Insurance Journal West 2021-09-06

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September 6, 2021 • Vol. 99 No. 17

Contents News & Markets

Special Report

8

20

With Federal Legalization Expected, Cannabis Insurers Get Ready

Idea Exchange

36

Closer Look:

Cyber Underwriting Changes: Is It Too Little, Too Late?

12 ‘Hey, Insurance Industry:

24

What About Us?’ Ask Small Businesses as Satisfaction Wanes

Closer Look:

Veterinarian-TurnedInsurance-Pro Sees Practitioners Thriving But Stressed

14 White House, Big Tech,

30

Insurers Vow to ‘Raise the Bar’ on Cybersecurity

Special Report:

27 Veterinarians Are Tired,

Insurance Industry Keeping Up With an Energy Market in Transition

Short-Staffed and Burned Out

31

28 P/C Insurers Boosted

Special Report:

ESG and the Future of Energy

Underwriting Net Income 28% in First Half of Year: AM Best

35

40 How the Pandemic

Changed Employment (And How That’s Here to Stay)

42

Is It Covered?:

Unintended Consequences

44 No One Buys Based on Price 47 Minding Your Business:

Merger & Acquisition State of the Industry

50

Closing Quote:

Closer Look:

28 56% of Insurance

Insuring Commercial Drones: Liability or Opportunity?

Top 50 Personal Lines Leaders

What Are Insurance Consumers Looking for Now?

Companies Plan to Hire Within the Year: Jacobson

29

Reinsurance Prices Expected to Harden at January 2022 Renewals

Departments 6 Opening Note 4 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

10 Figures

11 Declarations

18 People

16 Business Moves

49 My New Markets

INSURANCEJOURNAL.COM

KNOWING THE SCIENCE BEHIND AN INDUSTRY ALLOWS YOU TO DISCOVER NEW WAYS TO PROTECT IT.

We make it our business to know the business of life sciences. That specialization translates to exceptional service.

With expertise in underwriting, risk engineering and claims, we help develop customized product solutions that mitigate risk for mid- to large-size businesses across many industries. The Buck’s Got Your Back.® TheHartford.com The Hartford® is The Hartford Financial Services Group, Inc. and its property and casualty subsidiaries, including Hartford Fire Insurance Company. Its headquarters is in Hartford, CT. 21-ML-886950 © August 2021 The Hartford

Opening Note Write the Editor: awells@insurancejournal.com

Riding the Commercial Lines Price Wave

T

here’s no question that commercial lines premiums have accelerated growth in independent agencies during the past two years.

Insurance Journal’s Top 100 agencies in total reported generating nearly $8 billion more in commercial lines premium in 2020 over 2019. And for Insurance Journal’s Top 50 Commercial Lines Leaders, agencies and brokerages in total reported generating $1.8 billion more in commercial lines revenue in 2020 over 2019.

Buoyed by the hard market and rebounding economy, independent insurance agents and brokers grew overall by 7.1% in the second quarter, surpassing the 6.9% organic growth reported eight years ago in the second quarter of 2013, according to Reagan Consulting’s Growth & Profitability Survey (GPS).

Reagan says that commercial lines posted an organic growth rate of 9.2%, while the previous Q2 high was 8.2% in 2013. The quarter saw was the highest organic growth rate in the 13-year history of Reagan’s survey.

With an organic growth rate of 9.2%, commercial lines continued to lead growth, building on a trend from this year’s first quarter. Reagan cited significant premium price increases for several products as helping to push the growth — including a 19.7% increase in umbrella prices followed by an 18.0% increase in cyber prices. Premium hikes for commercial auto, employment practices, commercial property, and directors and offices insurance are also at 9.0% or higher.

Personal lines posted a decline in Q1 2021, but are now rallying with a Q2 2021 organic growth rate of 2.1%, the historical Q2 average, according to Reagan. Group benefits still trail behind their historical averages, but did increase from 2.1% organic growth in Q1 2021 to 3.1% in Q2 2021.

As for public brokers, for the second time in Reagan’s survey history, public brokers surpassed the performance of independent brokers and agents by 2.9 percentage points in Q2 2021, posting an organic growth rate of 10%.

Additionally, public brokers usually write larger accounts, and some of the specialty coverages they sell have seen “dramatic price increases” in early 2021, the consulting firm said.

Reagan analysts said they anticipate the momentum to continue and they predict a fullyear organic growth rate of 7.0% in 2021.

“The hard market in the property/casualty business and the favorable economic environment are expected to continue for the remainder of the year,” said Brian McNeely, Reagan Consulting partner. “There are still some lingering cost savings from the pandemic, but they are waning,” McNeely added. Pandemic-related cost savings — for example, reduced travel, entertainment, advertising and auto expenses —contributed to higher margins this year. But he believes these selling expenses should return soon to pre-pandemic levels.

Reagan collects survey results from about 200 mid-size and large agencies.

‘The hard market in the property/casualty business and the favorable economic environment are expected to continue for the remainder of the year.’

Andrea Wells Editor-in-Chief 6 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

Publisher Mark Wells | mwells@wellsmedia.com Chief Executive Officer Joshua Carlson | jcarlson@insurancejournal.com

ADMINISTRATION / CIRCULATION

Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com Circulation Manager Elizabeth Duffy | eduffy@wellsmedia.com Staff Accountant Sarah Kersbergen | skersbergen@wellsmedia.com

EDITORIAL

Chief Content Officer Andrew Simpson | asimpson@insurancejournal.com Editor-in-Chief Andrea Wells | awells@insurancejournal.com East Editor Elizabeth Blosfield | eblosfield@insurancejournal.com Southeast Editor Ezra Amacher | eamacher@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor L.S. Howard | lhoward@insurancejournal.com Columnists & Contributors Contributors: Holden Benon, Matthew Decker, Sharon Emek, Mary Parsons, Susanne Sclafane Columnists: Tony Caldwell, Catherine Oak, Bill Schoeffler, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com West Sales Dena Kaplan | dkaplan@insurancejournal.com Romeo Valdez | rvaldez@insurancejournal.com South Central Sales Mindy Trammell | mtrammell@insurancejournal.com Southeast and East Sales (except for NY, PA, CT) Howard Simkin | hsimkin@insurancejournal.com Midwest Sales Lisa Whalen | (800) 897-9965 x180 East Sales (NY, PA and CT only) Dave Molchan | (800) 897-9965 x145 Advertising Coordinator Erin Burns | eburns@insurancejournal.com Insurance Markets Manager Kristine Honey | khoney@insurancejournal.com Senior Strategist Pam Simpson | psimpson@insurancejournal.com Social Media Manager Ly Short | lshort@insurancejournal.com Sales & Marketing Strategist Laura Roy | lroy@wellsmedia.com Marketing Administrator Gayle Wells | gwells@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P. of Web Josh Whitlow | jwhitlow@insurancejournal.com Ad Ops Specialist Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Terrance Woest | twoest@wellsmedia.com Web Developer Ryan Kleshinski | rkleshinski@wellsmedia.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Ashley Waldrop | awaldrop@insurancejournal.com

ACADEMY OF INSURANCE

Director Patrick Wraight | pwraight@ijacademy.com Online Training Coordinator George Jack | gjack@ijacademy.com

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News & Markets With Federal Legalization Expected, Cannabis Insurers Get Ready

By Alwyn Scott

I

nsurers are quietly gearing up for a potential ten-fold increase in sales to the booming $17.6 billion-a-year cannabis industry as Congress inches closer to legalizing pot at the federal level.

While 36 U.S. states and the District of Columbia have legalized cannabis for medical or recreational use, insurance for growers, testing labs and retailers is being held in check largely by strict federal laws that criminalize pot alongside heroin, methamphetamine and LSD. U.S. legal cannabis sales jumped 45% last year and are expected to hit $41 billion in 2026, Colorado-based research firm BDSA said.

But the industry only wrote about $250 million in policies last year, insurance agents estimated for Reuters, with a handful of carriers offering limited property and liability coverage.

Businesses also need coverage for crops and theft, along with larger payout limits, according to more than a dozen insurers, brokers, agents, lawyers and cannabis business owners interviewed by Reuters.

‘Overwhelming Need’

As Congress considers bills that would loosen federal laws, some insurers are trying to fill the gap with new types of coverage. Because insurers are regulated at the state level, they can now offer coverage in states where the drug is legal, and federal decriminalization would expand the market.

“There is an overwhelming need for the right kinds of insurance,” said Rocco Petrilli, chairman of the National Cannabis Risk Management Association (NCRMA), a trade group of 3,000 cannabis businesses.

NCRMA in April set up a captive insurer to offer coverage for property, general premises liability and product liability to members. It plans to add workers’ compensation and auto coverage in the fourth quarter, Petrilli said. The captive 8 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

approach provides coverage only to NCRMA members.

CannGen Insurance Services, a national managing general underwriter of cannabis, CBD and hemp risks that works with commercial carriers, plans to introduce directors & officers (D&O) and employment practice liability cover soon, through a new division called CannGenPRO, said Charles Pyfrom, chief marketing officer.

CannGen distributes via appointed retail and wholesale brokers to provide “onestop-shopping.”

Some large insurers, such as Progressive Corp., Farmers Insurance, Liberty Mutual and AXA SA, are offering coverage as more states legalize pot. They often sell via subsidiaries and work with CannGen or others, state licensing records show.

Progressive said its vehicle policies cover liability and physical damage in states that have legalized transport of cannabis, but it does not insure cargos. The other companies declined to comment.

New policies cannot come soon enough for cannabis business owners, who say coverage is often hard to find and expensive. Cannabis dispensary owners told Reuters, for example, that their premiums are 20% to 30% higher than an ordinary retailer would pay. Some types of vehicle coverage can cost four or five times more, they said.

D&O insurance, which is crucial for attracting seasoned business leaders and raising capital, is also expensive, said Gavin Kogan, CEO of Grupo Flor, which is a licensed cultivator, distributor and manufacturer with five dispensaries in

California. He said he pays $85,000 to $100,000 annually for $1 million of D&O protection, “and the coverage is super limited.”

A lack of insurance can also create operational challenges and raise costs.

Low coverage limits on cargo insurance, for example, can force companies to split shipments up, said Gene Brown, an insurance agent in Carmel, California, who specializes in cannabis coverage.

“You have big fleets delivering large amounts of cannabis or transporting large amounts of money,” he said. They need $1 million coverage but “you can only get $500,000 right now.”

Legalization Push

As more states legalize cannabis, U.S. lawmakers are under growing pressure to follow. In July, Senate Majority Leader Chuck Schumer threw his weight behind the movement, unveiling an ambitious draft bill to legalize cannabis.

In April, the House of Representatives passed a bipartisan bill that would allow banks to provide services to cannabis companies in states where it is legal.

Schumer’s measure is unlikely to become law in its current form, given Democrats’ narrow majority in the Senate and its broad scope, said Ian Stewart, partner and co-chair of the cannabis practice at law firm Wilson Elser.

Still, analysts and insurance executives say such bills show Congress is slowly heading toward looser cannabis laws.

BDSA expects some form of federal legalization in 2022, and Petrilli, of NCRMA, said that could send insurance sales to cannabis businesses to more than $3 billion over the next five years, if the industry were insured like normal businesses. “Whoever leads on providing reasonably priced insurance for this industry with the necessary coverage is going to be very, very successful,” said Kogan.

Copyright 2021 Reuters.

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Figures

11%

The percentage increase in insurance fraud referrals in Minnesota in 2020 compared with 2019. The Minnesota Commerce Fraud Bureau, a division of the Minnesota Department of Commerce, said it began investigations into 3,600 suspected fraud cases in 2020, up from the 3,236 investigations conducted in 2019. The 2020 number represents a 57% in case referrals over the past five years.

$1.1

billion

New York Attorney General Letitia James announced an agreement with McKesson Corporation, Cardinal Health Inc. and Amerisource Bergen Drug Corporation that will deliver up to this amount to New York state to combat the ongoing opioid epidemic. The agreement is the largest monetary settlement ever negotiated

by James and resolves claims about the role of the three companies in helping to fuel the opioid epidemic. It will remove the three distributors from New York’s ongoing opioid trial, currently underway in Suffolk County State Supreme Court.

10 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

731

The number of pedestrians who died in vehicle accidents in Texas in 2020 — an increase of 9% from 2019 — despite a decrease in traffic crashes last year, according to the Texas Department of Transportation (TxDOT). Crashes involving bicyclists claimed the lives of 82 people in the state, up from 68 deaths the previous year.

$3.8 Million That’s how much an Alaska school district agreed to pay to two children abused by a former principal who said school leaders had been well aware of problems with young girls for years.

Christopher Carmichael, an elementary school principal in Bethel, was arrested in 2019 following an undercover investigation after investigators found he had sexually abused a former student.

INSURANCEJOURNAL.COM

Declarations

Forget Cars

“I hate cars, I don’t trust people driving them, especially in New Jersey, and I see a lot of accidents and it’s scary. When someone pulls into our lane, maybe from a parking lot, I just automatically tense up.”

Premature PIP Cap

Unheard Warnings

— Michigan DIFS Director Anita Fox said in

Communication Command said during a hearing

“The premature imposition of a $250,000 cap could have severely impacted the lives of Michigan drivers and uninsured passengers, pedestrians, and bicyclists.”

“We have these issues maybe once a year, and it’s very limited. … It just happened to be this is the date that it happened.”

— Cmdr. Vince Taylor of the Coast Guard

— Kat Wilson, 16, whose father, Donnie Wilson,

a media release after reaching an agreement

into the deadly capsizing of the Seacor Power lift

is a local short track racer in New Jersey, says

with the state’s personal injury protection (PIP)

boat off the coast of Louisiana on April 13 that a

she has no interest in automobiles or driving.

medical coverage program regarding unlimited

technical issue prevented the Guard from relaying

According to a recent study based on Federal

coverage for persons injured in an automobile

severe thunderstorm and marine warnings on

Highway Administration, Wilson joins many

accident prior to the July 2, 2020, implementation

the day the lift boat sank amid hurricane-force

other teenagers in turning down the opportunity

of Michigan’s new auto insurance law. The law

winds, leaving 13 dead. Mariners who relied on

to drive. The study by Green Car Congress showed

enacted June 11, 2019, capped PIP coverage at

the Coast Guard’s system missed the National

that in 2018 approximately 61% of 18-year-olds

$250,000 for claims incurred beginning July

Weather Service warnings and NWS forecaster

in the U.S. had a driver’s license, down from 80%

2, 2020. The Michigan Automobile Insurance

Philip Grigsby said the storm’s path would

percent in 1983. The number of 16-year-olds with

Placement Facility (MAIPF), which administers

have been clear to those who picked up on the

licenses decreased from 46% to 25% in the same

the PIP program, sought to impose cap beginning

messages.

period.

June 11, 2019.

Western U.S. Drought

It Stinks

— Marci Green, whose family is the sixth

living near a paper mill blamed for releasing large

generation on the same farming land just south

amounts of hydrogen sulfide, a gas that smells like

of Spokane, Wash., had to harvest her wheat

rotten eggs. The New-Indy paper mill in Catawba

crop early because the severe drought stunted this

has received more than 30,000 complaints,

— Ulster County Director of Emergency Services

year’s grow.

and three federal civil lawsuits have been filed,

Everett Erichsen said in a New York Department

alleging the odor endangers families. An April site

of Financial Services (DFS) press release after

visit by EPA inspectors found hydrogen sulfide

Yevganiy Ilyayev was arrested for insurance

levels as high as 15,900 parts per billion, enough

fraud in the second degree following a year-long

to cause breathing problems, headaches and

criminal investigation into the origin of a house

nausea according to the U.S. Occupational Safety

fire. The house had been condemned by the town

and Health Administration.

of Wawarsing, New York, and a stop work order

“This is definitely the worst crop year we have had since we started farming 35 years ago.”

“We are prisoners in our own smelly home.”

— A South Carolina resident’s complaint of

Zero Tolerance

“Ulster County’s Emergency Services and Fire Investigations Unit have zero tolerance for anyone who puts lives of our first responders at risk for their own financial gain and will diligently investigate every suspicious fire in our communities.”

was placed on the residence for suspected illegal renovations. Following the fire, Ilyayev submitted a fraudulent claim to Travelers Insurance seeking $478,000 as restitution for the loss of the house.

INSURANCEJOURNAL.COM

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 11

News & Markets ‘Hey, Insurance Industry: What About Us?’ Ask Small Businesses as Satisfaction Wanes

I

nsurance carriers and agents may want to pay more attention to small business insurance customers, especially those with commercial auto and workers’ compensation policies. They’re feeling neglected.

According to the J.D. Power 2021 U.S. Small Commercial Insurance Study a lack of proactive support and personalized attention has put a strain on customer satisfaction among small commercial insurance customers. The small business J.D. Power insurance satisfaction scores have fallen significantly for a second consecutive year.

Small commercial lines customer satisfaction has declined 15 points in the past two years — a 7-point decline from a year ago and an 8-point decline in 2020 from 2019. These represent the only declines in the study’s 9-year history.

Satisfaction with interactions shows a 20-point decline from a year ago.

