president at CRC, in San Francisco where she handles primary casualty and excess casualty accounts, focusing on shared economy businesses.

One reason she likes workign in the wholesale industry is the relationships she has with colleagues and retailers. “Relationships with both

underwriters and retailers are something I like to manage,” she said.

She also likes finding the right fix. “I literally like pounding on everyone’s door to try to find the right response that’s needed. It might not be at the price you want or at the terms you want, but I will find it and using my sales abilities, convince them to sign on,” she said.

Lastly, she enjoys the flexibility that comes with being a wholesale broker. “I have an 18-month-old at home, so with this job, because I’m paid on commission, I can be in at 5 a.m. and leave at 2 p.m. if I want. I just always have my iPhone on,” she said.

Ward hopes more women will consider careers as a wholesale broker.

“There’s an absolute need to foster opportunities for women

Andrea Ward

in wholesale,” she says. CRC started a women’s network to do just that. “I love what we’re doing here. We’re literally trying to find women that want to take on a leadership career path and learn how can we support them and encourage them.”

Showcasing Relationships

J

ames DiLoreto, 36, is no stranger to the insurance industry. Like many of his peers, DiLoreto, senior vice president, RT Specialty, specializing in professional liability, comes from a family of insurance professionals – his father, his grandfather and his uncle all worked in insurance.

DiLoreto began his career after college with Chubb, working in underwriting in the insurer’s Dallas office for eight years. But the idea of joining a new company such as RT Specialty intrigued him, so when the opportunity arose, DiLoreto joined its team.

However, had he not known about insurance or the wholesale sector, the career choice may have never made his radar.

That’s unfortunate, he says. “Because a career in wholesale is fantastic – especially if you like being in a sales role,” he said.

“Your clients are people who understand what you do. You James DiLoreto are selling to insurance agents – you are in it together.”

If he were to give a word of advice to insurance recruiters, in particular to the wholesale industry, it would be to highlight the value of business relationships.

“You have to educate young people on what we do,” he said, at colleges, job fairs, by sponsoring university events. And tell them the value and enjoyment that work-related relationships bring to the job. “It’s true. You do form friendships with people for years and that’s the side of the business that we need to show young people.”

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 27

Idea Exchange

Technology

The Changing Risk and Liability Landscape: New Tech, New Loss Scenarios

By Thomas Varney

A

dvancements in technology are changing the risk landscape irrevocably and driving potential big changes in liability, and other insurance, claims activity.

The opportunities for business from new technologies such as autonomous machines, artificial intelligence, smart factories and digitalized supply chains are immense and wide-ranging. Increasing interconnection of buildings, factories and devices and better utilization of data and analytics are predicted to enable greater productivity and more tailored customer offerings. It is anticipated that workplace safety will improve as human error – a leading cause of loss in many industries – is minimized due to automation of tasks.

Meanwhile, ongoing condition monitoring and use of “big data” analytics could significantly improve risk management, enabling better risk mitigation and prevention, more robust pre-disaster planning and even the ability to learn from near-misses.

However, in today’s and tomorrow’s world of connected industries, where intangible assets such as data, networks, customer relationships and intellectual property can represent the major source of corporate value, more is also at stake if things go wrong. New technology is likely to be a major driver of liability, and other

insurance claims, activity in the years to come.

Broadly speaking, the frequency of claims is expected to reduce. For example, so-called smart factories should see fewer claims for workplace accidents, while driverless cars are expected to bring about a dramatic reduction in accident rates over time, given around 90 percent of accidents are currently believed to involve human error. However, cyber risk liabilities will grow, while automation is likely to lead to increased product liability for machinery manufacturers, component manufacturers and software providers as responsibility moves more from human to machine.

3D Printing

Technology, such as 3D printing, which offers a faster, cheaper way of producing bespoke products, is also changing existing business models and supply chains and disrupting well-established lines of liability.

Hailed as a revolution in manufacturing, the projected growth numbers for 3D printing make for impressive reading. Today, the market is already estimated at being just short of $9 billion in value. However, according to Wohlers Associates, which

28 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

identifies 3D printing, or additive manufacturing, trends given current levels of growth, it could one day have a potential global value of $640 billion – based on capturing 5 percent of the $12.8 trillion manufacturing industry market share.

