Insurance Journal West 2023-03-20

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Simple solutions for complex times INSURANCE

Women Leaders in Agencies

At first glance, examining gender equality within independent agencies seems to show a near equal balance. After all, gender representation in insurance agencies showed significant improvement over the last few years. Between 2018 and 2022, the percentage of agencies with at least one woman in a principal or senior leadership role increased by 12%, rising to 47% of agencies, according to the 2022 Agency Universe Study published by the Big I. But look a little bit closer and there remains a glaring gender imbalance at the top ranks in agencies today.

To honor International Women’s Day on March 8, Liberty Mutual and Safeco Insurance released a new research report exploring the unique experiences of women in independent insurance agencies. The report, 2023 Outlook: State of Women in Independent Insurance Agencies, explores the gap in leadership experienced by women in the independent agency channel — including research and insights on what women look for in an insurance career, the disconnect between leadership aspirations and who ultimately rises to the highest positions, and how we can create better career pathways for women.

The report showed that while more agencies have at least one woman in leadership, men still outnumber women in leadership two to one. Women make up more than half of all employees in insurance agencies, but less than one-third of all agency owners and principals.

“Though women outnumber men in entry-level positions in the insurance industry, the number of women in leadership roles is far smaller,” the report noted. “The reasons for this are complicated and interconnected.”

Key findings include:

• While gender representation in insurance agencies is improving, less than one-third of agency principals are women despite women making up more than half of all employees.

• The leadership gap appears early in women’s careers, with only 50% of Millennial and Gen Z women saying they actively aspire to be a leader in their agency, in contrast to 78% of men in the same age group.

• Women value some benefits over others, such as flexible hours and job stability, and were nearly twice as likely to cite parental leave as an important job characteristic than their male counterparts.

• Disparities in caregiving remain a key barrier to career growth for women, and those with young children are less likely to say that their manager is developing them for leadership.

“While insurance agencies are, by and large, great places for women to work, agencies can do more to level the playing field and empower women to reach their full potential,” the report said. “It’s ultimately in agencies’ best interests to do so, as research has shown that getting more women into leadership is good for business.”

What are you doing to develop women leaders in your agency?

Andrea Wells Vice President, Content

Chairman of the Board 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

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EDITORIAL

V.P. of Content Andrea Wells | awells@insurancejournal.com

Executive Editor Emeritus Andrew Simpson | asimpson@wellsmedia.com

National Editor Chad Hemenway | chemenway@insurancejournal.com

Southeast Editor William Rabb | wrabb@insurancejournal.com

South Central Editor/Midwest Editor Ezra Amacher | eamacher@insurancejournal.com

West Editor Don Jergler | djergler@insurancejournal.com

International Editor L.S. Howard | lhoward@insurancejournal.com

Content Editor Allen Laman | alaman@wellsmedia.com

Assistant Editor Jahna Jacobson | jjacobson@insurancejournal.com

Copy Editor Stephanie Jones | sjones@insurancejournal.com

Columnists & Contributors

Contributors: Elizabeth Blosfield, Paul Broussard, Anjali Camara, Alicia Chandler, Ryan Gillispie, Jim Sams, Andrea Shalal, Lee Shavel

Columnists: Chris Burand, Bill Wilson

SALES / MARKETING

Chief Marketing Officer Julie Tinney | jtinney@insurancejournal.com

West Sales Dena Kaplan | dkaplan@insurancejournal.com

Romeo Valdez | rvaldez@insurancejournal.com

Kelly DeLaMora | kdelamora@wellsmedia.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

Sr. Sales & Marketing Coordinator

Laura Roy | lroy@insurancejournal.com

Marketing Administrator

Alberto Vazquez | avazquez@insurancejournal.com

Marketing Director Derence Walk | dwalk@insurancejournal.com

DESIGN / WEB / VIDEO

V.P. of Design

Guy Boccia | gboccia@insurancejournal.com

Web Team Lead

Josh Whitlow | jwhitlow@insurancejournal.com

Ad Ops Specialist

Jeff Cardrant | jcardrant@insurancejournal.com

Web Developer Terrance Woest | twoest@wellsmedia.com

Web Developer Jason Chipp | jchipp@wellsmedia.com

V.P. of New Media

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

Women make up more than half of all employees in insurance agencies, but less than one-third of all agency owners and principals.

News & Markets Climate Change Could Trigger Asset Value Losses, Harming Economy: Yellen

By Andrea Shalal

Climate change is already having a major economic and financial impact on the United States and may trigger asset value losses in coming years that could cascade through the U.S. financial system, Treasury Secretary Janet Yellen said recently.