“We see a real pattern of small business insurers missing the mark on soft skills, such as interaction with agents and proactive outreach — both being areas in which commercial insurers have historically thrived,” said Robert M. Lajdziak, senior consultant of insurance intelligence at J.D. Power.

The study examines overall customer satisfaction among small commercial insurance customers with 50 or fewer employees.

Lajdziak said small commercial customers “spend three times more effort” interacting with their carrier on websites, on the phone or with agents. The largest declines in the study are among customers who had workers’ compensation coverage or commercial auto policies.

“Carriers will want to pay particular attention to customers with these types of policies,” he said.

While insurers doled out tens of billions of dollars in refunds to personal lines customers during the COVID-19 pandemic, small business insurance 12 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

customers got no relief since their coverage was not affected. However, they took notice and felt ignored, the survey suggests.

Some other findings of the 2021 study: • Customer effort to interact with agent is three times higher than 2020: Customers who say they had to exert a great deal of effort to interact with their agent increases to 32% from 10% a year ago. Digital interactions were no less immune, increasing to 34% from 10% year over year.

• Proactive outreach too little, too late: In 2020, only 19% of customers indicated their carrier proactively reached out to them to discuss business needs related to COVID-19. While proactive contact significantly increases to 45% in 2021, the positive effect it has on customer satisfaction declines 31 points, which indicates insurers may have been too late in providing support to their customers.

• Mixed messaging in communication: While proactive outreach still has a positive effect, carriers need to ensure the information being communicated is

accurate across channels and documents.

Among customers who received proactive outreach from their insurer are citing more problems and/or billing issues in 2021 (46%) than in 2020 (26%).

• Scrambling to get answers: Customers experiencing problems and/or billing-related issues are using multiple channels — such as mobile app, online chat and text messaging — to get answers to their questions. These customers are nearly twice as likely to use four or more channels than those who don’t experience problems.

In this year’s survey results, Allstate ranked highest in overall customer satisfaction with a score of 848 (on a 1,000-point scale). State Farm (846) ranked second and Erie Insurance (845) ranked third.

The study is based on responses from 1,994 small commercial insurance customers. Overall satisfaction is comprised of five factors (in order of importance): interaction; policy offerings; price; billing and payment; and claims. The study was fielded from March through June 2021.

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News & Markets White House, Big Tech, Insurers Vow to ‘Raise the Bar’ on Cybersecurity

By Andrea Shalal

T

he U.S. government in late August said it would work with the industry to hammer out new guidelines to improve the security of the technology supply chain, as President Joe Biden appealed to private sector executives to “raise the bar on cybersecurity.”

At White House meetings with Biden and members of his Cabinet, executives from Big Tech, the finance industry and infrastructure companies said they would do more about the growing threat of cyber attacks to the U.S. economy.

“The federal government can’t meet this challenge alone,” Biden told the masked executives in the East Room, telling them, “You have the power, the capacity and the responsibility, I believe, to raise the bar on cybersecurity.”

After the meeting, the White House said the National Institute of Standards and Technology (NIST) would work with industry and other partners on new guidelines for building secure technology and assessing the security of technology, including open source software.

Microsoft, Google, Travelers, and Coalition, a cyber insurance provider, among others, committed to participating in the new NIST-led initiative.

Cybersecurity has risen to the top of the agenda for the Biden administration after a series of high-profile attacks on network management company SolarWinds Corp., the Colonial Pipeline company, meat processing company JBS and software firm Kaseya. The attacks hurt the United States far beyond just the companies hacked, affecting fuel and food supplies.

“We have a lot of work to do,” Biden said, citing both ransomware attacks and his push to get Russian President Vladimir Putin to hold Russian-based cyber gangs responsible, and the need to fill nearly half a million public and private cybersecurity jobs.

The guest list included Amazon.com Inc.

14 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

CEO Andy Jassy, Apple Inc. CEO Tim Cook, Microsoft CEO Satya Nadella, Google’s parent Alphabet Inc CEO Sundar Pichai and IBM Chief Executive Arvind Krishna.

After the meeting, Amazon said it would make its cybersecurity training available to the public for free, and it would give multi-factor authentication devices to some cloud computing customers, starting in October.

‘It’s not just about getting our companies safer, but also ensuring that we’re doing something to address the bad guys.’

Microsoft said it will invest $20 billion over five years, a four-fold increase from current rates, to speed up its cyber security work, and make available $150 million in technical services to help federal, state and local governments to help keep their security systems up to date.

IBM said it will train more than 150,000 people in cybersecurity skills over three years and will partner with historically black colleges and universities to create a more diverse cyber workforce.

Google said it was devoting $10 billion to cybersecurity over the next five years, but it was not immediately clear what if any

of the figure represented new spending. It also said it would help 100,000 Americans earn industry-recognized digital skills certificates that could lead to high-paying jobs.

Vishaal Hariprasad, CEO of Resilience Cyber Insurance Solutions, told Reuters his company would work with the government on setting clear standards for cybersecurity, and would require policy holders to meet those standards.

“So, if a company is willing to adhere to the minimum standards, they’ll have insurance, and if not, they’ll have to identify those gaps so they can get to that baseline,” he said.

“It’s not just about getting our companies safer, but also ensuring that we’re doing something to address the bad guys.”

Congress is weighing legislation on data breach notification laws and cybersecurity insurance industry regulation, historically viewed as two of the most consequential policy areas within the field.

Executives for energy utility firm Southern Co. and JPMorgan Chase & Co. also attended the event.

The event featured top cybersecurity officials from the Biden administration, including National Cybersecurity Director Chris Inglis and Secretary of Homeland Security Alejandro Mayorkas.

Copyright 2021 Reuters.

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CONTRACTING I ENVIRONMENTAL I EXCESS I HOSPITALITY I MANUFACTURING I REAL ESTATE I RETAIL Philadelphia Insurance Companies is the marketing name for the property and casualty insurance operations of Philadelphia Consolidated Holding Corp., a member of Tokio Marine Group. All admitted coverages are written by Philadelphia Indemnity Insurance Company.

Coverages are subject to actual policy language.

Business Moves the Howden Group Executive Committee.

Current DUAL Group Non-Executive Chairman, David Ibeson will become a non-executive director.

The acquisition is subject to completion and regulatory approval.

East

Relation Insurance Services, The SIG Insurance Agencies

National

Arthur J. Gallagher, Willis Re

Arthur J. Gallagher & Co. has agreed to acquire the treaty reinsurance brokerage operations of Willis Towers Watson, just weeks after a previous Gallagher deal to buy Willis Re fell through when brokers Aon and Willis terminated their $30 billion mega-merger agreement.

Under the new agreement, Gallagher will acquire the combined operations for an initial gross consideration of $3.25 billion, and potential additional consideration of $750 million subject to certain third-year revenue targets.

In the previous deal, Gallagher had agreed to buy Willis Re and other assets for about $3.6 billion.

Willis had agreed to sell the reinsurance unit to satisfy concerns of European regulators over preserving competition if they approved the Aon-Willis merger.

That giant merger and the Willis Re and other divestments were cancelled when U.S. regulators objected to the merger on antitrust grounds.

Willis Towers Watson said on Aug. 3, just days after the planned sale to rival Arthur J. Gallagher fell through, that it was considering strategic alternatives for Willis Re and that a sale of Willis Re was still possible, but the company did not then identify a buyer.

The operations being acquired by Gallagher include all of Willis Re’s treaty reinsurance brokerage operations. For the year ended Dec. 31, 2020, these operations generated $745 million of estimated 16 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

revenue and $265 million. Willis Re’s treaty reinsurance business operates in 24 countries, places over $10 billion of premium annually and represents more than 750 insurance and reinsurance company clients.

Gallagher said it intends to finance the transaction using cash on hand. The deal is expected to close during the fourth quarter of 2021. Gallagher said integration is expected to take roughly three years and cost roughly $250 million.

Gallagher is headquartered in Rolling Meadows, Illinois.

DUAL, Align Financial Holdings

London-based DUAL, the underwriting arm of Howden Group Holdings, has agreed to acquire Align Financial Holdings, a specialist general agency and underwriting management group in California.

San Diego-based Align underwrites more than $630 million gross written premium on an annualized basis through its commercial casualty, commercial property catastrophe, personal property, and surety businesses.

DUAL said the acquisition creates an international managing general agency group with 1,000 employees in 16 countries, more than 80 capacity providers, and 7,000 broker partners.

Kieran Sweeney, founder and CEO of Align, will lead the combined U.S. businesses, supported by Jim O’Connor, CEO of DUAL North America, and John Johnson, president of Align. Sweeney will also become executive chairman of DUAL Group globally and a member of

Relation Insurance Services Inc. acquired the assets of The SIG Insurance Agencies. The partnership with SIG strengthens Relation’s existing capabilities and further expands the platform’s geographic presence in the Northeast.

Headquartered in Connecticut with additional operations in New York, New Hampshire and Rhode Island, SIG is an independent agency in the Northeast. SIG focuses on commercial and personal lines insurance products, employee benefits and financial services products.

It is led by Brian Rogers and John Cody, who will continue in their company’s leadership. All 65 of SIG’s employees will join Relation.

Relation is an insurance brokerage that offers risk-management and benefits-consulting services through its family of brands across the United States.

It is a privately held corporation backed by Aquiline Capital Partners, a private equity firm based in New York and London.

Canary Blomstrom Insurance Agency, GoodWorks Financial Group

Canary Blomstrom Insurance Agency of Agawam recently became a member of GoodWorks Financial Group, a national network of insurance agencies, according to Canary Blomstrom president Sandy Brodeur. The agency will retain its name, staff and location, and Brodeur will continue to serve as president.

By joining GoodWorks, Canary Blomstrom will partner with Wheeler & Taylor Insurance of Great Barrington, Massachusetts, to broaden its insurance offerings. Wheeler & Taylor is GoodWorks Financial’s flagship national agency.

Canary Blomstrom offers personal insurance, and sells life, long-term-care and INSURANCEJOURNAL.COM

disability insurance and annuities. Wheeler & Taylor offers insurance and real estate brokerage operations from its headquarters in Great Barrington, Massachusetts.

GoodWorks Financial Group is a network of common-ownership companies.

The Hilb Group, MillBrook Benefits and Insurance Services

The Hilb Group acquired Massachusettsbased MillBrook Benefits and Insurance Services LLC, strengthening its presence throughout New England.

Based in East Longmeadow, Massachusetts, MillBrook specializes in benefits solutions for businesses and their employees. Agency Principal Pete Miller and his team of will be joining Hilb Group’s New England regional operations.

The Hilb Group is a property/casualty and employee benefits insurance brokerage and advisory firm headquartered in Richmond, Virginia.

Midwest

McGowan, Arbanas & Associates

The McGowan Companies acquired the assets of Arbanas & Associates in Grosse Pointe Farms, Michigan.

Arbanas specializes in writing professional liability for accountants, lawyers, architects, offering multiple professional liability programs.

Arbanas joins McGowanPRO, also a leading writer of professional liability. After the transaction, the staff of McGowanPRO will remain in place, led by Gary B. Sutherland.

Arbanas’ policyholders gain access to the products and capabilities offered by McGowanPRO. Coverage will be available to policyholders in all 50 states and Washington, D.C. With the asset purchase agreement, Arbanas sold certain of its assets, but not its liabilities, to McGowan Consolidated Insurance Holdings Group Inc. or one of its subsidiaries/affiliated companies. Arbanas was not merged with or into McGowan, and was not consolidated with or into McGowan.

Alera Group, Risk Consulting Partners Deerfield, Illinois-based Alera Group INSURANCEJOURNAL.COM

acquired Risk Consulting Partners, an agency that specializes in working with private equity firms and assessing risk exposures across all companies in their portfolios.

RCP serves businesses with $25 million to $1 billion in revenue. The RCP team will continue serving clients in its existing roles. Alera Group is an independent, national insurance and wealth management firm.

Hub International Limited, Dissinger Reed

Global insurance broker and financial services firm, Hub International Ltd., acquired the assets of Dissinger Reed LLC, located in Overland Park, Kansas.

Dissinger Reed is a risk agency that focuses on the insurance needs of collegiate athletic departments and state high school associations.

Christian Reed, owner and CEO of Dissinger Reed, and the agency’s team will join the Hub Mid-America region.

South Central

Alliant Insurance Services, Benefit Concepts Inc.

Alliant Insurance Services acquired group and individual benefits agency, Houston-based Benefit Concepts Inc. BCI provides a range of employee benefits products and services to businesses and individuals. BCI is also a general agent providing unique support to other agencies in the marketplace.

BCI and its more than 100 employees will join Newport Beach, California-based Alliant and will continue serving clients and broker partners from its current Houston headquarters under the BCI name and brand.

Emergent Insurance Solutions

Doug Phenix, founder of Texas Printers Insurance Agency, is now leading a newly established agency, Emergent Insurance Solutions, based in Houston.

Phenix, president of EIS, has more than 30 years of experience specializing in numerous industries. The new agency offers personal and commercial insurance,

along with employee benefits products and services.

Southeast

King Insurance, Robert Blakeley

King Insurance, a full-service insurance brokerage firm that provides a variety of property/casualty as well as employee benefits solutions, has acquired Robert Blakeley Insurance.

Robert Blakeley, based in Leesburg, Fla., has been insuring businesses and individuals in central Florida since its inception in 2002. The firm offers an array of insurance products focused primarily on commercial and personal property/casualty. Blakeley employees will continue operating out of their current locations and servicing clients under King Insurance.

Risk Strategies, Danna-Gracey

Risk Strategies, a national specialty insurance brokerage and risk management firm, has acquired Danna-Gracey, a specialist in medical malpractice insurance headquartered in Delray Beach, Florida.

Danna-Gracey is an independent medical malpractice insurance agency in Florida dedicated to insurance coverage placement for doctors and other health care providers.

Risk Strategies’ Health Care Practice is a national specialty team offering all lines of insurance and reinsurance for all types of health care organizations.

West

Alliant, ASURA Risk

Alliant Insurance Services has acquired Northern California-based ASURA Risk in San Ramon, Calif.

Kevin Kilty, principal with ASURA Risk, along with fellow principals Greg Miller and Jon Wheeler, and the entire ASURA team, will join Alliant and continue servicing clients from the San Ramon headquarters.

ASURA provides commercial insurance, employee benefits, and risk management services throughout California. Alliant is a national distributor of diversified insurance products and services.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 17

People National

Dennis Cook has been

appointed president of

IronHealth’s Global Risk Solutions North America

division, which offers specialty healthcare liability and medical stop loss products. Cook joined Liberty Mutual four years ago.

Most recently, he served as IronHealth’s chief liability officer, where he successfully led an operation with $220 million in gross written premiums.

Prior to joining Liberty Mutual, Cook was at AIG. He succeeds Lainie Dorneker, who was named IronHealth president in 2018 and is now head of healthcare at Bowhead Specialty in Miami.

In addition to Cook, Liberty Mutual has appointed Robert Hatcher as chief underwriting officer for stop loss. Hatcher will report to Cook and lead Liberty Mutual’s medical stop loss offering.

East

MEMIC, a workers’ compensation insurance specialty carrier with offices from Maine to Florida and licenses across the nation, hired two to its Diane Firster underwriting team. Diane Firster was hired as senior production underwriter and Scott Richards was hired as senior production Scott Richards underwriter.

As a 31-year insurance industry veteran, Firster most recently served as product manager for Philadelphia Insurance and previously as an account

management specialist with Selective Insurance for seven and a half years, helping her develop multi-line commercial experience. She is based in Philadelphia, Pennsylvania.

Richards, who joined MEMIC in June, began his career with The Hartford in 1997.

He served there for 10 years before accepting underwriting and leadership positions with Harleysville/Nationwide and Travelers. He is based in Whitesboro, New York.

New Hampshire-based

Satellite Agency Network (SAN) Group Inc. has promoted Anthony Inverso to regional

vice president of Maine, New Hampshire and Vermont.

In this position, Inverso will be responsible for membership service, business development and insurance company relations for all SAN Group member agencies in his territory.

Working closely with David Collins, SAN’s agency development field specialist of that same region, the team will be a resource for agencies facing start-up challenges, growing personal and commercial lines, technology adoption and usage, as well as new business and retention strategies.

Southeast

ShoreOne has appointed Ben Hoover as chief marketing

officer. Hoover will lead the marketing and distribution strategy for ShoreOne’s growth along the Atlantic seaboard.

Hoover, who has previous underwriting and distribution experience with large managing general agencies, will work with a select group of agencies experienced in the coastal homeowners market.

ShoreOne is currently oper-

18 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

ating in South Carolina, and Hoover will work with agents to bring the company’s new homeowners flood product to coastal homeowners in South Carolina, as well as other Atlantic seaboard states.

Prior to joining ShoreOne, Hoover was the regional marketing manager for Arthur J. Gallagher & Co.’s Risk Placement Services (RPS), distributing new product offerings to agency partners. He also served as a senior executive with Brooks Group Insurance Agency as vice president.

Most recently, he was national accounts manager for Method Insurance.

ShoreOne Insurance Managers Inc. was founded in 2019 and is backed by global reinsurers.