Meanwhile, McKinsey has previously estimated 3D printing positives, such as improved production methods and reduced waste, could have a positive economic impact of up to $550 billion by 2025.

It could also bring benefits to the insurance industry. There is the possibility of reducing business interruptions through production of spare parts by using 3D printers, enabling businesses to become operational again faster.

On the other hand, widespread use of this technology also introduces potential new risk contributors into the supply chain, such as product designers, internet sales platforms and software providers, all of which bring their own relevant liabilities and raise a number of issues about which party would be responsible in the event of a product defect or recall scenario.

In the case of product designers, the 3D design is the blueprint for the future product, as it contains all of the information. Therefore, if the design itself can be

INSURANCEJOURNAL.COM

considered a product, the designer could be liable in the event of a recall of unsafe products. In the case of the internet sales platform, the question also arises as to whether the operators of the platform are required to warn about any unsafe products produced by the uploaded 3D models. If the software can be considered a product, are the software manufacturers covered for product liability?

New technology is likely to be a major driver of liability, and other insurance claims, activity in the years to come.

Finally, 3D printing enables manufacturers to produce personalized or customized products – what impact does this have on product testing?

Coming hot on the heels of 3D printing is 4D printing technology, where time becomes one of the parameters. As conditions such as humidity or temperature affect the product, the object reshapes itself in response (for example, the US Army has tested 4D camouflage uniforms which adjust patterns to density of foliage or temperature.) Further enhancements to 3D and 4D technologies will only exacerbate the liability and risk debate.

raises questions for liability. Liability in the sharing economy is becoming more complex and potentially more challenging to apportion. As liability claims become more complex and technical, investing in claims expertise and knowledge is becoming more

“

important than ever before for insurers.

Insurers need to ensure that their claims handling processes stay up-to-date.

Varney is regional manager Americas at Allianz Global Corporate & Specialty.

Insurance distribution is going through significant consolidation.

Why should I be the one that is consolidated out?”

You have built significant value in your agency through years of hard work. InsurBanc can help you to unlock the value to grow your agency to the next level, independently. InsurBanc can provide funding for acquisitions, perpetuations and producer development.

Data, Sharing and Claims Complexity

The increasing digitalization of society and business also creates liabilities, such as personal data and privacy exposures, as well as around business interruption, cyber security, director and officers and product liability. Companies are worried about the growing sophistication of cyber-attacks but many still underestimate the impact of technical IT failure, human error or even rogue employees, which can result in costly damages.

At the same time, data protection rules are becoming increasingly tough as governments bolster cyber security, impacting businesses as penalties for non-compliance can be severe. Fines for falling foul of the laws can be as high as 4 percent of global revenues.

The growing “sharing economy” also

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NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 29

Idea Exchange

Tech Talk

The Next Generation: Students Speak Out on Technology Issues unemployment rate for insurance carriers and related activities was 2.1 percent in September 2018.

(Bureau of Labor Statistics) • Technology, claims and underwriting roles are expected to grow the greatest during the next 12 months. (2018 Q3 Semi-Annual Insurance Labor Outlook Study from The Jacobson Group and the Ward Group)

By Tom Wetzel

I

t’s no secret that the workforce in the insurance industry is aging and 400,000 positions are projected to open up in the next two years.

Insurers and agents alike have debated how best to attract the next generation, so I was honored to have the opportunity to speak to risk management and commercial risk classes this month at Illinois Wesleyan University in Bloomington. Apart from sharing my experiences and passion for the industry, I wanted to know what interests them, what they like and don’t like about the industry and how best to persuade them to choose an insurance career once they graduate.

What I discovered was both enlightening and reassuring.

Many students focused on available jobs and career paths but just as many wanted to understand the industry from an “in-the-trenches” perspective and how the industry is adapting to the digital world.

Some of the more than two dozen questions they asked included:

1. What has been the most dramatic change in the insurance industry as a result of technology?

2. What is the biggest advantage of technology?

3. What has been the most successful digital platform to date?

4. How will careers in the insurance industry change due to the use of digital tools?

5. Has technology made being an agent easier or more difficult?

The students also asked questions about social media and how the role of the independent agent will change over time because of technology.