Yellen told a new advisory board of academics, private sector experts and non-profits there has been a five-fold increase in the annual number of billion-dollar disasters over the past five years, compared to the 1980s, even after taking into account inflation.

“As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system. And a delayed and disorderly transition to a net-zero economy can lead to shocks to the financial system as well,” she said in remarks prepared for delivery at the advisory board’s first meeting.

She said severe storms and wildfires in states like California, Florida and

Louisiana, tornadoes across the South and intensifying storms on the West Coast show how climate change is accelerating.

The U.S. government in January reported that 2022 tied 2017 and 2011 for the third highest number of billion-dollar disasters, with a total price tag of at least $165 billion.

There were 18 weather and climate disasters each costing at least $1 billion in 2022, including two tornado outbreaks in the south and southeast in March and April, and massive wildfires in the west.

Yellen said the new climate-related Financial Risk Advisory Committee, set in October by the Financial Stability Oversight Council (FSOC), would boost U.S. efforts to mitigate the risks that climate change poses to financial stability.

The meeting comes amid a slew of new regulations on climate-related risk management issued by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve after the FSOC first identified climate change as an “emerging threat” to U.S. financial stability in October 2021.

The Federal Insurance Office also issued a proposal to collect data from insurers to assess climate risk, and the Fed in January said it would conduct a pilot climate scenario analysis to study the bank’s climate risk-management practices. In April the U.S. Securities and Exchange Commission is due to release a new rule on companies’ climate-related disclosures.

But the Biden administration is facing stiff challenges from Republicans, who say the agencies have written rules outside of the legal process. Republican leaders want to use their slim control of the U.S. House of Representatives to constrain administrative oversight of climate rules and other issues.

Yellen said climate-related events had already prompted insurers to raise rates or stop providing insurance in high-risk areas, which could have devastating consequences for homeowners and their property values. That, in turn, could spill over to other parts of the financial system, she said.

Copyright 2023 Reuters.

News & Markets

Commercial Insurance Price Increases Stay Level But Clients

Still Worried: CIAB

By Chad Hemenway

Stabilization” and “moderation” continued to be the operative words for premium increases in the commercial property/casualty market, but many clients remain concerned about future hikes, according to a new survey from The Council of Insurance Agents & Brokers. Overall, premiums in the fourth quarter 2022 went up for the 21st consecutive quarter — up 8% across all account sizes, compared with up 8.1% in the third quarter 2022.

The top client concerns were “future premium increase” and “higher current premium,” according to Q4 Commercial Property/Casualty Market Index respondents. This may be the reason, said CIAB, that “enhancing customer experience” was

stated as a priority for more agents and brokers that took part in the survey, since these intermediaries are usually the bearer of news to clients regarding premium hikes. For Q4, 45% of respondents stated it as a priority, when “enhancing customer experience” typically falls in the 20-25% range as a priority.

“We have the opportunity to educate our clients on what is happening in the marketplace and to prepare them for the ever-changing coverage and premium implications of this ‘interesting’ insurance market,” CIAB highlighted as a quote from one respondent.

Helping clients navigate the market may also be the reason “recruiting and retaining top talent” was a top priority — and challenge — for agents and brokers, especially as retirements outnumber

new, younger professionals entering the industry. Respondents pointed to the difficulties in training within a hybrid work environment, and finding the right skills or cultural fit. “Making time to develop succession candidates needs to become a core competency for our success,” noted one broker respondent.

Returning to premium pricing, increases in cyber and umbrella were not as high as in previous quarters, according to survey results. Umbrella increases dipped below 10% for the first time in three years. Cyber experienced premium increases of 15% in Q4, compared to increases of 20%, 26.8% and 27.5% in the previous three quarters.

The highest Q4 hike belonged to commercial property. Premiums were up an average of 16%, with 73% of respondents reporting inflation was affecting the line.

Insurers’ Digital Claims Tools Failing Customers: J.D. Power

By Chad Hemenway

Calling the trend “worrying,” J.D. Power’s new property claims satisfaction report indicated that insurers’ digital tools to speed the claims process are not pleasing homeowners insurance customers, especially for longer-tail claims tied to catastrophes.

According to the J.D. Power 2023 U.S. Property Claims Satisfaction Study, the property claims process following a catastrophe — which has become longer due to supply-chain delays and rising costs — has strained customer satisfaction, and the very tools insurers put in place to reduce claims costs and increase efficiency seem to have made matters worse. The average time from reporting a claim to finished repairs is now 22 days — four days longer than a year ago and a week longer than in 2021.