Atlantabased McGriff has hired

Andrew Belisle

as a senior vice president and Andrew Belisle transactional risk specialist in the firm’s executive risk advisors group.

Belisle joins McGriff from ASQ, a London-based transactional insurance managing general agent. He previously worked as an underwriter in the U.S. division of Beazley. In those roles, he specialized in underwriting representation and warranty insurance coverage for private equity and strategic buyers.

Belisle also worked as a corporate and mergers and acquisitions attorney for Alston & Bird LLP and Morris, Manning & Martin LLP, where he advised public and private companies on M&A transactions, securities offerings, corporate governance

and regulatory and litigation matters.

Belisle previously worked as a commercial lines insurance broker with the former Oswald Trippe & Co., which was acquired by McGriff in 2009.

McGriff’s Executive Risk Advisors group includes more than 60 professionals in Atlanta, Birmingham, Chicago, Dallas, Denver, Houston and New York City. A subsidiary of Truist Insurance Holdings, McGriff is a full-service insurance broker providing risk management and insurance solutions to clients across the U.S.

South Central

Deer Park, Illinois-based The

Plexus Groupe

promoted industry veteran Todd Neaves to the newly Todd Neaves created role of resident leader in its Oklahoma City office.

Neaves will lead the agency’s team in Oklahoma City with a focus on accelerating Plexus’ growth, while continuing to maintain his current responsibilities as senior vice president working with clients across a range of industry practices.

Prior to his promotion, Neaves was vice president at the firm’s Oklahoma City office, focusing on core employee benefit brokerage consulting.

He began his insurance career more than 20 years ago as a marketing manager for CommunityCare Managed Healthcare Plans.

Most recently, he was president of PremierSource where he provided client-specific solutions in all areas of human resources, benefits, risk INSURANCEJOURNAL.COM

management and consulting.

Dallas, Texas-based Roach

Howard Smith & Barton (RHSB) promoted Stacie Rand to

assistant vice president in the role of commercial quality coordinator. Rand joined RHSB in 2012 as a commercial lines account manager and then was promoted to senior account manager in 2014.

In this new position, she will provide leadership for the commercial property/casualty service teams. Rand has knowledge of agency procedures and automation solutions.

Rand will also continue her role as senior account manager maintaining the client relationships, providing customer service, responding to coverage inquiries and risk management needs.

While she handles different types of insurance risks with many industries, real estate is her area of specialty.

She has worked in the insurance industry for more than 20 years in various roles.

Rand began her career in personal lines with an insurance company in 1997 and later transitioned to commercial insurance while working for a retail agent.

Roach Howard Smith & Barton (RHSB) is an independent insurance broker providing business insurance and risk management solutions to companies of all sizes and personal insurance to individuals and families.

Midwest United Heartland Insurance,

based in Ben Richeson New Berlin, Wisconsin, promoted Ben INSURANCEJOURNAL.COM

Richeson to regional director in Kansas City. Richeson will oversee business development, claims, loss control and agency management for the company’s operations in Kansas, Missouri, Nebraska, Oklahoma and Texas.

Richeson has more than 10 years of workers’ compensation insurance experience. He began with United Heartland in 2015, serving as regional claims manager.

Prior to joining United Heartland, he was a unit manager in the workers’ compensation division of Travelers Insurance. Richeson also worked for eight years in risk management with the Kansas City Star and John Deere & Company.

United Heartland is the marketing name for United Wisconsin Insurance Co., a member of AF Group.

Liberty Mutual and Safeco Insurance appointed Rich Meuret as Midwest regional

field executive as part of their unified independent agent (IA) distribution Rich Meuret organization.

He is based in Indianapolis.

Meuret has rejoined Liberty Mutual after two years with Allstate Insurance, where he held the position of field vice president, working with both exclusive and independent agents.

Earlier, he spent nearly 15 years with Liberty Mutual and its legacy brands, including as chief actuary of America First Insurance and vice president of field operations at Agency Markets, as well as in various regional leadership roles across

Safeco and Liberty Mutual business lines.

Now as senior vice president and Midwest regional field executive, he will serve North Dakota, South Dakota, Nebraska, Minnesota, Iowa, Wisconsin, Illinois, Michigan and Indiana.

Safeco is a Liberty Mutual Insurance company, based in Boston, Mass.

West

Dane Lupe has joined Lockton’s Pacific region

as senior vice president and producer based in Los Angeles, California. Lupe will partner with private equity and commercial real estate firms to provide guidance in proactively mitigating, transferring and insuring their risk.

Lupe has more than 13 years of experience in the property/ casualty, employee benefits and private equity insurance areas.

During his tenure at Arthur J. Gallagher & Co. as area senior vice president, he focused on risk management consulting, coverage review and insurance program structuring for commercial real estate developers, private equity firms and middle market companies involved in merger and acquisition activity.

He started in the industry at Lockton.

Lockton’s Pacific region has also added Jordan Burbach, Daniel Denham and Andrew Szot. They will help private equity firms looking for strategic guidance and insurance solutions to manage risks.

Burbach and Szot are based in Lockton’s San Francisco office.

Denham is based in Lockton’s Los Angeles office.

Burbach is a senior vice president and producer at Lockton. He joins Lockton

after serving as a senior vice president of Marsh’s global private equity and mergers and acquisitions practice for more than seven years. He previously worked at Zurich Insurance as the underwriting manager responsible for the Western US. He started his career in insurance at Marsh as an insurance placement broker.

Denham is also joining Lockton as senior vice president and producer. He has nearly 13 years in insurance working at brokerages including HUB International and Marsh.

Szot joins Lockton as vice president and client services consultant specializing in private equity insurance services.

Szot most recently served as vice president in Marsh’s Private equity and mergers and acquisitions practice. He previously worked at Zurich Insurance.

Lockton’s Pacific region encompasses nine offices throughout the Western U.S.

EPIC Insurance Brokers & Consultants named Peter Marshall managing principal

in media insurance services in California.

Marshall will play a role in the continued Peter Marshall development of the firm’s entertainment side of the business.

He has nearly two decades of experience in the insurance industry, with a specific focus on film, television and new media.

EPIC provides risk management, property/ casualty, employee benefits, and specialty program insurance and private client services.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 19

Closer Look: Cyber Cyber Underwriting Changes: Is It Too Little, Too Late?

By Susanne Sclafane

W

ith primary rate changes approaching 50% and underwriting questions about network controls becoming more and more detailed, cyber insurers and reinsurers are reacting to an onslaught of ransomware attacks against policyholders and prospects.

But are the actions enough to keep ahead of the bad guys?

Did they react too slowly?

Questions about the adequacy of underwriting actions came up more than once at industry conferences this year. At the Casualty Actuarial Society Seminar

on Reinsurance, Brad Gow, global cyber product leader for Sompo International, revealed just how far ahead threat attackers have moved.

“During their reconnaissance phase, they began to rift through the financial files looking for cyber insurance information [to] identify how much in limits was potentially available,” he reported as he described an escalation in the frequency and severity of ransomware attacks that once focused on target companies with roughly $200 million and are now zeroing in on businesses with $1 billion or more in revenue. “We saw this happening. That changed the

20 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

game. That sudden increase in severity along with the unchecked frequencies of these attacks really forced underwriting teams and carriers to respond,” he said.

Gow spoke after Alexander Podmore, assistant vice president and cyber underwriter for Swiss Re, serving as moderator of the CAS conference session, reviewed the history of cyber coverage from its beginnings in the late 1990s — when the coverage took the form of extensions on professional lines policies covering Internet security liability, online media liability and errors in data processing — to the

standalone policies available today. He reviewed product developments in the 2000 and 2010 decades that saw third-party coverages expand to cover regulatory defense and fines and penalties related to violations of emerging data protection regulations and first-party coverages put in place, emphasizing service offerings for breach notifications and credit monitoring.

Later additions to first-party coverages included business interruption and extortion as a consequence of ransomware, as well as costs of data restoration.

“How has the market responded to this ransomware INSURANCEJOURNAL.COM

epidemic that we’ve seen?”

Podmore asked Gow in the wake of news about ransom attacks on CNA, Colonial Pipeline and JBS, a meat producer.

Slowly, Gow said.

For so long, cyber portfolios were generally profitable, he said, referring to experience throughout much of the history of the coverage from 1997 through 2018. “And you had underwriting teams, many of which had seen nothing but a soft market — and many, many of which were in simply market share mode looking to grow their cyber books as quickly as they could. Then ransomware snuck up on us,” he said, noting that Sompo International saw its first multimillion-dollar ransomware event in the second quarter of 2019.

“It certainly surprised us,” he said, noting the carriers saw an uptick in ransomware activity through the balance of that year and into the beginning of 2020. “We, like the rest of the market, having seen this as a consistently profitable line, took a waitand-see attitude” as the activity picked up steam. “It was certainly a concern, and we certainly understood the implications, but nobody was making any moves. No one was restricting coverage or doing anything material other than possibly asking for single-digit rate increases for renewal business.”

According to Gow, the game changed midyear last year.

“The bad guys began more and more to exfiltrate data along with doing the network encryption.” This meant that companies with the ability to restore their own networks INSURANCEJOURNAL.COM

from backups could still be threatened by the release of this stolen information. At the same time, threat actors also began going after the larger targets. “That sudden increase in severity along with the unchecked frequencies of these attacks really forced underwriting teams and carriers to respond,” he said.

Insurance market responses have included changes in risk selection, decreased line sizes, sublimits for ransomware claims and more, Gow and others reported.

“Municipalities and law firms have historically weak network security environments that can be exploited,” Gow said, speaking to the risk selection changes.

Speaking at a separate event, S&P Global Ratings 37th Annual Insurance Conference, Turab Hussain, chief risk and actuarial officer for PartnerRe, weighed in on the line size changes. “10 is the new 25,” he said. In other words, “Companies that have been historically putting out primaries [primary limits] of $25 million are now talking about $10 [million],” he reported.

“Towers can still be built, [but] it’s going to require more carriers to build them. The layers are going to be smaller.”

At the CAS meeting, Gow said, “In many cases, $10 million limits come down to $5 [million].” If an insured is hit with ransomware, that often “ends up being a limits loss” for the insurer. “So, limits management is a key way for carriers to protect themselves,” he said.

Describing the progression of cyber insurance rate hikes, Gow said they began with slight increases toward the

end of last year, moving up to approach double digits around the time of 1/1 renewals.

“Now, I think we’re looking at closer to 30% to 50%,” he said, also noting that while some carriers tried to impose sublimits for ransomware events or coinsurance participations by insureds as a condition of coverage, “we don’t see that sticking.”

Rate Is Not the Only Answer

Annamaria Landaverde, senior vice president and cyber practice lead for the Reinsurance Division of Munich Re, US, confirmed Gow’s description of pricing trends. In early 2020, “we saw the single-digit rate increases and we were thinking, ‘Great, we’re getting some rate increase.’ But what we found was it was just not enough.

And as the year progressed, those rates astronomically changed by November and December and at a pace that no one was really expecting.”

“We probably ended 2020 somewhere in the 20% range. … Then we entered 2021.

And the big question that everyone had on their minds was, ‘Did we get enough rate and is ransomware going to quiet down?’ And we saw all of a sudden this new type of event that could potentially lead to some systemic losses,” she said, referring to an early March attack in which hackers exploited vulnerabilities in Microsoft’s widely used Exchange business email software, and the hacking of U.S. software maker SolarWinds, which compromised nine federal agencies and hundreds of private sector companies late last year. “All of a sudden, we needed to underwrite to ran-

somware plus systemic events plus whatever is coming next.

And the rate change that we’re seeing now is 30% plus,” she said, reporting, however, that there is some variation in that figure between primary writers and excess writers, in rates for SME vs. large risks, and also among those that write tech E&O vs. standalone cyber.

The rate levels are likely to continue to increase throughout 2021, she believes. “I can’t speak to next year yet, but I’ve been in this market for 17 years, and one thing I’ve learned is that sometimes this market has a short memory.

So, I do think that eventually those rates will level off. We won’t see the 30% for years and years. … But once those rates flatten, underwriting actions [now] being taken [that] focus on the security controls of these organizations need to be front and center of that underwriting process,” she stressed. “That can’t go away.”

“Rate is not the answer — or not the only answer,” Gow agreed. “We have seen many cases where three weeks into a $23,000 premium account policy term, we get hit with a ransomware attack and see ourselves with a $2 million loss. An extra 10% or 15% of premium does not solve that problem. … It all comes down to controls and assisting our insureds to improve their network environments,” he said, opining that more rigorous underwriting is the most important change that cyber insurers have made.

“The industry has gotten very serious about underwriting to compensating controls,

continued on page 22

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 21

Closer Look: Cyber continued from page 21 network security controls.

That’s really the future. Two years ago, we were not asking detailed questions around the flavor of endpoint protection that’s being used or the degree to which RDP [remote desktop protocol] ports are being secured, technologies used for backup. Now we are.”

“That’s extremely necessary,” he added. “Given the importance of the coverage in this ransomware environment, I think that’s one area where the insurance industry can really add value in terms of driving baseline insurability or baseline standards for eligibility to purchase cyber insurance.”

At a separate session of the CAS Seminar on Reinsurance, Conan Ward, president and general manager of RibiQon Risk and Insurance Services/ RubiQon Re, a managing general agency subsidiary of QOMPLX (an intelligent decision platform provider), also stressed the need for deeper underwriting to look inside client networks — and the need for risk management services.

Cyber insurance, Ward said, is “the most challenging line of business the industry has ever faced. The losses themselves are not fortuitous. There’s an intelligent agent involved who’s actively trying to breach a network that is designed by its nature to have open access, or otherwise be useless.”

Faced with the challenge, “the industry’s focus heretofore has really been on windows and doors, and we need

to be looking more inside the networks of our clients — and really taking more of a joint risk management, insurance-driven approach [like] we’ve done for technical risks in the property sector,” he said, noting, for example, the risk-managed approach that insurers take when providing boiler and machinery coverage.

“I don’t agree that shortening our limits for ransomware is really the approach.

Ransomware is a symptom to a broader problem. The broader problem is networks are fundamentally insecure, and if you don’t have detection technology inside that network, you’re going to continue to see some of the same issues that you see now,” Ward said.

Landaverde also drew parallels to the property market in describing needed cyber insurance underwriting

What Is RDP?

changes, as well as positive trends of bun According to an explanatory dling pre-breach service note published by insurance offerings with insurance for clients to improve brokerage Woodruff Sawyer, their cybersecurity pos“Remote desktop protocol is a tures. “When you think Microsoft Windows interface about how a sprinkler that allows a user to connect system is mandatory in through the internet with another computer or server and all the order to get homeowners tools and software installed on insurance, then we, as it.” a cyber market, need to A separate blog from identity determine if the minimum requirement for security company CyberArk says, cyber insurance is closed “Essentially, RDP allows users to RDPs? Is it multifactor control their remote Windows machine as if they were working authentication? What are those requirements? on it locally …”

“We need to analyze the data that we’re zations, they need to do somegetting in order to be able to determine what those require- thing with it. “Let’s take the ments will be going forward,” answers to those questions she said. and tie them to the outcome for each of those individual Now We’re Getting Data. risks. Were they able to What Do We Do With It? respond to a breach or avoid a “We were getting to a point breach altogether? Let’s try to in this market where there find those connections.” was almost zero-question The fact that the cyber underwriting for pretty sizable insurance market “doesn’t risks,” said Landaverde. “That have enough data” to support type of underwriting needs to actuarial pricing has been a go away,” she said, also stress- frequent lament over the ing the point that as insurers short history of the line — and start probing deeper and the newness of the product asking question about was one contributing factor, RDP ports and about according to Norman Niami, whether insureds vice president and actuary for have MFA the APCIA. In addition, claims across the trends continually shift in breadth terms of the types of targets of their being attacked and attack organi- types. “It’s literally changing almost every week or every month,” he said, going on to list other data challenges.

“Standardization of the data is also a challenge” because of policy variations, especially for larger risks, he continued, adding that carrier-specific data is often inadequate.

“As of a couple of years ago,

a handful of claims would literally drive the whole experience for a company.

You might have thousands of claims, but literally a handful of them drive the whole claims experience.” In addition, he noted that some of the larger targets that grab headlines are not insured, making their data unavailable to insurers.

Niami went on to talk about differences of opinion relating to the appropriate exposure basis for cyber coverage. He noted that some say it should vary by industry and the various components of coverage should have different exposure bases ranging from number of end points, number of employees, number of devices and number of customers, while other carriers use revenue across the board or policy limits.

More positive trends moving in the direction of price adequacy have been the development of cyber catastrophe modeling and discussions of public and private working groups to pool anonymized incident data from various stakeholders to feed into models, he said. And such discussions may be on a faster track now, with the most recent ransomware attacks in the U.S. drawing the attention of government officials. “The government has started framing the issues as a matter of national and global security,” Niami said, suggesting that the result could be opening access to more data.

Picking up on the theme of government attention, Gow said: “It’s kind of humorous to see legislators in Washington holding companies to task for actually paying ransom. [And] INSURANCEJOURNAL.COM

it’s infuriating that we’ve got these criminal gangs operating outside of the reach of our law enforcement, and with the tacit approval of the leaders in the nations in which they reside, including Russia. … I hear talk of a whole-of-government approach and public-private partnerships. … The right noises are being made, but we’ll have to see what ultimately comes of it,” he said.