To help answer students’ questions in advance, Greg Jacobson of The Jacobson Group helped provide some insight into insurance employment statistics. Three items stood out: • Only 28 percent of the industry workforce is under 35. At the same time, 25 percent of the industry workforce is near retirement. (Bureau of Labor Statistics) • The industry is experiencing a challenging recruitment reality from a virtually non-existent unemployment rate. The

30 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

The students talked about the industry’s risk-averse nature as a double-edged sword. On the positive side, the industry must carefully assess, price, mitigate and pay for risk, so it must operate in a disciplined, prudent manner.

At the same time, the industry struggles with adapting quickly to changing market forces and consumer expectations. I added, however, that the industry performs yeoman service after a natural catastrophe.

“Recruiting college graduates is really a two-step process when it comes to insurance,” said Joseph Solberg, IWU Business Administration Chair and who also teaches at the university. “We don’t have an insurance major, but our accounting, finance and marketing graduates are all looking for an industry in which they can thrive.

Insurance fits the bill for a lot of them because they don’t realize how their college study dovetails with the insurance industry. There are insurance careers for every major.”

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 is www.wetzelandassociates.com.

Email: twetzel@wetzelandassociates.com INSURANCEJOURNAL.COM

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NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 31

Idea Exchange

Minding Your Business

Preparing to Sell the Agency Prepare Early

By Catherine Oak and

Bill Schoeffler

T

here seems to be an insatiable frenzy of agency acquisitions for many years now, with private equity firms and publicly traded brokers taking the lion’s share.

These well-funded buyers are paying a premium well over what a local peer independent agency could afford to pay.

Keep in mind that these well-funded buyers pay top dollar only to agencies in the right location, with a great book of business and high profit margins.

For those agencies that miss the mark as a highly desirable agency, there are steps one can take to improve the business in order to attract these well qualified buyers and their deep pockets.

The key to receiving a great deal is superb preparation before you step into the market place. Jumping in without doing your homework is a poor strategy when the stakes are high – namely the owner’s life’s work. Preparing the business for sale or merger is not an overnight process. It can take months, if not years, of planning to maximize the bar-gaining position and the return on equity.

The best way to accomplish this is to address weaknesses and capitalize on strengths before presenting the business for sale or merger. Always assume that any potential buyer will do a thorough job of due diligence, which will ultimately uncover weaknesses. Proper planning will identify current problem areas and help determine how to fix them and/or treat them in discussions with buyers or merger candidates.

Control the Narrative

Create an agency profile that accurately describes the firm and highlights its strengths.

This document is used as a platform to allow potential buyers to understand the unique features of the seller. It will save both parties a lot of time.

The first section of the profile should contain a thumbnail sketch of the operational fundamentals of the agency. There needs to be a brief history of the firm and the background of the principals and key personnel. An organizational chart should be in place and should show the positions, salaries

32 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

and start dates of all employees. All producers’ books of business should be displayed with compensation. Are there contracts, vesting? All should be described.

An overview of the book of business should be written and a description of any specialties/ programs. A breakdown of the book by line of business is also helpful. The profile should also have a breakdown of the top 10 insurance carriers, loss ratios, contingent history and type of business placed with each carrier.

Factors Affecting Value

The value of any business typically depends on two things – the future profits of the business and the risks

associated with such profits continuing. The key drivers for profits in an insurance agency are total personnel costs, which typically range between 50 percent and 70 percent of revenue.

Employee productivity, headcount and compensation plans are what determines the bulk of personnel costs.

The typical profit margin for most firms, when owners’ compensation and perks are normalized, is around 15 percent to 20 percent. Highly valued firms have profit margins between 25 percent and 40 percent. If the agency has a low profit margin, then the value will be low since buyers typically determine value based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation

and Amortization).

The major risk factors when valuing an insurance agency are the mix of business (personal lines, commercial lines, benefits/health, life, etc.), the book of business (industry, size of accounts, concentration, policy types, etc.), access and quality of markets, quality of staff, nature of the client relationships (best if they are not all personal friends), retention rates and sales growth. These risk factors determine the multiple used when calculating value. The lower the risk, the higher the value.

Third-Party Pro Forma

In most cases, financial statements of privately held companies are designed to minimize taxable income in any given year. Most firms show very little profit on un-adjusted statements.

Here is where the seller or seller’s consultant needs to control the narrative. It is advisable to reconstruct financial statements to show the buyer the adjusted pro forma financial performance, which directly affects value.