Niami suggested a government role in forcing upgrades in the technology infrastructure forward. “The technology is not up to snuff, especially for industrial manufacturing.

[And] until the security nature and the infrastructure can improve significantly, it is hard to imagine this is going to turn into a totally different ball game within a few months,” he said. “Why do robbers rob a bank? Because that’s where the money is.

“In terms of cloud and not very sophisticated security measures, this is where the money is.”

Landaverde picked up on that idea, adding her view that going after the robbers in cyberspace might be a fruitless effort. “These hackers are criminals, right? Before there was ransomware, there were denial-of-service attacks.

There were data breaches.

There were other methods of these criminal hackers monetizing these cyber attacks.

“So, today’s trend is ransomware. If we do something to penalize or make examples of some of these hackers and ransomware goes away, then they’ll be off to the next way to monetize electronic crime.”

She continued: “There needs to be a better way, a different way. Maybe it’s

‘During their reconnaissance phase, [threat actors] began to rift through the financial files looking for cyber insurance information to identify how much in limits was potentially available.’

Brad Gow, Sompo International

‘10 is the new 25. Companies that have been historically putting out [primary limits] of $25 million are now talking about $10 million.’

Turab Hussain, PartnerRe

‘The government has started framing the issues as a matter of national and global security.’

Norman Niami, APCIA

‘Ransomware is a symptom to a broader problem. The broader problem is networks are fundamentally insecure, and if you don’t have detection technology inside that network, you’re going to continue to see some of the same issues that you see now.’

Conan Ward, RibiQon Risk and Insurance Services/RubiQon Re

looking at the cryptocurrency exchanges.

“I don’t know if going after these individuals is going to help because there are more individuals behind them, and behind them and behind them. [Perhaps] looking at the payment infrastructure and how these individuals are able to do what they do and monetize that is going to ultimately make a difference.”

Later Gow returned to discuss the criminal actors. “It’s not these thugs with leather jackets who would be stealing hubcaps or breaking kneecaps if the internet weren’t around.

These are data scientists.

These are very, very intelligent individuals who are very methodically exploiting weaknesses in corporate computer networks to extract money. It’s a business, and once something changes — for example, companies [start] doing a better job of restoring from backups — they’ll begin to exfiltrate data and continue to refine their methodology for extracting this money.”

“You’ve got a dynamic where there’s a very intelligent set of adversaries on one side. And then on our side, we’ve got computer networks that continue to get more and more and more complex.”

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 23

Closer Look: Veterinarians

Veterinarian-Turned-Insurance-Pro Sees Practitioners Thriving But Stressed

By Andrew G. Simpson

T

he country’s veterinarians have weathered the pandemic better than many businesses. Many were able to keep their practices operating from early on and have not had to worry about lost income like restaurants, gyms and other business owners have.

Veterinary practices have been busy than ever since the

early days of the pandemic.

Many of them are doing very well financially.

But all that good news does not mean veterinarian practitioners have nothing to worry about. Nor has it stopped their insurance brokers from worrying about them.

Dr. Edward Branam, DVM, is concerned that veterinarians have been under increasing stress since early in the pandemic and currently are

24 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

under more stress than they have ever been with increased workloads and staff shortages.

The stress is in addition to the usual business pressures and the bites, escaped animals, employee injuries or complaints about care that veterinarians may face in the normal course of operating.

Branam knows the veterinary medicine field. He is an internal medicine specialist. He did his residency at University INSURANCEJOURNAL.COM

of California at Davis, went to vet school at Michigan State, and practiced for a number of years until, as he puts it, he “went into the insurance gig.”

He has his Certified Insurance Counselor designation.

Since 2001, he has managed the veterinary and animal services unit for Safehold Special Risk, which is a subsidiary of international insurance brokerage USI Insurance.

Officially, he is vice president and leader for the Veterinary and Animal Services Insurance National Program. Branam and his Safehold team provide veterinarians and veterinary hospitals with property and liability insurance and risk management including workers’ compensation, property liability, professional liability, business income and other coverages.

Being a veterinary doctor is reassuring to insurance clients.

However, Branam jokes that he might do even better if he had a law degree. “I seem to be the first person they turn to whenever they have any kind of a liability related issue,” he offered.

Little Interruption

His clients made inquiries about business interruption insurance claims early in the pandemic when businesses were shut down.

“The first thing they did was obviously reach out to us and ask us. We had some ‘uncomfortable conversations’ around it because our clients had no idea what to expect financially in the future,” he recalled.

The concern did not last.

Early court rulings upholding INSURANCEJOURNAL.COM

insurers’ policy exclusions for COVID-related income losses helped lower expectations, according to Branam. Also, the vet industry was declared an essential business early on, allowing them to reopen.

That alleviated their concerns and those early conversations around business loss tailed off quickly and have not resurfaced.

“The majority of them, as they look back in 2020 and now 2021, have had record years. Loss of income really isn’t something that is top of mind to them,” Branam said.

(An Insurance Journal search of the business interruption insurance litigation tracking database maintained by the University of Pennsylvania Law School turned up no cases involving veterinarians.)

According to Branam, for the first few weeks of the pandemic, “everything came to an almost screeching halt” for veterinary practices as they did for every other business. Many veterinarian practices only did emergency surgeries early on.

“The practices were basically just doing triage, dealing with the most critical cases,” he said.

“But then very quickly, the floodgates opened,” beginning when veterinary practices were categorized as essential businesses and allowed to reopen.

‘I seem to be the first person they turn to whenever they have any kind of a liability related issue.’

There have been various media reports that Americans went on a pet adoption spree

during the pandemic and that the demand for veterinarian services soared as a result.

Branam said his clients have told him their caseloads have “universally exceeded” what they have ever experienced and that a large percentage of the cases are from new pet owners.

The American Veterinary Medical Association, however, says that while veterinarians are busier than ever, it’s not necessarily because of a boom in pet adoptions. In fact, adoptions from animal shelters hit a five-year low in 2020, the group reported. AVMA Chief Economist Matt Salois told VIN News in early August that while new clients certainly contribute to the workload, the boost in activity has more to do with a backlog by existing clients, staff turnover and reduced productivity because of COVID protocols.

An industry tracker of more than 4,100 practices by AVMA and analytics from VetSuccess showed visits have been up 4.3% in the past year, while revenues were up 13%. Both dipped in January and then peaked in April of this year.

Branam believes that his clients’ stress levels are being driven not only by the expanding caseloads but also by the reduced productivity due to COVID-19 safety measures and chronic staff shortages across the industry Implementing COVID-19 protocols and Occupational Safety and Health Administration guidance slowed the patient process, according to the veterinarian-turned-insurance-specialist. At first, practices were only letting clients come to their parking lots and then sending a staff member out to

get the animals. More practices are now letting clients drop off their pets but then asking them to wait outside. This eliminates the need for a staff member in the parking lot but does not allow for communication with the client during the exam.

Many are now again allowing clients back into exam rooms with their pets.

Branam says that on top of the COVID inconveniences and inefficiencies, adequate staffing has been and remains a “huge” challenge. “There’s obviously a shortage of veterinarians,” he said but the shortage also extends to licensed veterinary technicians, reception staff, kennel staff, and others. He said that the talent deficit existed before the pandemic but not to the degree he sees it now.

Job data from AVMA backs up the claim that the industry can’t find enough employees. AVMA found that the unemployment rate in the veterinary industry remained below 1% during the pandemic even while it soared as high as 15% nationally. Despite there being more job openings posted by vet practices in 2020, the unemployment rate for veterinarians did not change.

Branam maintains that every veterinary journal probably has at least one article about mental health, burnout or compassion fatigue as a major concern in the profession. “The bottom line is the caseload compared to the staffing levels, and overlaid with COVID, and the stress levels are extremely high in most practices,” he acknowledges.

He said as would be the case in any profession, the harder, longer and faster animal

continued on page 26

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 25

Closer Look: Veterinarians continued from page 25 caregivers work, with fewer people to help, the “greater the chances of both errors and omissions, as well as injuries to either the patient and/or the staff.”

He said he has, in fact, seen a “mild uptick in the number of professional liability, the license offense claims,” and he is watching workers’ compensation closely.

He is also mindful that the current environment has the potential to foster employment practices liability claims, again because he sees his clients working longer hours with fewer people. He said employment practices liability premiums, as well as retentions, have been rising.

“In a small business where you just don’t have additional people, it becomes very easy to have oversights related to breaks and lunches and those types of things that then come back and create problems for you in the future,” he explained.

Cyber risk is becoming an issue within the veterinary industry as it is everywhere.

“Vets are not immune to those pressures any more than any other small business or medium business,” he noted.

As a division of the large brokerage USI, Safehold has a cyber endorsement for its standard business owner’s policy and Banam’s team has access to other insurance and cybersecurity options for their veterinary clients.

Property Rates

Like many other insureds, Branam’s clients are dealing with rising property insurance premiums although he said they are not rising as fast for vets as they appear to be for other businesses.

There has also been pressure on professional liability pricing since COVID. But Branam said here, too, he hasn’t seen large hikes yet. “I anticipate rates to increase to some degree in the relatively near future. If not in 2021, certainly in 2022,” he added, noting these will be associated with the additional number of cases that clients are seeing every day.

Finally, he said the workers’ compensation market for the

26 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

veterinary industry, for the most part, still seems to be “relatively” soft and holding its own.

“That’s a big surprise to me.

I thought when certain states came out with mandates, that COVID claims were going to be considered workers’ comp claims unless it could unequivocally be proven to have originated somewhere else,” he said.

Branam’s clients have told him their caseloads have ‘universally exceeded’ what they have ever experienced and that a large percentage of the cases are from new pet owners.

Asked if there is a lot of moving around of accounts among different programs or insurers these days, or if insureds are staying put, Branam answered that practitioners are so busy and short-staffed that unless

they have had “some kind of negative experience” with their insurance broker or company, they don’t feel a need to change.

What’s more, they’re making money. “So there’s not that downward financial pressure to, ‘Hey, we have to cut somewhere.’ I don’t think at this point in time that’s really top of mind for a lot of them.”

Branam noted that he is handling more startups these days, including many new mobile practices.

“We have helped more young veterinarians get their first insurance policies for their launch of mobile practices, be it working out of the back of their car, pulling a trailer, getting a motor home, or whatever than I’ve seen in 20 years,” he said.

Also, he has seen more private practices being sold now than in the past 20 years.

“I think it’s simply a fact that practice owners are having so much money thrown at them, that their financial advisors are basically telling them, ‘You’re out of your mind if you don’t take this.’” he figures.

When all is said and done, the year 2020 turned out to be a good one. “I have talked to many practices that had their best year ever, and not only new, but very established practices, in 2020,” Branam commented.

What’s more, it appears 2021 and years to come will be even better for many practices.

“It’s a huge growth industry,” he continued. “I’ve had colleagues tell me, ‘If you go out of business now, you would have to be trying.’ If you can’t make money with a veterinary practice, you better buy a tent and move to the desert.”

INSURANCEJOURNAL.COM

News & Markets Judge: California Ridesharing Law Is Unconstitutional

By Brian Melley

A

judge has struck down a California ballot measure that exempted Uber and other app-based ridesharing and delivery services from a state law requiring drivers to be classified as employees eligible for benefits and job protections.

Alameda County Superior Court Judge Frank Roesch in late August ruled that Proposition 22 was unconstitutional.

Voters approved the measure in November after Uber, Lyft and other services spent $200 million in its favor, making it the most expensive ballot measure in state history.

Uber said it planned to appeal, setting up a fight that could likely end up in the California Supreme Court.

“This ruling ignores the will of the overwhelming majority of California

voters and defies both logic and the law,” company spokesman Noah Edwardsen said. “You don’t have to take our word for it: California’s attorney general strongly defended Proposition 22’s constitutionality in this very case.”

He said the measure will remain in force pending the appeal.

The judge sided with three drivers and the Service Employees International Union in a lawsuit that argued the measure improperly removed the state Legislature’s ability to grant workers the right to access to the state workers’ compensation program.

“For two years, drivers have been saying that democracy cannot be bought. And today’s decision shows they were right,” said Bob Schoonover, president of the SEIU

California State Council.

Proposition 2 shielded app-based ride-hailing and delivery companies from a labor law that required such services to treat drivers as employees and not independent contractors, who don’t have to receive benefits such as paid sick leave or unemployment insurance.

Uber and Lyft threatened to leave the state if voters rejected the measure.

Labor spent about $20 million to challenge the proposition.

The state Supreme Court initially declined to hear the case in February, mainly on procedural grounds, but left open the possibility of a lower court challenge.

Copyright 2021 Associated Press. All rights reserved.

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SEPTEMBER 6, 2021 INSURANCE JOURNAL | W1

News & Markets Wyoming Marijuana Signature Effort to Begin in Early September

By Mead Gruver

W

yoming marijuana advocates plan to begin circulating petitions in September for two proposed ballot measures – one asking if the state should legalize medical marijuana, and the other if it should decriminalize pot.

The Wyoming Attorney General’s Office last month approved the wording of the proposed questions.

The Secretary of State’s Office has now begun the process of seeking bids for printing the petitions. The process ended Aug. 25.

The Wyoming chapter of the National Organization for the Reform of Marijuana Laws plans to begin gathering signatures on or soon after Sept. 1.

“We’ll be hitting events, going door to door. We intend to get it all wrapped up

by February,” Wyoming NORML Executive Director Bennett Sondeno said.

The group has a “big list” of Wyoming

events where it plans to gather signatures in the next few months, Sondeno said.

February is the deadline to submit enough valid signatures to the secretary of state to get the measures before voters in the 2022 general election, Sondeno said.

Wyoming is among a minority of states that don’t allow cannabis in some fashion.

Eighteen states now allow adult recreational marijuana use, 27 have decriminalized small amounts of marijuana, and 36 allow medical pot, according to the National Conference of State Legislatures.

Wyoming’s process for gathering signatures to allow voters to decide an issue is a challenging one. Proponents must gather valid signatures from 15% of voters in the previous general election from each of at least 16 of the state’s 23 counties.

All nine initiative efforts in the past 25 years – including a 2017 proposal to legalize medical marijuana – have failed to qualify for the ballot.

The last two Wyoming initiatives to get enough signatures to go before voters

failed at the polls in 1996. Both involved term limits. The last ballot proposal to both gather enough signatures and succeed with voters was a railroad safety measure in 1992.

Copyright 2021 Associated Press. All rights reserved.

Former California Agent Allegedly Stole $1.2M from Elderly Consumers

F

ormerly licensed insurance agent Robert Stoddard, 66, of San Clemente, Calif., was arrested in August after a California Department of Insurance investigation found he allegedly stole $1.2 million from more than 20 victims, including 14 seniors.

Stoddard is being charged with 51 felony counts of grand theft, elder abuse, money laundering, securities violations and aggravated white-collar crime enhancements.

Stoddard owned and operated insurance agency The Stoddard Group Inc., which also offered living trusts and investment advice. The CDI investigation reportedly revealed that between August 2012 and June 2018, Stoddard conducted investment and retirement related seminars that targeted senior citizens and W2 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

used various schemes to fraudulently gain victims’ trust and cultivate friendships to steal money from them.

Stoddard reportedly led victims to believe he obtained bonuses from insurance companies that he could apply to their existing life policies and/or annuity contracts if they paid their premiums directly to him, rather than to the insurance company. He then reportedly failed to place the annuity and life insurance policies and also induced his victims into a fraudulent real estate investment scheme.

Stoddard allegedly forged insurance statements, emails, and letters, which led victims to believe the information he relayed to them was true.

He would occasionally pay a few investment returns to victims, but those were later halted, according to the CDI.

When victims questioned the lack of promised funds, Stoddard reportedly told them the real estate ventures were “defunct” or there were problems with tenants. He also reportedly signed promissory notes to cement victims’ confidence in their investments and mitigate their concerns. To further delay payment of their investments or insurance policy bonuses, Stoddard falsely claimed his funds were levied by different governmental agencies, according to the CDI. Stoddard was arrested on August 18, and his bail was originally set at $1 million.

However, after being taking into custody, his bail was increased to a “no bail” hold due to a previous unrelated financial elder abuse case. Stoddard is scheduled to be arraigned on Sept. 15 in Orange Superior Court. A bail review hearing is also scheduled for that same day.

The case is being prosecuted by the Major Fraud Unit of the Orange County District Attorney’s office.

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News & Markets Veterinarians Are Tired, Short-Staffed and Burned Out

By Kelli Kennedy

D

uring the gloomiest stretches of the pandemic, Dr. Diona Krahn’s veterinary clinic has been a puppy fest, overrun with new four-legged patients.

Typically, she’d get three or four new puppies a week, but between shelter adoptions and private purchases, the 2020 COVID-19 pet boom brought five to seven new clients a day to her practice in Raleigh, North Carolina. Many are firsttime pet owners.

Like many veterinarians across the country, she’s also been seeing more sick animals. To meet the demand, vets interviewed by The Associated Press have extended hours, hired additional staff and refused to take new patients, and they still can’t keep up. Burnout and fatigue are such a concern that some practices are hiring counselors to support their weary staffs.

“Everyone is working beyond capacity at this point,” said Krahn, who added evening hours last year.

Approximately 12.6 million U.S. households got a new pet last year after the pandemic was declared in March 2020, according to a COVID-19 Pulse Study by the American Pet Products Association.

Meanwhile, fewer people relinquished their pets in 2020, so they needed ongoing care, experts said. And as people worked from home and spent more time with their pets, they’ve had more opportunities to notice bumps, limps and other ailments that could typically go untreated.

Vets were already struggling to meet the pre-pandemic demand, with veterinary schools unable to churn out enough doctors and techs to fill the void.

Krahn left her North Carolina practice three months ago and now oversees nine veterinary and animal hospital clinics across Utah and Idaho under Pathway Vet Alliance. “All of my practices are booking out several weeks in advance. Clients are actually calling around and scheduling appointments at multiple locations,” and even resorting to emergency care facilities, she said.

INSURANCEJOURNAL.COM

Banfield Pet Hospital, one of the largest national providers of preventive veterinary medicine, had approximately half a million more pet visits in 2020 than in 2019. And its telehealth service more than doubled in volume from March through the end of last year.

Thrive, another veterinary hospital primary care group, with 110 facilities across the U.S., reported a 20% increase in demand during the pandemic. Both repeated a common refrain — as humans spent more time with their pets, they were more in tune with their ailments — big and small.

“With COVID, a lot of people became powerless to the ones closest to them,” said Claire Pickens, a senior director at Thrive, “but the one thing they still had the ability to control was caring for their pet.”

Clinics have been forced to streamline, having patients fill out forms online or by phone pre-appointment because hiring additional staff often isn’t an option.

“The industry is growing at a rate that it can’t fill all the roles needed to keep up with the increased demand for services,” said Pickens.

Veterinary positions are projected to grow 16% by 2029, nearly four times the average of most other occupations, according to Bureau of Labor Statistics. Vet tech jobs are expected to increase nearly 20% in the next five years.

“We are still short staffed despite active seeking of additional staff,” said Dr. Katarzyna Ferry, Veterinary Specialty Hospital of Palm Beach Gardens.

Verg, a 24-hour emergency and specialty hospital in Brooklyn, reported a 40% jump in emergency care since the pandemic began. That’s also meant more pet hospitalizations, straining various specialties like surgery and cardiology.

“The demand continues to grow,” causing extreme weariness in a profession known for its

big-hearted workers, said Verg’s chief medical officer, Dr. Brett Levitzke.

“Fear of the unknown with the pandemic leads to more intense emotions from our clients,” said Levitzke. He’s seen expletive-laced outbursts and threats from pet owners, and also outpourings of love, with cards and baked goods. After the toll on the staff became noticeable, they hired a compassion fatigue specialist for support.

“Unfortunately, compassion fatigue, anxiety, and depression already plagued our profession, and the pandemic has certainly taken it to another level,” Levitzke said.

Krahn said she sold her North Carolina practice to Pathway and later took an administrative role with the company in part to provide practical and emotional support to veterinarians, knowing the toll first-hand. “As veterinarians, its our job to care, but we also take care of people through their animals,” said Krahn.

Copyright 2021 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 27

News & Markets P/C Insurers Boosted Underwriting Net Income 28% in First Half of Year: AM Best

T

he U.S. property/casualty industry grew its net underwriting income by 28% in the first six months of 2021 compared with the same prior-year period.

According to a new AM Best report, a 5.4% growth in net earned premiums and 55.3% decline in policyholder dividends offset increases in incurred losses and loss adjustment expenses and underwriting expenses, leading to the underwriting income increase.

AM Best said total net income grew almost 58% to $38.1 billion compared to the first six months of 2020 boosted by a $10.4 billion increase in realized capital gains.

The combined ratio for the industry improved by 0.8 percentage points from first-half 2020 to 96.9, with catastrophe losses representing 5.8 percentage points, compared with 6.5 in the same prior-year period, according to the report titled, “First Look: Six-Month 2021 Property/Casualty Financial Results.”

A 6.4% increase in net investment income and an additional $1.4 billion in other income, coupled with the improvement in underwriting income, drove a 14.1% rise in pre-tax operating income.

The data for this AM Best report is

derived from companies’ six-month 2021 interim statutory statements that AM Best received as of Aug. 18, 2021, representing an estimated 97% of the total property/casualty industry’s net premiums written.

56% of Insurance Companies Plan to Hire Within the Year: Jacobson

I

n the next 12 months, 56% of insurance companies plan to increase staff while 37% plan to maintain their current staff size, according to The Jacobson Groups’ latest labor study.

Technology, claims and operations roles are expected to see the greatest growth.

“We’re seeing a lot of movement within the insurance industry, as professionals reevaluate their current roles and consider new opportunities,” commented Gregory P. Jacobson, co-chief executive officer of Jacobson.

If the industry follows through on its plans, there would be a 1.81% increase in employment during the next 12 months, according to Jacobson.

28 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

According to the study, industry employment will continue to grow in the next year and recruiting has become more difficult across all functions. The latest iteration of the semi-annual study by the insurance talent recruitment firm found

93% of respondents plan to increase or maintain their head counts in the next 12 months. For the first time in the study’s 12-year history, all functional areas were considered moderately difficult or difficult to fill. Technology, analytics and actuarial roles are considered the most difficult, followed closely by executive positions.

Just 7% of insurers plan to decrease staff in the next 12 months, driven by larger companies. This is down from 9% in January 2021 and 17% in July 2020.

Seventy-eight percent anticipate revenue growth in the next year, which is 11 points higher than the January 2021 study. Only 1% of insurers expect a decrease in revenue.

INSURANCEJOURNAL.COM

Reinsurance Prices Expected to Harden at Jan. 2022 Renewals

G

lobal reinsurers’ underwriting performance will continue to improve in 2022 as premium rate increases take hold, with further rate hikes expected as a result of higher catastrophe losses, continued low interest rates and mounting inflation concerns, according to Fitch Ratings in a new report.

Nevertheless, concerns remain about how future underwriting results will be affected by deteriorating loss-cost trends, rising social inflation and litigation costs, as well as the pace of the global economic recovery, said Fitch in its report titled “Global Reinsurers: Mid-Year 2021 Results.”

Non-life reinsurance net premiums written grew by a substantial 18.5% during the first half of 2021 on higher premium prices and demand, Fitch said, basing its calculations on the 17 reinsurers it monitors. While reinsurance rates continued to harden, pricing momentum slowed in 2021 following more than two years of improving rates, the report said.

Fitch noted, however, that price increases are likely to continue at the January 2022 renewal, although at somewhat reduced high single-digit/low double-digit levels, as rate adequacy is approached.

However, the report said that European property rates could be poised for an uptick in 2022, given recent increased catastrophe losses in the region.

“Some of the largest price increases were in cyber reinsurance at 15%-40%, even for loss-free renewals,” Fitch noted. Demand for reinsurance “is significant, with nearly 40% of cyber risk reinsured, and growing with rising cyber attacks.”

Current pricing is still inadequate in the face of rising catastrophes, said Fitch, noting that global re/insured natural catastrophe losses were a manageable $40 billion in H1, up from $35 billion for the same period in 2020 and above the $33 billion 10-year average (2011–2020) of insured losses in H1.

However, July flooding in Europe could add $8 billion to catastrophe losses in H2 2021, with potential additional losses from the active Atlantic hurricane season.

Florida Renewals

Pointing to the June/July 2021 Florida renewals, Fitch explained that reinsurers offered more capacity and better pricing to the higher-quality accounts at the expense of poor performers.

“Lower layers that have been hit more frequently in recent years priced up much more than remote upper layers that were not affected by losses,” Fitch explained.

“Reinsurers reduced their overall Florida exposure, particularly to the vulnerable Florida specialist companies.”

Casualty reinsurance rate increases at mid-year 2021 renewals were similar to January 2021 and should continue to rise into 2022, the report said. “Primary rate increases continue to drive reinsurance pricing, with cedents increasing retentions and switching to excess of loss from quota share to keep more of the profitable

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business,” it continued. “As a result, reinsurers are paying 1-3 points higher ceding commissions up to the mid-30s percent to access this business.”

Thus far, renewals largely have not taken into consideration pandemic-related losses, but this could change in 2022 as more clarity is developed around the ultimate losses, although communicable disease exclusions remain widespread in property reinsurance treaties.

Fitch said non-life reinsurers saw year-on-year improvement in H1 2021 results, shifting to an underwriting gain as pandemic-driven losses subsided. The 17 non-life reinsurers monitored by Fitch posted an aggregate reinsurance calendar year combined ratio of 94.5% in H1, down from 105.9% in H1 2020, which included $6.1 billion of COVID-19 pandemic-related reinsurance losses.

1/13/20 10:34 AM

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 29

Special Report: Energy

By Andrea Wells

L

ast year was a wild one for the energy sector.

There were, of course, COVID-19 related issues. The sector also dealt with continuing pressure on insurer capacity for some energy sectors due to environmental concerns, oil prices taking a wild ride leading to bankruptcies, renewables continuing to gain attention, and power taking the spotlight as Winter Storm Uri brought frigid record low temps and power grid failures to Texas.

This year, while insurance rate increases have somewhat stabilized, energy players are facing a quickly changing market. As wild as 2020 was, this year and the years ahead promise to be just as or even wilder as they work to not

Garrett Cambell INSURICA

Grant Bryant Risk Placement Services

Mike Hogue Gallagher

Ricky Bryan IMA Financial Group Inc.

only maintain current business practices but also reinvent their organizations to move further toward a lower-carbon, sustainable future.

“The next five years are going to be critical for the industries that supply energy and natural resources to the world’s economies,” wrote Bain & Co. in a recent report, Global Energy and Natural Resources Report 2021: Navigating the Energy Transition.

“Industries in the energy and natural resources sector — oil and gas, utilities, chemicals, mining, and agriculture — face a unique and intense period of change as they navigate through the energy and resource transition,” the Bain report says. “Climate change, shifting consumer preferences, demands for greater accountability, and unprecedented levels of business competition will all require new ways of working, technological breakthroughs, and leadership that can rapidly scale their deployment.”

That means that insurance specialists and their insurance company partners are in for an intense ride over the next few years as well.

of its own. Specialists in the sector report that energy premiums rose in nearly all segments of the property/casualty market with property and umbrella lines experiencing double-digit increases for each quarter in 2020.

Today, pricing conditions in almost every arena of energy continue to harden, but at a slower pace than a year ago.

Ricky Bryan, executive vice president, IMA Financial Group Inc., and director of IMA’s energy practice in Houston, says this insurance market is different than past cycles for his energy clients.

“It’s something that we can’t put our finger on and say to clients, ‘This is what happened in 2008. This is what happened in 2001, or 1992, or in the late ‘80s energy insurance market.’”

Bryan says like in other lines of property/casualty insurance, the energy market first began to see hardening rates in first party liability coverages. “I think first actually was in energy construction; then operational property followed suit pretty quickly with a lot of big refinery losses, midstream losses,” he said. “Those losses were more fire and explosion, not necessarily catastrophic-driven.”

Then the casualty market hardened, driven most notably

by nuclear verdicts and social inflation, he said. More recently, the energy sector is seeing upticks in rates for executive liability and now cyber liability.

“Obviously with the Colonial pipeline cyberattack, we’re seeing some big increases there,” he said.

The ransomware attack on Colonial Pipeline in May shut down the largest fuel pipeline network in the United States for several days, crippling fuel delivery to most of the U.S. East Coast. The company paid a $4.4 million ransom to get the pipeline operating again, according to reports.

While rates are continuing to rise, the hardest of the hard market is mostly gone, experts say, and the energy segment is gearing up for growth.

“The message we’re sending to clients now is that we’re in a disciplined market,” Bryan said. “There are markets, in casualty, in property, in midstream, downstream, upstream, you name it, that are poised to write new business,” he said. That’s good news for specialists in the energy sector.

“We’re still seeing [rate] increases but at a much more moderate level than what had happened, say a year or two ago,” said Mike Hogue, managing director of the energy practice at Gallagher

and co-author of the report, Global Energy Insurance Market Update published in August. “While things are still going up and not down from a rate standpoint, that trend is much more in moderation.”

Garrett Campbell, a broker at INSURICA based in Oklahoma City, Oklahoma, still sees rate increases across most lines for his energy clients, as well as higher deductibles and reduced limits. The INSURICA Oklahoma energy practice focuses primarily on upstream, midstream, and downstream oil and gas related accounts.

Today’s market is seeing tighter restrictions on coverage forms and more stringent information collection by underwriters, according to Campbell, who focuses mostly on insuring service contractors and other companies supporting oil and gas operators, including pipeline construction and maintenance, consultant services, environmental remediation, crude and refined fuel hauling and others.

“Restrictions on coverage, for example, include exclusions such as wildfire,” he added.

Grant Bryant, area senior vice president, energy and environmental at Risk Placement Services (RPS), says the oil and gas sector in

Insuring Energy

The energy insurance market has gone through a transition INSURANCEJOURNAL.COM

continued on page 32

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 31

Special Report: Energy

Lance Gibbins Occam Underwriting

Loren Henry Amwins Group

continued from page 31 particular is seeing a lot more activity from the Permian basin, the largest oil producing basin in the U.S. Bryant added that South Texas and then Oklahoma have recovered as well, and are bringing in new startup opportunities.

“We write a ton of startups, just because that’s not something that an [admitted] carrier is willing to entertain at this time,” according to Bryant.

“We’re seeing people get back to work. We’re seeing independent consultants start to get hired.” That’s good for the energy industry and insurance specialists, he said.

Oil & Gas

Energy specialists say that 2020 was a bit of a rollercoaster ride in terms of price and demand for the oil and gas sector. Also, increasing environmental, societal and government (ESG) requirements, the rising cost of debt for the industry, a stagnant acquisitions and divestitures market, and multiple years of faltering commodity prices prior to 2020 have contributed to pressure on the sector.

According to IMA’s Q2 2021 Market Update on Energy, 107 companies (46 exploration and production and 61 oilfield

equipment and services companies) filed for Chapter 11 bankruptcy protection in 2020 — the most in a single year since 2016, when 142 companies went bankrupt.

While the sector is in a stronger position this year, profit margins are much tighter, INSURICA’s Campbell said.

“As demand for products has come back a bit, prices for the commodities, such as crude or natural gas, are significantly higher now, compared to where it was in the thick of the pandemic,” said Gallagher’s Hogue. “Pre-pandemic levels of price for crude oil was about $55 a barrel. That bottomed out in January of ‘21, at about $47, and then, gradually climbed up to just under $70 now.” That’s at a price level where exploration and production companies can make a profit, he added.

During that same time, insurance companies have “right-sized” pricing.

“They’ve collected more premium, and better results are coming out of the insurance community for the energy sector,” Hogue added.

“That’s led to a more balanced market

in terms of available capacity with sustainable rates. Hogue added that there have been a few new carrier entrants in the energy space as well.

Bryant, agreed. “We’re seeing a lot more capacity come into the market,” he said.

But that capacity is limited, he added. “We’re limited as far as the amount that a single carrier is willing to put up for one risk or one exposure. We’re still seeing people capped out at $5 million to $10 million, just to lower their severity or their aggregation for one risk.”

That’s a common trend in the excess liability market, Garrett says. Energy excess/ umbrella is generating rate increases from 20% to 50% higher, he added. And as carriers cut back on the capacity limits, brokers have to get a little more creative, he said. “A lot of our service contractors are required to carry a $10 million umbrella, but folks are saying, ‘We’re only willing to offer maybe a lead umbrella at $5 million,’ and so we’ll have to go find another $5 million to meet those contract requirements.”

Bryant says that while carriers are limiting capacity to smaller layers, there are more and more carriers coming into the fold. “That’s helping us build out some of these $25 million to $50 million towers

that we need for our larger risks. We have more carriers coming to the table than we had, even since January, so that’s a positive sign.”

According to IMA’s Bryan, while there hasn’t been a “huge wave” of brand new capacity, he has seen a few key energy players expand in certain lines of coverage. “So, we’re seeing some capacity come back as they have adjusted their rates … They feel better about the rate environment out there so they’re opening back up where it makes sense.”

Garrett predicts a better rating environment for the coming renewal cycle, at least in commercial auto and excess liability — anywhere between 10% and 15%. “That is still a significant increase, depending on how large of a fleet; in the general liability, we’re starting to see renewals closer to 0% to 5%.” That outlook might even be better on quality, new business accounts, he added, as carriers are looking to grow.

For example, Garrett says a pipeline contractor that is set to renew in about three weeks, a very good risk, is getting more attention from markets this year. Typically, there might be one or two players aggressively going after this account, with the right terms and conditions, he said.

“This year, we’ve got close to half a dozen folks that are ‘scratching and clawing’ for this deal,” he said.

He suspects that some carriers are trying to catch up and license new business that was lost during last year’s oil and gas downturn.

ESG and the Future of Energy

By Andrea Wells

O

ne area receiving increased scrutiny by underwriters are ESG related issues, or environmental, societal and government requirements, according to Ricky Bryan, executive vice president, IMA Financial Group Inc., and director of IMA’s energy practice in Houston.