When recasting income statements, owners will find that most adjustments fall into one of the following categories: 1. Adjustments to the owners’ compensation to reflect a third party’s approach, so that “excess” compensation is shown as profit.

2. Potential (but realistic) adjustments to producer compensation, such as lower commissions

or moving small accounts to house accounts.

3. Potential (but realistic) adjustments to staff by eliminating redundancy and unnecessary positions. Or increasing salaries if there has been a lag in raises.

4. Non-recurring items such as one-time purchases, unusual bad debts or litigation expenses.

5. Removal of non-necessary or discretionary expenses for the owners.

6. Adjustments to eliminate income or losses from non-operating assets, including gains and losses on their sale, dividends from securities, and interest income.

7. The balance sheet should also be adjusted for non-operating assets or items the buyer might consider not needed or undesirable. Examples might include corporate autos, loans to or from employees, cash value of life insurance policies or marketable securities.

8. If the business owns real estate, the seller may want to place the asset in a separate corporation and enter into a lease with the buyer at market rent.

The value of any business typically depends on two things – the future profits of the business and the risks associated with such profits continuing.

Getting in Shape to Sell

Much like a house, a business will sell at a higher price if everything is neat, organized and in working order. Here are

a few tips: 1. Clean up any old bad business habits; 2. Eliminate functional problems within the agency; 3. Generate and keep records and management reports current; 4. Prepare a business plan or budget for the prospective year(s), if time permits; 5. Prepare an organization chart showing functional areas of responsibility; 6. Document the producer sales efforts and workloads of the staff; and 7. Write an explanation of how sales are generated and make promotional materials available.

Obtain Professional Help

One of the first things that a seller should do is obtain a realistic idea of what the business is worth from an objective, outside source. A professional valuation creates a basis for evaluating a buyer’s offer and helps determine what the seller can expect to net from the sale.

A good appraiser will also provide practical insight into the strengths and weaknesses of the strategic, financial and operational aspects of the business. They should clearly state the real value drivers of the firm, so the seller can make the needed adjustments to improve the business value. It is best to hire an appraiser that specializes in the insurance industry to get the most meaningful analysis of the agency and its value.

In addition to a valuation expert, sellers should seek out the advice from financial planners for their personal needs, a qualified tax advisor, legal advice to review contracts and

agreements and an expert M&A consultant to represent them.

The M&A advisor can help prepare both the business and the owners for the sale process.

Specifically, the sellers’ representative can: 1. Create the agency profile; 2. Prepare a preliminary valuation analysis to determine the asking price; 3. Identify and contact confidentially logical buyers or merger candidates; 4. Evaluate any proposed transactions; 5. Assist with negotiation and closing; and 6. Consider different transaction structures and the tax consequences of each.

A Final Thought

These are all things to think about in the sale and merger process. Selling a business can be hard emotionally, but if approached properly it will also be seamless and rewarding.

The key is to keep in mind the buyer is looking at purchasing cash flow and it is not a direct judgment on the seller’s business or insurance skills.

This is also a great exercise to go through even if you are not ready to sell. It just so happens that the things buyers are interested in also happen to be what makes an agency successful.

Oak is the founder of Oak & Associates and Schoeffler is an associate of the firm. The firm has offices in Bend, Ore., and Sonoma, Calif., and 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. Email: catoak@gmail.com.

NOVEMBER 19, 2018 INSURANCE JOURNAL | NATIONAL | 33

Idea Exchange

Innovation

The Rise of Risktech: How Startups Are Saving Lives and Property in Construction

By Martha Notaras

C

onstruction has a major problem: every year, construction sites suffer $11 billion in losses due to damage from fire and water, worker accidents, and theft. In addition, a fifth of all worker deaths in the U.S. – nearly 1,000 in 2016 alone – occur on construction sites.

1/4/08 in 2:26 PM Page USA12043.qxd construction To date, many startups tech have focused on increasing produc-

tivity. Unlike most other major sectors of the economy, which have doubled their productivity in the last 20 years, produc1tivity in the construction industry has been incredibly stagnant. As in other ver-

ticals, the technology industry has risen to this challenge and is offering new tools to construction companies. Since 2009, nearly 500 companies have been funded in construction tech, raising $4.3 billion.