“We’ve seen some interesting discussion with the renewable side in the ESG push around tax treatment for carbon capture and sequestration,” he said. There are some interesting products coming out as well. “I don’t know if they’re new or just revamped, but it’s an area that a lot of people are looking at on the executive risk side of the house, or the transactional side, where you can actually insure lost tax credits if all

of a sudden you have an issue with the carbon sequestration operations.”

In addition to new products, the potential for increasing renewable energy demand and oil and gas companies’ plans to increase participation in the electricity value chain are giving rise to new business models. Just about every energy company today is looking to play in the renewable market, according to Bryan.

“Everybody is building a solar plant or a wind farm or a landfill gas,” he said. Landfill gas to energy systems divert landfill gas through extraction wells and pipe it to a landfill-gas-to-energy plant, where it is cleaned before specialized engines convert it to energy for use by a facility or even a nearby community. Energy producers are doing whatever they can to help their carbon footprint, Bryan said.

Bryan says that normally there are a few specialty mar-

kets willing to write such projects, but he believes as energy firms continue to expand their renewable energy silos, and more data becomes available to manage risk, the industry will see some of the traditional insurance markets pick up the emerging renewable energy side of the business. “Then all of a sudden, we’ll start having it absorbed into energy packages, just like we saw with terrorism,” he said.

While other segments of the energy market, such as oil and gas, experienced more extreme highs and lows in demand during the pandemic, the renewable energy space remained unchanged, according to Lance Gibbins, chair of Occam Underwriting based in London. Occam specializes in insuring complex risks, including space, clean energy, trade credit, political risk, surety and terrorism reinsurance.

“The class was largely unaffected by COVID 19,” Gibbins

told Insurance Journal. Even as the market experienced lengthy extensions to construction periods due to delay, and some effect on supply chain, there were no real adverse effects from the pandemic, he said.

“If anything, it has done the opposite; there is now more opportunity than ever before within the class and we expect this to continue,” Gibbins added. “All [renewable] technologies are seeing significant growth as project owners look to capitalize on varying green credits, driven by local governments’ legislation to reduce carbon emissions by specific legally binding dates,” he said.

Wind and solar are the two most established forms of technology that continue to dominate the investment landscape. “However, as the price per Mw (megawatt) continues to fall in offshore wind and particularly as floating rather than fixed foundation solutions mature, we expect to see substantial growth in this area,” according to Gibbins.

Pandemic aside, Gibbins said he has seen an interesting shift from large traditional energy carriers as they look towards long term growth available within the renewable market. They realize, he says, that traditional oil and gas will not be here forever. “This shift in appetite has also

continued on page 34

Special Report: Energy continued from page 33 been a result of the change in investment strategy by their oil and gas clients now looking more than ever at developing renewable energy projects.” Underwriters are at an interesting moment where experienced oil and gas developers look to utilize offshore experience and channel it towards offshore wind, he added.

Insurers too are getting a push to accelerate their business partnerships with renewable energy or clean energy clientele.

Insure our Future, an anti-fossil-fuel campaign group, has been pressuring Lloyd’s to stop insuring coal and new oil and gas projects that may exacerbate climate change.

In December 2020,

Lloyd’s published an Environmental, Social and Governance (ESG) report — its first — in which it committed to ask Lloyd’s managing agents to phase out new insurance cover for thermal coal-fired power plants, thermal coal mines, oil sands or new Arctic energy exploration activities by Jan. 1, 2022. However, the target date for phasing out the renewal of such existing insurance coverage for coal and oil sands facilities and activities is Jan. 1, 2030.

Mike Hogue, managing director of the energy practice at Gallagher and co-author of the report, Global Energy

Insurance Market Update published in August, says Lloyd’s is not alone in its pursuit to insure energy businesses with a better carbon footprint.

“We’re seeing other insurers in the U.S., not just Lloyd’s, that say, ‘Well, if you’re balancing your portfolio with other things like renewables, if you’re

decreasing reliance on fossil fuels but you’re increasing reliance on renewables, we’ll still underwrite you.’

Even though you have coal and fossil fuel generation, you’re balancing it with renewables.’”

Five of the world’s six largest reinsurers — Swiss Re, Munich Re, Hannover Re, SCOR and Lloyd’s of London — have already scaled back bespoke coverage for coal projects.

Loren Henry, a commercial broker at Amwins Group in San Diego, California, is focused on insuring the renewable energy segment.

He sees the growth trends in the renewable energy and green energy space continuing.

“It’s just going to continue to grow,” Henry said. “Whether it’s this year or four or five years from now, it’s going to grow. And with all these companies pushing to have less carbon emissions, the need is there, the demand is there … and I’m just hoping to be a part of the ride.”

Closer Look: Personal Lines Leaders Personal

About the Personal Lines Leaders: The 2021 Personal Lines Leaders in this special feature are taken from Insurance Journal’s Top 100 Property/Casualty Independent Agencies as reported in August. This list utilizes only the 2020 personal lines property/casualty revenue numbers of the independent agencies and brokerages that submitted data to the Top 100 agencies report. For more information on Insurance Journal’s Top 100 Property/Casualty Independent Agencies list, contact awells@insurancejournal.com.

Lines Leaders Top 50 Personal Lines Agencies

Ranked by Total 2020 Personal Lines P/C Revenue

2021 Rank Company Name

2020 Personal Lines Revenue

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

$507,292,482 $1,836,756,816 $445,809,905 $3,000,000,000 $226,820,880 $2,148,748,024 $166,782,766 $1,111,885,108 $134,673,973 $1,200,000,000 $119,130,000 $870,000,000 $104,242,254 $691,055,472 $100,227,000 $644,787,000 $90,147,000 $601,682,000 $82,956,055 $492,247,647 $72,754,321 $434,402,656 $55,800,000 $390,209,790 $55,606,286 $399,737,000 $52,773,059 $307,202,708 $46,966,000 $686,108,043 $45,300,000 $365,000,000 $42,952,047 $562,140,345 $38,702,181 $258,014,540 $35,000,000 $34,096,799 $250,000,000 $34,000,000 $226,000,000 $24,000,000 $170,000,000 $22,119,446 $217,554,187 $21,828,000 $92,500,000 $21,468,000 $140,254,000 $21,017,446 $156,145,950 $20,876,935 $20,639,797 $176,869,343 $20,488,079 $160,103,109 $18,463,898 $184,638,980 $16,695,924 $84,657,837 $14,500,000 $109,200,000 $14,381,198 $95,783,738 $13,600,000 $144,500,000 $13,478,401 $80,955,054 $13,226,825 $99,780,000 $12,702,918 $77,834,815 $12,694,447 $101,433,000 $12,504,813 $100,000,000 $12,315,275 $75,828,647 $12,080,007 $100,846,479 $10,635,440 $58,738,298 $9,493,240 $63,861,000 $9,250,000 $63,451,000 $9,155,277 $58,644,137 $9,025,000 $64,550 $8,723,000 $8,200,121 $58,572,294 $7,358,630 $48,003,822 $7,047,015 $51,850,205

Confie HUB International Ltd. Acrisure LLC AssuredPartners Inc. Baldwin Risk Partners BroadStreet Partners Inc. USI Insurance Services AIS Insurance* TWFG Insurance Services UniVista Insurance Westwood Insurance Agency* RSC Insurance Brokerage Inc. (DBA Risk Strategies) Cross Insurance Alliant Insurance Services Inc. NFP Premier Group Insurance Inc. Leavitt Group The Hilb Group PCF Insurance Services EPIC Insurance Brokers & Consultants HomeServices Insurance Professional Insurance Associates World Insurance Associates LLC Lockton Higginbotham Atlas Insurance Brokers LLC Relation Insurance Inc. High Street Insurance Partners Towne Insurance** Insurance Office of America Inc. Marshall & Sterling Enterprises Inc Patriot Growth Insurance Services LLC Starkweather & Shepley Insurance Brokerage Inc. Sunstar Insurance Group Kaplansky Insurance Agency Huntington Insurance** Lawley Insurance Robertson Ryan & Associates The Liberty Co. Ansay & Associates LLC Shepherd Insurance TRICOR Inc. INSURICA Inc. JMG Insurance Corp.

Tompkins Insurance Agencies Inc.** NavSav Oakbridge Insurance Agency LLC Inszone Insurance Services LLC Hylant Heffernan Insurance Brokers

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

INSURANCEJOURNAL.COM

2020 Total Personal Lines Premium

2020 Total Total P/C Number of Revenue Employess

$507,292,482 $1,720,414,956 $1,625,552,907 $1,304,675,748 $285,800,000 $701,660,000 $1,183,528,929 $104,000,000 $104,147,000 $100,177,625 $72,754,321 $348,550,000 $183,586,000 $1,308,752,191 $494,969,000 $51,800,000 $214,879,013 $260,608,909 $176,000,000 $586,625,618 $34,000,000 $59,000,000 $81,374,408 $1,464,722,000 $198,735,000 $29,518,885 $91,558,357 $60,291,028 $62,047,760 $193,887,901 $62,625,485 $49,000,000 $61,586,900 $80,000,000 $18,998,398 $37,000,495 $53,061,369 $49,230,286 $46,324,289 $38,037,661 $50,333,359 $28,282,506 $105,682,127 $25,000,000 $24,405,820 $13,800,000 $27,023,000 $24,848,852 $97,924,742 $135,052,430

3,944 13,425 8,007 7,546 2,000 4,330 8,257 475 137 250 144 2,218 1,045 4,635 6,072 45 2,303 1,500 1,500 2,700 260 57 600 8,500 1,522 25 615 634 436 1,189 550 820 265 494 88 324 425 395 350 244 415 207 620 168 165 150 175 101 764 420

Main Office

Huntington Beach, California Chicago, Illinois Grand Rapids, Michigan Lake Mary, Florida Tampa, Florida Columbus, Ohio Valhalla, New York Cerritos, California The Woodlands, Texas Miami, Florida West Hills, California Boston, Massachusetts Bangor, Maine Newport Beach, California New York, New York Littleton, Colorado Cedar City, Utah Richmond, Virginia Lehi, Utah San Francisco, California Minneapolis, Minnesota San Carlos, California Tinton Falls, New Jersey Kansas City, Missouri Fort Worth, Texas Rochester, Minnesota Walnut Creek, California Traverse City, Michigan Virginia Beach, Virginia Longwood, Florida Poughkeepsie, New York Fort Washington, Pennsylvania East Providence, Rhode Island Memphis, Tennessee Needham, Masschusetts Columbus, Ohio Buffalo, New York Milwaukee, Wisconsin Los Angeles, California Port Washington, Wisconsin Carmel, Indiana Lancaster, Wisconsin Oklahoma City, Oklahoma Norwalk, Connecticut Batavia, New York Spring, Texas La Grange, Georgia Rancho Cordova, California Toledo, Ohio Walnut Creek, California

Idea Exchange: Drones Insuring Commercial Drones: Liability or Opportunity?

D

evelopments in drone technology are often heralded as having the potential to change the landscape of

By Holden Benon business operations, most prominently in the consumer goods shipping sector. Yet, the development of federal regulation and guidance on the commercial use of drones lags behind & Matthew Decker the pace of innovation. Meanwhile, litigation highlighting the common law tort risks inherent in drone operations has been percolating in jurisdictions around the country. It is no surprise, then, that users of the technology face major uncertainty in terms of their exposure to liabilities, both known and unknown. In this article, we discuss the expansion of these potential new uses and liabilities and the role that commercial insurance may play as both an enabler and as a means to fill the gap between innovation and exposure to liabilities.

Drone Usage Across Different Sectors

Drone technology has increasingly been used across various industries as a tool to augment existing services. For example, architecture firms and contractors have already begun to embrace drone technology for monitoring construction and gathering site data. Specifically, drones 36 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

rigged with high-resolution cameras enable construction professionals to gather valuable project data through the entire life cycle of a project including the survey, design and construction phases. Drones may survey sites, inspect construction quality and photograph completed structures. The benefits of leveraging drone technology, as opposed to following traditional methods, are substantial: Drones offer the unique ability to navigate and ascend to viewing points that would be otherwise inaccessible without such technology. In addition, drone usage could also reduce site-related injury and property damage by reducing the risks associated with placing personnel and equipment in potentially precarious situations.

Drones are also poised to become an integral part of supply chains across the country, and their proliferation is likely to increase as federal agencies develop new guidelines and regulations paving the way for expanded uses. Many anticipate that drones are likely to dominate the consumer delivery arena. Indeed, the

Federal Aviation Administration (FAA) has already issued key certificates declaring drone delivery services such as Amazon Prime Air, Alphabet’s Wing Aviation and UPS Flight Forward to be “air carriers” in the eyes of the law. However, behind the scenes, drones also offer significant value across less visible links in the supply chain as well. For example, raw materials industries such as farming and mining have embraced drones as tools to expedite monitoring and management of large swaths of land at a fraction of the cost otherwise required.

New Liabilities Emerge

As with any emerging technology, early drone adopters face considerable uncertainty in terms of potential areas of liability. Although federal regulations traditionally have barred the flight of drones over people or moving vehicles, there has been no shortage of tort lawsuits filed in courts around the country concerning personal injuries and property damage caused by drone collisions. In order to strike a INSURANCEJOURNAL.COM

balance between expanding commercial drone use while mitigating these kind of traditional tort liabilities, the FAA recently enacted new regulations permitting drone flights over people and vehicles, provided certain safety measures are met. These measures include, for example, a prohibition on exposed rotating parts that could cause lacerations and a weight limit of 55 pounds. In rolling out these regulations, the FAA has not only sanctioned an entirely new class of drone operations, but has provided compliant drone operators with a strong legal basis to defend these kinds of traditional tort claims related to personal injuries or property damage.

Regulatory bodies have been less quick to act on more nuanced areas of potential liability that may arise from drone use, such as the violations of privacy rights that may occur when drones fly over or onto private property. To date, the FAA has largely taken a hands-off approach to the regulation of drone use and privacy concerns, focusing instead on safety and operational issues. Recently however, INSURANCEJOURNAL.COM

the FAA enacted its remote identification regulation, which requires drones to broadcast information about their identity, location, altitude and control station or takeoff location to federal regulators. This regulation does little, however, to address the privacy concerns of land owners or other parties who may face potential intrusions by drone flight.

Until the FAA acts on these emerging privacy concerns, some nongovernmental bodies have stepped in to shape thought around the development of future regulations. For example, in 2019, the Uniform Law Commission drafted the Uniform Tort Law Relating to Drones Act, which defines, among other things, the torts of aerial trespass by unmanned aircraft and proposes to extend existing state privacy statutes to drone operations as well. Similarly, in early 2020, the American Bar Association’s House of Delegates passed Resolution 111, which advocates for a robust enforcement of traditional state trespass and privacy laws in connection with drone operations.

Nonetheless, until the FAA or other federal bodies provide guidance on privacy issues, drone operators will face uncertainty about areas of potential liability. This is especially the case for operators who may seek to fly across state lines and, as a result, may be subject to a patchwork of differing state privacy laws.

Still more potential liabilities loom on the horizon as companies begin to integrate artificial intelligence, machine learning and autonomous piloting technology into their drones as well. The onset of machine learning algorithms has given rise to the “black box problem” — a term coined to describe the phenomena whereby an algorithm becomes so complex that it is impossible to discern how it derives an output from any particular inputs. In other words, even an algorithm’s creators very frequently cannot explain how the algorithm reached a given decision or prediction.

The black box problem raises novel legal questions about who is responsible when an algorithm may cause a drone to fail, resulting in some harm to a third party. The European Union has sought to tackle the black box problem by way

of its General Data Protection Regulation (GDPR), which provides a so-called right to know clause, providing that data subjects have a right to obtain an explanation about how a particular algorithmic decision was reached. The contours and practical effect of the right to know provision are still the subject of heated debate, and, to date, the U.S. has not adopted any equivalent regulatory scheme.

‘As with any emerging technology, early drone adopters face considerable uncertainty in terms of potential areas of liability.’

Insurance as a Potential Solution

Most traditional forms of third-party liability insurance contain carveouts that exclude coverage for liability that arises from drone usage. Specifically, many commercial general liability policies exclude coverage for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft owned or operated by or rented or loaned to any insured.”

For example, in Essex Ins. Co. v. City of Bakersfield (2007), the court stated that the aircraft exclusion is designed to limit coverage for risks normally covered by other insurance, and, “to cover these risks, the insured must purchase separate insurance.” And it is typical for errors and omissions policies to contain an exclusion for claims arising from property damage and bodily injury.

As alluded to above, this means that a drone operator seeking to cover some of the risks noted above must look beyond the “traditional” forms of third-party liability insurance.

Multiple insurance carriers have issued drone liability coverage endorsements as add-ons to their existing architects and engineers professional liability insurance policies. These amendatory endorsements generally provide coverage for a drone liability claim against the insured that is typically defined as any claim against the insured for bodily injury, property damage,

continued on page 38 SEPTEMBER 6, 2021 INSURANCE JOURNAL | 37

Idea Exchange: Drones continued from page 37 including construction project delays, and invasion of privacy. Generally, the claim must arise out of the insured’s operation of a drone in the performance of professional services, including any privacy breach arising therefrom. These endorsements generally exclude, among other things, non-certified drone operation based on, or arising out of, any drone operated by an individual who does not have a remote pilot certificate with a small unmanned aircraft system.

But note that as one prerequisite for coverage under these drone liability coverage endorsements, the insured’s drone operation must be done in the performance of its professional services, a defined term in the policy. This is an important limitation.

For example, if a policy defines “professional services” to mean architecture and engineering, these endorsements likely would not cover the insured for, say, capturing drone footage of a completed project for use in the building owner’s marketing materials. Thus, as always with errors and omissions insurance, underwriters and insureds must take into account the particular scenarios that could arise when negotiating the scope of their insurance policy’s coverages.

Perhaps in the future, delivery carriers deploying fleets of autonomous drones

38 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

and their insurance brokers will seek to negotiate to obtain forms of insurance similar to the above-noted drone liability coverage endorsement. We can speculate that such an insuring agreement might be tied to, say, a “technology error or omission,” which could be defined to include hardware failures on an individual drone, software malfunctions across entire fleets of drones or either.

Similar to the insurance described above, delivery carriers likely will also seek insurance to protect them from invasion of privacy claims that are almost certain to result from the incidental gathering of potentially sensitive video data, as LiDAR- and camera-equipped drones begin to carry packages to the personal dwellings of delivery recipients. As alluded to above, however, early adopters of technology face considerable uncertainty in terms of potential areas of liability, and insurance carriers will undoubtedly be careful when wading into these areas of risk.

We expect policies that cover these risks to carry high deductibles and premiums, specific sublimits of liability and will possibly involve shared risk pools among various insurers or underwriting syndicates.

Conclusion

Drone technology is advancing much

faster than the surrounding legal and regulatory framework. Although this gap, and the uncertainty it creates, may have a chilling effect on more risk-adverse businesses, those who are willing to embrace new technology may benefit by turning to insurance as a tool to mitigate that risk.

Likewise, as the uses of drone technologies expand and operators are confronted with new forms of liability, the interests of these large-scale commercial drone operators may intersect with those of private insurance carriers that wish to underwrite risks and charge premiums in return. As shown by the drone insurance written for architects and engineers, it is certainly possible for new third-party liability insurance products to crop up as a result of these novel commercial use cases.

The next few years will be a critical turning point in the expansion of commercial drone use, and drone users would be prudent to work with their insurance carriers to develop practical policies to provide protection from emerging liabilities.

Benon is a trial lawyer at Duane Morris, focusing on insurance coverage issues involving cyber, media, and technology liability policies, and professional liability policies. Decker is a trial attorney at Duane Morris, practicing in the areas of commercial, consumer class action, products liability and mass tort litigation.

INSURANCEJOURNAL.COM

My New Markets Contractors

Market Detail: Insura Prime Insurance

Brokerage Inc. (www.insuraprimeins.com) provides an A-rated, non-admitted artisan and general contractor commercial general liability program with ISO policy form and endorsements. The broker accesses the program though an online rater portal, and the rater allows the broker to rate, quote, bind, and issue policies in minutes.

Available limits: $2 million maximum/$1 million minimum Carrier: United National Insurance Company, non-admitted, A-X rating by AM Best States: Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and Wyoming.

Contact: Michael Summers at 949-4160152 or email: michael@insuraprime.com.

Accident Insurance Coverage for Volunteers & Participants

Market Detail: Charity First (www.charityfirst.com) provides accident insurance for nonprofit organizations that may have volunteers or participants involved in a diverse range of activities where an injury can occur. An accident policy can offer an alternative to volunteers or participants going without sufficient coverage during volunteer activities. Multiple plan options are available to meet each organization’s specific needs. Accident Benefits: dismemberment coverage; medical expense compensation; and catastrophic event cash. Appointment Required Available limits: As needed Carrier: Unable to disclose, admitted States: All states Contact: Frank Tarantino at 415-536-4037 or email: frank_tarantino@charityfirst.com

Apartments

Market Detail: Moxie Underwriters

(www.moxieuw.com) offers an apartment program offering a package and monoline

property in five states for up to $15 million TIV per location and half liability limits available, as well as crime, equipment breakdown, HNOA, enhanced commercial property endorsement or apartment owners endorsement. Minimum premium starting at $3,000. No age restriction but must not be listed as a historical building.

Appointment required.

Available limits: As needed, $3,000 minimum premium Carrier: Unable to disclose, non-admitted States: Arizona, California, Nevada, Oregon, Washington Contact: Jill Bay-Weber at 636-893-7101 or email: jbayweber@moxieuw.com

Real Estate Errors & Omissions

Market Detail: For nearly 40 years, Pearl Insurance (www.pearlinsurance.com) has been dedicated to providing the high-quality, comprehensive real estate errors and omissions (E&O) coverage. Pearl was among the first to offer a professional liability program customized for real estate professionals and now offers a Cyber Liability Endorsement for Pearl’s E&O policy that provides first- and third-party cyber liability protection, media liability and more. Appointment required.

Available limits: $5 million maximum; $100,000 minimum Carrier: AXA XL Insurance, admitted, A+ rated by AM Best States: Alabama, Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Florida Georgia, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin Contact: 800-289-8170, or email: salesleads@pearlinsurance.com

Crane, Rigging & Heavy Haul

Market Detail: Redstone Underwriter’

(www.redstoneins.com) offers a comprehensive multi-line insurance program combined with innovative risk management solutions for the Heavy Iron

Operators segment.

Redstone’s Heavy Iron Rapid Response Claims Model combined with its vendor partners experience in claim investigations, forensic engineering, and legal resources will deliver the services and expertise customers expect.

Coverage is available in all states except for New York for general liability/excess liability. Target classes: small and middle market focus with select large account consideration; crane rental; rigging; heavy haul; structural movers; aerial lift platform dealers; pile drive; drill shaft; steel erection; select demolition operators. Coverage highlights include: practice policies; primary commercial general liability ($1 million each occurrence); occurrence coverage with manuscript forms for crane-rigging-heavy haul; custom inland marine & property warehouse coverages; primary auto liability ($1 million each occurrence); primary auto physical damage; follow form excess liability ($4 million each occurrence/ aggregate). Submission requirements: Completed Heavy Iron Supplemental Application; Completed ACORD Forms – Optional; Copy of Current Daily Work Ticket & Equipment Rental Agreement; Expiring & Target Premium; 5 Years of Currently Valued Loss Runs; Large Loss Descriptions – Claims Over $50,000.

Available limits: As needed Carrier: Unable to disclose, admitted and non-admitted States: All states except for New York general liability/excess Contact: Kevin Cunningham at 404218-3371, or email: kcunningham@ redstoneins.com or to submit email: hisubmissions@redstoneins.com

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Idea Exchange: Talent How the Pandemic

Changed Employment

(And How That’s Here to Stay)

N

o one needs to be told how rough 2020 was. But perhaps organizations — agencies, brokerages, and insurers in particular — need a reminder on just how much their

By Sharon Emek worlds have shifted for the better since the pandemic.

That’s right — for the better.

Not everything about 2020 negatively impacted organizations. In fact, much of what happened to the way we work shifted in ways the insurance industry might not have been so inclined toward prior to the pandemic. Nearly overnight, workers were setting up home offices. Employers were figuring out video conferencing and remote hiring. Customer service was happening from kitchen tables. Claims, underwriting, adjusting all happened remotely. In just a few short days, the industry adapted.

That’s great news for an industry that has been reluctant to embrace remote work models. Not that the shift was easy.

A Deloitte Center for Financial Services global outlook study reveals that 48% of insurance executives surveyed say the pandemic showed them how unprepared their businesses were to weather an economic storm.

Yet the need for the industry to be up and running was and remains a critical one. A PwC survey shows that 37% of respondents were concerned about their 40 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

retirement plans and 15% were more likely to purchase life insurance due to the impact of COVID-19. Buyers, it seems, are there. If there were ever a time for the industry to brace for the next wave, this was it.

Fortunately, most employees had relatively little trouble catching that wave.

Little wonder: it’s a wave that’s been growing for a while, and one that data suggests will continue to grow. Global Workplace Analytics experts predict that by 2025, 70% of the workforce will work remotely at least five days a month. While many insurers are busy examining how and when to return to offices, many employees are signaling that the new work model suits them just fine. According to a 2020 Gallup poll, 51% of workers are actively looking for or are open to a new job. Likewise, 51% of workers surveyed say they would switch to a job that allowed them flextime.

For those employees who are already working remotely, how their employers respond to ongoing remote work could be a game-changer for them. A national survey by MakeMyMove found that 58% of remote workers (35 million employees) are likely or somewhat likely to look for a new position with remote work flexibility if their employers don’t extend the benefit once the pandemic ends.

In an environment of talent shortages and a general lack of interest in insurance as a career, that puts insurance organizations in a tough spot. However, there is good news: insurance and financial

‘Be it a hybrid model or a fully remote operation, remote work options could be the differentiator between attracting talent and having large gaps in the talent pool.’

services industries are well-poised for remote work. McKinsey Global Institute data show that above all other industries, financial and insurance has the highest potential for successful remote work with no loss in productivity — three-quarters of the activities in the industry can be done remotely.

Hire & Be Hired in a Remote World

The key to attracting employees, then, is to adopt some form of a remote work model. Be it a hybrid model or a fully remote operation, remote work options could be the differentiator between attracting talent and having large gaps in the talent pool.

Employers. Fortunately, attracting employees to a remote model is easy.

Where the changes happen is within your hiring process. The good news is that hiring remotely will be similar to your in-house method, but with a few tweaks.

When looking to hire remotely, look for candidates that possess a few essential soft skills. It should be a given that your next remote employee is comfortable with technology. Before hiring anyone for a remote position, make sure they are adept at navigating the technology, and that they understand how to use it effectively.

That comfort level can be assessed in a video interview. Phone interviews should be used for the initial, blind interview (to help remove any hiring biases). However, candidates should be given a video interview, as well. That interview can help you determine a few things — the INSURANCEJOURNAL.COM

candidate’s comfort level with technology, their body language, and the quality of their workspace. A workspace should be as distraction-free as possible (assuming other household members will be present).

Also, look for the employee’s ability to work with minimal supervision. Can they demonstrate how they manage time effectively? How do they handle special projects — do they need plenty of oversight, or can they operate independently?

A remote employee should be comfortable working fairly independently, but also be able to collaborate remotely with other team members.

Job Seekers. For job seekers, demonstrating previous experience in a remote setting is a must. Unlike in-house positions, employers are looking for specific attributes that demonstrate your ability to thrive in a remote setting. Employers want to know when you’ve worked in a remote capacity, what the projects you handled were, what challenges you had to overcome and how you succeeded.

That includes any successes you’ve had working on remote teams. Any collaborative work you did in a remote setting should be mentioned on your resume and repeated in your interview. Employers look for your ability to work across various departments successfully.

They also look for employees who can take the lead with minimal supervision.

Employers need to know that their next hire can be trusted to get the job done without being reminded of deadlines.

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That said, a remote worker needs to be communicative and transparent with what they are doing. Demonstrate your skill in communicating your activities to both supervisors and teams. Highlight all collaboration efforts and results.

Other attributes employers are looking for in their next remote worker include: • Resourcefulness: Can you be trusted to locate the information or resources you need? Will you engage with team members to locate the information, and at what point will you reach out to your supervisor?

• Lessons learned: Employers want to know your weaknesses because team success depends on allocating work to the right people. Let the hiring manager know those skills that are not your strong suit.

Benefits for Employers and Employees

As employers and employees in the insurance industry become more comfortable with remote work, the benefits are easier to find. Remote workers are more productive than when working onsite. Both workers and employers notice increases in productivity — several studies show productivity increases ranging from 15% to 45% in remote workforces at several large companies.

Also, communication improves. When employers and employees are working remotely, the value of each interaction increases. File sharing, email communications and remote meetings are streamlined to make the most use of time.

When communication is better, employees are happier. Flexible work arrangements, including those that allow for flexible hours, improves retention. And why wouldn’t they be? They save time and money on commuting, they are able to capture a better work-life balance, and they feel valued by their employer.

Those employers too are reaping benefits. With fewer employees going to the office, the ability to downsize or eliminate office space can be a big cost saver from reduced utility costs, supplies and equipment. Another cost savings: that of replacing key talent. Remote work models reduce employee turnover and improve employee engagement and satisfaction.

Plus, remote employees have fewer sick days, saving even more in health care costs from both an employer and employee perspective.

As the world leans into remote work models, the insurance industry can help lead the way. We’re already well-positioned as an industry to capitalize on a more flexible, responsive business model.

Adopting a remote work arrangement can strengthen in-house operations, delivering an experience that boosts productivity, empowers your employees, and improves your organization’s ability to thrive.

Emek, Ph.D., CIC, is founder and CEO of Work At Home Vintage Experts (WAHVE), a contract talent solution that matches retiring, experienced insurance, accounting and human resource career professionals with a company’s talent needs. Website: www.wahve.com.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 41

Idea Exchange: Is It Covered?

Logic & Language and Forms & Facts

Unintended Consequences

S

ometimes, in responding to coverage requests or loss exposure identification, we make decisions that may result in

By Bill Wilson unintended (often bad) consequences. Too often, these decisions involve what I refer to as “premium games.” More on this later.

To illustrate, one of the banes of commercial lines is requests for additional insured status. Needless to say, aside from business necessity, adding an insured you know nothing about to your policy isn’t generally a good idea. That underwriters readily do this has always amazed me.

By adding an additional insured to your commercial general liability (CGL) policy, you are potentially diluting your policy limits, extending unlimited defense 42 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

coverage beyond the scope of any contractual liability assumed in an indemnity agreement, risking a favorable loss history, etc.

Beyond that, though, there can sometimes be unintended consequences. For example, in order to land a highly desirable tenant, a landlord had to add the tenant and its employees (and others) to the landlord’s CGL policy as an additional insured.

When a customer of the tenant was run over in the parking lot by an employee of the tenant, the landlord was sued because a physical obstruction in the parking lot allegedly contributed to the accident.

Normally, the landlord would have coverage for this claim under its CGL policy because the CGL “auto” exclusion doesn’t apply to this claim. Here is the applicable part of the ISO CGL policy: “This insurance does not apply to

‘bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” [emphasis added] Normally, since the landlord didn’t own or operate the auto, nor was the auto rented or loaned to it, it would have coverage for the claim under its own CGL policy. However, because the tenant and its employees had been added to the landlord’s CGL policy as additional insureds, the “any insured” language in the exclusion is triggered and there is no coverage for the landlord (or the additional insureds for that matter) under its own CGL policy.

So, what about the landlord’s business auto policy? Assuming an ISO CA 00 01 written with Symbol 1 “any auto” liability INSURANCEJOURNAL.COM

coverage, the landlord should be OK. However, what if liability coverage is written with Symbols 2, 8, and 9? Symbols 2 and 8 don’t apply here, but what about Symbol 9? Symbol 9 covers: “Only those ‘autos’ you do not own, lease, hire, rent or borrow that are used in connection with your business.” [emphasis added] Was the tenant’s employee’s auto being used in connection with the landlord’s business? That’s highly debatable.

Coverage might even be more uncertain if the landlord had no auto coverage, but did have a proprietary hired and nonowned auto endorsement on its CGL policy.

In fact, whether the tenant’s employee was even a CGL additional insured within the facts and circumstances of this claim is also debatable. What additional insured INSURANCEJOURNAL.COM

endorsement was used and what restrictions in the form language might apply? If the tenant’s employee is not an additional insured, then we’re likely back to there being coverage under the CGL policy.

In this seemingly simple situation of granting additional insured status, depending on the nature of the claim, it’s possible that two, one, or no policies might respond. By the way, this was an actual claim.

The landlord had no business auto coverage, and the adjuster denied the claim under the CGL policy. The term “any insured” appears 25 times in the current ISO CGL policy, providing ample opportunities for uncovered claim issues involving additional insureds.

So, while a customer may understand that adding another party as an additional insured on their CGL policy could dilute their limits, taint their loss history, etc., who would think that adding an additional insured might result in the named insured having no coverage for a claim because of one or more “any insured” exclusions in the policy?

Another source of unintended consequences involves splitting accounts between insurers, for example CGL with one carrier and auto with another. I can’t begin to tell you how many times I’ve seen a loading or unloading claim denied by both the CGL and auto carriers, most often when one or both policies were non-ISO. If both policies are ISO, coverage is usually clear or, if there is an initial incorrect denial by one of the insurers, it’s relatively easy to resolve. But often the auto is not ISO and whether it picks up the same exposures the ISO auto form does is debatable. As a result, coverage gaps or at least claim resolution controversies can arise.

Finally, as I mentioned earlier, sometimes unintended consequences arise from what I refer to as “premium games.” Let me give you a couple of examples.

A vehicle in an auto fleet couldn’t pass a vehicle inspection test required for relicensing in the county where the business was located and the vehicle was garaged.