Companies in construction tech range from seed stage startups to more developed latestage companies like Katerra, which raised $865 million in early 2018. Most of these companies are seeking to increase efficiency via better planning, communication, logistics, contractor collaboration, document digitization and analytics to identify potential setbacks on the construction site.

Meanwhile, another seemingly unrelated technology vertical has developed: insurtech. Insurtech is about driving efficiencies within legacy processes, delivering more accurate underwriting results and reducing claims for insurers.

Insurtech companies range from the likes of Lemonade in home insurance to Ladder in life insurance and Cape Analytics in property intelligence. Most of these companies seek to improve the understanding of specific risks so insurers can better serve clients and optimize underwriting and portfolio management.

continued on page 36

34 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

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Idea Exchange continued from page 34

On the face of it, construction tech and insurtech seem like parallel developments, with entrepreneurs applying their tech experience and approach to solve longstanding problems in traditional industries. But now, an overlap between some construction tech startups and insurtech companies has emerged. There is a subset of startups in these categories that are both looking to mitigate risk related to worker injury and property damage on the construction site. When these risks occur, they have a massive impact on project timelines, profitability and worker livelihood.

Think of this new category as Risktech.

Evolution of Risktech

Risktech companies offer technologies that focus on safety and protecting work-

Advertisers Index Abram Interstate www.abraminterstate.com W8 Applied Underwriters www.auw.com 2,3, 40 Brighthouse Financial www.brighthousefinancialpro.com 4, 5 EZLynx www.ezlynx.com 23 FSLSO www.fslso.com FL3 GIC Underwriters, Inc. www.gicunderwriters.com FL1 Golden Bear Insurance Company www.goldenbear.com 7 Insurance Technologies Corp. www.getitc.com 31 InsurBanc www.insurbanc.com 29 JM Wilson www.jmwilson.com FL5 M.J. Hall & Company www.mjhallandcompany.com W3 Monarch E&S Insurance Services www.monarchexcess.com W7 Nautilus Insurance Company www.nautilusinsgroup.com 13 Pacific Gateway Insurance Services www.pgiainsurance.com W1 PersonalUmbrella.Com www.personalumbrella.com 39 PSIC - Pacific Specialty Insurance Co. www.wwfi.com W5 Smart Choice Agents Program www.smartchoiceagents.com 15 Summit www.summitholdings.com SC4, S2, M5 Texas Mutual www.texasmutual.com SC3 TWFG - The Woodlands Financial Group www.twfg.com 9 United Fire Group www.ufgsolutions.com E5 Universal Service Agency, Inc. www.universalbonds.com 34 WSIA- Wholesale & Specialty Ins. Assoc. www.wsia.org 21

Innovation ers, assets and the project as a whole. Since Risktech companies are working to lessen risk across the board, their products or services are valuable to all stakeholders. In the case of construction – where Risktech is growing most rapidly – this means they can sell to both sides of the market: to owners, operators, and contractors on one side, as well as to insurers on the other.

The three biggest risks in construction are well known: fire, water and worker safety. Of these three, fire is most frequent with more than 8,400 construction site fires per year and arson being the single largest cause of fire in non-residential commercial buildings. Water damage is the second most frequent cause of loss, often due to burst or frozen pipes, or water left on and flooding a site. Finally, 21 percent of all workplace fatalities occur in construction, with the total number of fatalities per year increasing steadily since 2011.

Risktech companies have arisen to address these three big risks. Margins are razor thin, and any loss of productivity or worker injury can delay timelines, balloon cost, impact profitability and lead to fines in the case of workplace safety issues.

Until now, construction has been primarily focused on the transfer of risk.

However, both parties (construction and insurance) would prefer overall less risk to transfer. This means reducing the frequency of losses an the severity of losses.

Any losses impact the timeline and profitability of construction projects while other events, such as the death of a worker, are far more serious.

Construction Opportunities

The concept of reducing risk in heavy industry isn't new. The classic case is Hartford Steam Boiler, which began offering boiler insurance in 1916, but only if companies purchased boilers with a far safer piping configuration and accepted HSB’s maintenance policy. From the 1850s until then, boiler explosions had been a major industrial hazard, killing as many as 1,800 workers. This push toward adopting safer technology and regular maintenance drastically reduced the number of boiler explosions and improved overall safety.