So, the business transferred the title of the auto to a corporate officer who lived in a

neighboring county that did not require vehicle testing. Then the business thought to ask their insurance agent if they needed to do anything about the auto insurance.

‘Needless to say, aside from business necessity, adding an insured you know nothing about to your policy isn’t generally a good idea. That underwriters readily do this has always amazed me.’

The agent suggested that the business lease the auto back from the officer for $1 a year and continue to insure it on their business auto policy. The agent was able to provide a lease agreement he found on the internet. (I’ll save the potential adverse E&O implications for another article.)

I got involved after a CSR contacted me, concerned that the agent had requested the wrong endorsement. She was correct and, as it turned out, the policy needed at least two endorsements to perhaps fill the gaps this arrangement had created.

Was there a better solution? How about just repairing or replacing the auto that couldn’t pass the inspection?!

Finally, we have the business owner in Alabama who bought an auto for use by his daughter’s new boyfriend who was working in Atlanta that summer and wanted to insure it on the business auto policy because that appeared to be the cheapest way to go.

You can’t make this stuff up. I’ll leave the potential coverage and claim issues to your imagination.

That’s it for this month. Tune in next time for part two of unintended consequences when we see what trouble people can get into when a church member picks up elderly members of the congregation on Sunday mornings to take them to a church that has no auto coverage.

Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “Why Insurance Doesn’t Cover the COVID-19 Pandemic,” available on Amazon.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 43

Idea Exchange: Agency Management No One Buys Based on Price

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n virtually every independent insurance agent survey that I’ve ever seen, respondents overwhelmingly list “service” as one of

By Tony Caldwell the most important reasons clients do business with them. In fact, when you visit with agents to discuss service, you always hear superlatives like “excellent” or “best.” And yet, as a friend points out occasionally, “not everyone can be above average.”

While agents love to talk about their superior level of service, most agents, especially those new to the industry or agency ownership, seem to sell on price.

While more prevalent in personal lines, price has become the predominant feature of the sales argument in commercial lines, as well. Unfortunately, this focus has led to a number of negative consequences including low retention, poor customer loyalty and ultimately higher costs and lower profits for the agent. It doesn’t serve customers well. Frequently, a focus on price leads to improper coverage only discovered during a claim — when the customer really starts to understand the inadequacies of their policy.

So, if agents shouldn’t focus on “price,” and they may not really be delivering distinctive “service,” what should they focus on to sell more accounts and provide greater customer satisfaction? A clear understanding of “value.”

This disconnect between how most agents seem to sell in today’s marketplace, and what consumers actually perceive, presents a huge opportunity.

But it demands a clear understanding of “value.”

Value is nothing more than the tipping point where the price of something is less than what it is worth in the mind of the buyer. What something is worth is based on the consumer’s evaluation of how that product or service “performs” as

compared to how other similar products or services perform.

Imagine a graph where “Price” is on the vertical and “Performance” is on the horizontal. If you draw a line where price and performance intersect and shade in anything below that line, the shaded portion will represent acceptable value.

Anything outside of the shaded area is unacceptable. Rational consumers won’t make a purchase here regardless of what is being sold.

The problem for insurance agents (and to a large extent the insurance companies they represent) is that in the mind of most buyers of insurance, one insurance policy

Value vs. Price

All transactions, including insurance, should always be based on value rather than price. Too often, agents focus their sales arguments on offering the “best service” at “the lowest price.” With this proposition, they are diminishing their credibility in terms of value and forcing the consumer to make a decision based on price. Why? Because the consumer actually sees little or no value distinction from agent to agent or carrier to carrier.

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is as good as another. This means that they all fall to the same level on the “performance” scale. The other problem is that in the mind of many insurance buyers, the “service” they receive from both insurance companies and agents is pretty much the same. This leaves the consumer focused on price.

An important point to note here is that the person who determines performance is the consumer. In fact, value, which again is determined by the intersection of price and performance, is also determined by the buyer. Agents and carriers have nothing to say about value. They may be trying to create it, but if the consumer

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doesn’t see it, they’ve failed. I think this is why agents so often resort to “price” as their main selling proposition. But there is a better, proven, way to go about this. It’s a method some agents still use. I think it’s the method that successful agents of the future will use to drive price sellers out of business.

A Tried and True Solution

These successful agents focus on creating, nurturing and sustaining a personal relationship with the consumer — a relationship that is more than simply transactional. Let’s define a “transactional” relationship as one with only brief personal interactions. In a “transactional” relationship, the interpersonal exchanges are largely, or completely, related to the transaction.

By contrast, a “personal relationship” can be described as two parties having a deep understanding of each other’s unique circumstances, needs, desires, goals, dreams and fears.

A relationship like this requires two things: time and trust. Trust is a product first of understanding the things I listed above.

Second, it is a product of taking the time to uncover those things in the first place.

This relationship changes the price/ performance calculation on the part of consumers and therefore it increases “value” in the mind of the consumer. It does this in at least two ways. First, it allows both the policy/ policies and the service that the agent is selling to be customized for that unique individual or business. Second, it creates “loyalty,” which I define as an action based upon the

belief that both parties in the relationship are always acting in each other’s best interest.

‘This disconnect between how most agents seem to sell in today’s marketplace, and what consumers actually perceive, presents a huge opportunity.’

If you’ve ever had anything like a car, house, suit or even a meal in a restaurant tweaked or completely created to your order, you recognize that product or service as being more valuable to you than one purchased “off the rack.”The careful construction of an insurance program based upon the unique needs and desires of a customer — known only through relationship and not merely answers on a questionnaire — builds real value in the mind of an insurance buyer.

So, what do we do with this? Build relationships to create value. Or, find a way to cut costs to maximize revenue in an increasingly challenging commodity market driven by technology. The latter option is going to be increasingly difficult for small businesses to achieve as scale in any commodity business, including insurance distribution, is critical. But a recommitment by local agents to bespoke, tailored, relationship insurance can blow the price/performance/value calculus out of the water. Then, the only limiting factor is time and that can increasingly be expanded with technology.

If you’re a local insurance agency owner, with no aspirations to be a technology company or a national insurance distributor, you have the carrier and service tools for future success in place already. The critical choice is to turn from selling on price and recommit to the custom-tailored, relationship-based roots of the independent agency system.

Caldwell is an author, speaker and mentor who has helped independent agents create over 250 independent insurance agencies. Website: www.tonycaldwell.net. Email: tonyc@oneagentsalliance.net.

SEPTEMBER 6, 2021 INSURANCE JOURNAL | 45

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Idea Exchange: Minding Your Business Merger & Acquisition State of the Industry

T

he merger and acquisition arena has never been this busy.

All deals currently on the table and many more sellers

By Catherine Oak and now appearing or being thrown into this process want and need to close their transactions by year-end.

Private equity (PE) investors are pouring more and Bill Schoeffler more money into the regional and national brokers. Agency owners are bombarded with offers to sell by telemarketers and consulting firms with their daily badgering by phone, mail and email, even personal drop-ins!

Those of us in the M&A business know that this has made it difficult for local independent agent buyers to compete against well-funded buyers. Despite this disadvantage, privately held firms reportedly did 24% of the transactions in the first half of 2021, up from 17% last year in the same period. For the first half of 2021, INSURANCEJOURNAL.COM

there were 339 property/casualty mergers and acquisitions, up from 307 in 2020.

This might also be the result of uncertainty during the early stages of the COVID-19 pandemic.

Small Buyers vs. Well-Funded Buyers

The terms in a purchase price that a local independent agent buyer can offer a seller are generally quite different from what the well-funded national and regional brokers can offer. This is because of the difference in access to money and the related philosophy toward the acquisition.

Local independent buyers tend to acquire a business for long-term equity growth and base the purchase price on cash flow.

Buyers with the backing of private equity money are looking for a nice rate-of-return on investment money in the short term and to build a profitable business that can be sold to another investor in the long term.

Typical Terms for Local/Small Buyers

When needed to get an acquisition, local independent buyers have been known to stretch on the purchase price and pay a seller over two times revenue over a period of five to eight years. This is based on cash

flow and limited access to funds. If there is a 30% profit margin, the independents may pay six to seven times EBITDA (earnings before interest, taxes, depreciation, and amortization), which equates to 1.80 to 2.10 times revenues or more.

Many independent agency buyers will need to go to the bank/lender for a down-payment, usually 25% to 40% of the purchase price. Often, the seller is required to finance some of the purchase price.

Typical terms include earn-out payments in order to cash-flow the deal. For these types of deals to be successful, the seller needs to have an EBITDA of no less than 25% and hopefully even 30% or more.

Terms of Private Equity Deals

Well-funded buyers look at acquisitions based on the immediate return of investments first, and then look at the long-term rate of return because of their access to cash/investment money. These buyers offer large cash payments at closing and future performance bonuses based on growth (revenue, EBITDA, or both).

To make these deals work, sellers need to have a minimum 30% EBITDA margin.

This allows a good return on the cash paid

continued on page 48 SEPTEMBER 6, 2021 INSURANCE JOURNAL | 47

Idea Exchange: Minding Your Business continued from page 47 to the seller at closing and an increase in the profit margin of the buyer’s overall entity. Buyers usually offer about 20% of the initial price in the form of stock in the buyer’s entity. Buyers need less cash, which improves the rate of return, and sellers are incentivized to perform to improve the bonuses and stock equity.

Well-funded buyers are currently paying between seven to 10 or more times EBITDA. This translates to revenue multiples in the 2.5 to 3.5 times range.

As M&A consultants, we try to negotiate a revenue-based earn-out for our clients.

This is because often sellers are afraid to add people to grow the firm and can’t control the expenses assigned to them after the deal is closed. With a revenue-based transaction, the sellers don’t have to worry as much about making their earn-out.

Know the Terms

Back in the 1980s, buying a stereo system could be overwhelming because there were so many options and variations. One had to focus on a few choices and then just compare them before a final choice is made. The same applies to buying and selling a business.

‘The terms in a purchase price that a local independent agent buyer can offer a seller are generally quite different from what the well-funded national and regional brokers can offer.’

There is often a not negotiable fee charged by large buyers. It can be in the 4% to 10% of revenue range depending on the support provided. This creates a lower EBITDA when calculating future bonuses.

There is at least one buyer we know of that does not credit the seller with contingents in its pro forma, which can often be five to 15 points of an agency’s profit or EBITDA. On the other hand, a large buyer might have higher commission rates and better contingents that improve EBITDA when calculating bonuses. Beware that in some 48 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

cases it is only for new business, not the whole book, which can be a big difference and can be negotiated.

Keep in mind that buyers typically assume the best-case scenario in their offers. Buyers attempt to lock in the sellers with a signed letter of intent (LOI) to woo sellers before due diligence has begun.

After due diligence, the numbers in the original offer in the signed LOI can often be very different from the final numbers in the purchase agreement. This is often the result of adjustments made to revenue after due diligence.

Often, there is a big difference in value if stock is also offered. Some buyers determine their stock prices without much clarity given to the seller as to where those values came from.

For publicly traded buyers, sellers can get the stock price from the stock exchange. However, privately owned firms, such as PE-backed agencies, do internal stock valuations or hire a firm to value the stock on a periodic basis. The purchase agreement needs to be examined carefully on the timing method of the valuation of the buyer’s stock.

If stock is offered (and it almost always is), it is best if it is optional as to the amount the seller takes in stock for the down payment or earn-out. It is also important if the stock can be sold back in a reasonable timeframe, such as at retirement or at the end of the seller’s earn-out.

Sometimes sellers have to hold the stock for a period of time.

Tie in Key People

Some sellers want to tie in those perpetuation candidates they had hoped could buy them out.

But these perpetuation candidates can’t compete with these prices, so the owner might need to give some of the stock or down payment to those candidates to help tie them in for the future earn-out accomplishment and perpetuation of the book of business. If they have any vesting producer agreements, those always need to be paid off before a sale with the sale proceeds. Any 1099 employees (usually producers) should be made W-2 employees before the transaction can close, which means discussing this before the sale.

Without the worry of how the key peoINSURANCEJOURNAL.COM

ple can afford to buy them out, handle the management of the firm and the owners’ books, the sellers can more easily move into retirement.

Some owners we know have gotten energized with a new buyer, and being a producer again, and stay longer. A nice producer compensation plan should be in place for owners that write new business, which also is created during negotiations.

Post Transaction

It is important for the seller to know what will happen after the check has been cashed. Each buyer will have their own approach, philosophy and goals for the acquisition. The alignment of post-transaction expectations between a buyer and seller is critical for a successful deal. This applies whether the buyer is a local competitor or a national broker.

Compatibility and integration questions include: • Does the seller operate independently, or will they be fully integrated into the buyer?

• What will be the seller’s role after the sale?

• Does the agency name change?

• Will the buyer provide management support?

• Does the buyer have access to needed markets and value-added services?

• What is the impact from any changes to compensation plans (usually for producers) that was needed to close the deal?

• Will the employee benefits plan change?

• Are management fees charged (which lowers EBITDA)?

Every buyer is unique, and the sellers really need to know the buyers. Integration after the sale is handled very differently from buyer to buyer.

Capital Gains Changes Looming

One of the reasons for the haste of getting deals done before the end of the year is that President Biden has recommended eliminating capital gains tax treatment for sales of any asset over $1 million in gain.

This means that ordinary income tax rates would come into play for that excess, and INSURANCEJOURNAL.COM

his proposal is 39.6%. This literally more than doubles the federal taxes paid by a seller, and on top of that is state taxes, and some of those are increasing. There was also a proposal to make this elimination retroactive to April 28, 2021.

Seek Advice

Sellers are insurance salespersons, and they don’t know how to negotiate to a higher EBITDA or a better deal. Sellers are often approached that don’t yet have a consultant representative. Often they are pressured not to use advisors because the buyer does not want to compete against other buyers and need to make a second or third offer. We believe that sellers should get at least two offers.

‘It is important for the seller to know what will happen after the check has been cashed. Each buyer will have their own approach, philosophy, and goals for the acquisition.’

Owners who would rather internally perpetuate the ownership of the business should still get assistance on the available options and the best approach. A business valuation is always needed with family members on internal sales.

Summary

Now is a great time to sell a business.

Aggressive buyers are paying top-dollar.

But please take this advice, don’t try to close a sale without an advisor’s help. If an owner decides to sell, it is only done once, and most do not know what they are doing and do not have the time to manage the whole process.

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Schoeffler is an associate of the firm. Oak & Associates specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, sales and marketing planning as well as perpetuation planning.

Phone: 707-935-6565. Email: catoak@gmail.com.

September 6, 2021 Metropolitan General Insurance Company 700 Quaker Lane Warwick, RI 02887 The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Property and Casualty Insurance in the Commonwealth of Massachusetts.

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SEPTEMBER 6, 2021 INSURANCE JOURNAL | 49

Closing Quote What Are Insurance Consumers Looking for Now?

U

By Mary Parsons

‘Agents should acknowledge and emphasize the emotional end benefits of insurance products, so that clients know how their insurance will respond in the event of a claim.’

nprecedented events have created an environment of profound uncertainty for insurance consumers seeking stability for the future. The pandemic, social unrest, global catastrophes, including severe weather occurrences, and the economic slowdown have altered consumers’ purchasing mindsets across all product and service categories, including insurance.

A recent 2021 Chubb survey of successful individuals revealed that 80% of respondents agree that current events in the world have impacted their feelings about risk, and they are now more aware of risk than they were a year or two ago.

The research also found that respondents felt the purchasing of insurance is no longer a transaction, but rather a solution for overall financial wellbeing in a precarious world.

Therefore, agents and brokers now have an opportunity to succeed in this new environment by engaging differently with clients and prospects.

and other recent events.

Chubb’s survey found that 73% of respondents want expert, personally tailored advice and 70% want guidance to the best products and services. In addition, 83% of survey respondents agree their insurance agent could provide service beyond their expectations by explaining how to protect themselves from different risks.

Moreover, clients are seeking advisors who understand the emotional attachment to the assets they are insuring.

Agents should acknowledgeand emphasize the emotional end benefits of insurance products, so that clients know how their insurance will respond in the event of a claim. This advice helps build partnerships and a sense of stability for the future. For example, consider how to explain coverage and service in the context of client’s concerns, demonstrating agency commitment to be there in

their time of need.

Showcase the firm’s expertise to make the emotional and financial benefits of customized insurance come alive.

Talk to clients about the emotional attachment to assets and potential loss when discussing premium increases at renewal or when speaking to prospects about upgrading their insurance coverages.

Overall, positioning insurance for household financial stability and to protect assets, while hedging against potential risk exposures, can help establish a compelling emotional connection. Strategies designed to increase transparency and engagement can differentiate agents or brokers and help them build trust with their clients, which in turn, improves client retention and referrals.

Parsons is executive vice president, sales and distribution leader, Personal Risk Services, Chubb North America.

Email:mparsons@chubb.com.

What Buyers Are Looking For

Many insurance buyers feel a greater sense of urgency to secure the right protection. But how do they ensure they’re buying what they need?

Our research shows clients want to be educated about their exposures and advised on how to best protect their assets to ensure future financial wellbeing — and this direction is an antidote to the emotions associated with the pandemic 50 | INSURANCE JOURNAL | SEPTEMBER 6, 2021

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