36 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

Today’s construction environment is rich with similar opportunities to minimize the frequency and severity of risky events.

As Risktech matures and more construction companies implement these solutions, we anticipate that the impacts will be enormous.

Pillar Technologies offers real-time analysis of site environmental conditions (smoke, humidity, temperature, dust particulates) through a network of specialized sensors that warn construction foremen if there is risk of a fire, water damage or unhealthy amounts of dust. Notion offers IoT devices that can sense water leaks and pipe bursts. Drone companies like Kespry and Airobotics can inspect construction sites from above and potentially stop losses stemming from equipment theft and vandalism. Wearable companies like Kinetic will monitor workers and their biomechanics. Proxxi will tell workers if they’re getting too close to a live electric wire, while Triax monitors worker location and will alert supervisors if there is a fall.

Adoption of these technologies is just starting to take off. According to the 2017 ConTech Report, so far, 38 percent of contractors are using drones, 9 percent are using wearables and 7 percent are using jobsite sensors for site monitoring.

As Risktech matures, we anticipate the impacts will be enormous. Eliminating the four leading causes of construction worker deaths (fall, struck by object, electrocution, caught between equipment) would save over 600 lives per year and countless career-ending injuries. Reducing the frequency and severity of accidents on construction sites would help more projects stay on time, on budget and with higher profitability. Reducing losses by a few percentage points across a $1.2 trillion industry could make a huge impact as well as saving lives.

Notaras is a partner at XL Innovate, an insurtech-focused venture capital fund that has backed companies Lemonade, Cape Analytics and Slice Labs.

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Closing Quote Insurance Is Doing It Right

By Kristin Nease

A

merica’s largest workforce is also one of the most misunderstood.

Labelled the “job-hopping” generation, millennials are sometimes cited for a low work ethic or high turnover rates.

More generally, recruiting on behalf of any organization is a challenge, and can be costly in terms of time and resources.

While more millennials continue to climb the corporate ladder, the inverse is happening with baby boomers.

According to AARP, ten thousand baby boomers will turn 65 every day from now until 2030. As a result, traditional industries that have typically attracted older generations - like insurance - are disproportionately affected by the pending retirements of thousands.

Many organizations are facing a complicated challenge: how to fill the workforce gap left behind by baby boomers and train a new workforce while continuing to innovate and remain competitive.

Insurance, on the other hand, is doing it right. This generational shift may look like a challenge, but insurance has

capitalized on the opportunity. The insurance industry has set itself apart by giving millennials what they want out of their careers, and as a result, generating above-average retainment rates.

According to a recent survey from Vertafore, millennials cite many benefits to a career in insurance, with a healthy work-life balance (65 percent), compensation and financial stability (64 percent) and career growth opportunities and professional development (61 percent) topping the list. These benefits hold value for millennials, as over 70 percent of millennial insurance professionals want to work in the industry as long as possible.

Beyond company initiatives like professional development and culture, smaller, more tactical aspects of millennial employees’ job descriptions matter too. Many insurance professionals are using technology, with over one third tapping Facebook, Instagram and SMS/text to communicate internally and with customers.

Millennials believe technology has made a positive impact on their company over the last year, with 61 percent stating it has increased efficiency and 54 percent saying technology has strengthened customer rela-

38 | INSURANCE JOURNAL | NATIONAL NOVEMBER 19, 2018

tionships. Technology will also continue to positively impact insurance organizations, with half of millennial respondents expressing optimism around automation and other technological advances to streamline tasks and allow more time to be spent on other aspects of their jobs.

With 97 percent of millennial insurance professionals optimistic about the future of the industry, today’s organizations are in a unique position: They have the opportunity to build companies around their newest generation of employees and create an environment that empowers them to succeed.

To continue to appeal to both prospective and current millennial employees, organizations should consider prioritizing professional development with the creation of a formal internal program and an

established meeting cadence between managers and those they manage. Organizations can also provide flexible work hours and the opportunity for employees to work remotely, offering millennial employees the work-life balance they value. Further, insurance organizations should continue to embrace technology and equip employees with current tools to best set them up for success.

By uniting professional development with increased access to technology, insurance has emerged as an unexpected, yet promising industry for millennials to call home. Those who continue to embrace technology and prioritize a culture of balance and professional development are sure to succeed.

Nease is the vice president of human resources at Vertafore.

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