“The longer cycle times have made it increasingly difficult to keep customers informed via digital channels

and limit their need to contact their insurer with questions,” said Mark Garrett, director, insurance intelligence at J.D. Power, which observed a sharp rise in customers contacting insurers for information.

“Satisfaction among customers who need to primarily call their insurer for updates includes some of the lowest scores compared with other update methods,” Garrett added. However, customers who prefer to speak to a person give lower satisfaction scores when forced to use digital channels.

Furthermore, the higher-severity claims seen after a catastrophe are less likely to be reported by digital means since digital tools seem to work best for lower-severity claims. J.D. Power said there was a decline in the use of digital claims reporting, status updates, and photo submissions for damage estimates. “This is a worrying sign for the industry, as digital tools are apparently not meeting customer needs,” Garrett said.

The study showed Erie Insurance ranking highest in property claims satisfaction. Overall, the industry improved 3 points but eight insurers declined in satisfaction.

Dear Reader:

Every business has a unique narrative, often intertwined with the personal experiences of its founders. Insurance Journal has had the privilege of encountering and appreciating countless captivating stories within the industry. Over time, we have observed the growth and transformation of the companies belonging to our readers and advertisers.

As a leading provider of industry news and information, we acknowledge that we cannot showcase every corporation that we come across. Our role as journalists also adds a layer of complexity to the process. Therefore, we have created this exclusive supplement to allow our clients and their associates to share their stories, in their own words.

We hope that you find this supplement both intriguing and educational. The team at Insurance Journal sends our best regards.

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The right partner matters to ensure you reach your financial and lifestyle goals. And we know you wear a lot of hats and time is precious. Joining Leavitt Group gives you the service support and markets you need on a national level. Give yourself the time to do more of what you love, with those you want to be with the most, all while growing your agency.

Tim Woodruff Powers-Leavitt Insurance

Alma Franzoy-Capron Leavitt Group Southwest

Bill Cowart Leavitt Group Northwest

Beckie Beck Webber Advisors

Allen Starley Starley-Leavitt Insurance

Jeremy’s Story

THIS SCRATCH AGENCY WENT FROM ZERO TO A $1.6 MILLION DOLLAR BOOK IN JUST 18 MONTHS.

Big city success story? Nope, Jeremy is in a small town. Big marketing budget? No, he didn’t spend a dime. But, after ten years as a captive agent, he knew a thing or two. Jeremy explained, “Everyone was completely flabbergasted when I told them I was leaving to go independent. I was doing very well and had a great, comfortable job, but unfortunately, I had reached a plateau and couldn’t go any higher unless I decided to leave and be an agency owner myself.”

After meeting with a few networks, Jeremy partnered with Smart Choice. “Having access to their advisors was an amazing resource – helping me put a strong foundation in place so my agency could succeed immediately.”

Jeremy has earned his agency 165 Five Star Google reviews, in under two years. His close ratio has gone from 30% to 85-90% since his transition to the independent world. His retention ratio for core clientele hovers around the 98% mark. “Early on, Smart Choice set me up with a major carrier who hadn’t appointed anyone in the state in two years, and the carrier rep met with me solely because his relationship and history with Smart Choice was so solid that I was able to get that meeting simply because they vouched for me.” Truly heroic!

Lee Ann’s Story

THIS FORMER AGENCY EMPLOYEE PURCHASED THE AGENCY SHE WORKED AT, AND THEN THREE MORE WITH CAPITAL BASED ON FUTURE REVENUE.

After 15 years working for an agency, Lee Ann transitioned from employee to owner with the help of Smart Choice. After a financial analysis of the transaction with her regional Territory Manager and the support of Smart Choice partners, the acquisition was made with a cashflow loan – eliminating the need for Lee Ann to borrow against personal assets.

Eight years later, Lee Ann purchased three more agencies. A few years later, three more – all with the Smart Choice team by her side assisting with financing, M&A guidance and operational collaboration.

“The top reasons I like working with Smart Choice is that I have access to markets I would not otherwise have so I can do what’s best for my clients, I have access to a full team of experts that can answer virtually any question we ask, and they have programs such as Smart Start Commercial that make it easy for us to write policies where we lack experience. I just love the support I have from them.” Truly heroic!

Figures $25 Million

That’s how much a California fund is getting to encourage wildfire prevention innovation. Walnut Creek, California-based CSAA Insurance Group made the commitment to the California Wildfire Innovation Fund, a climate-solutions strategy to help reduce the severity and frequency of catastrophic wildfires by supporting forest restoration-related economic development.

$1.5 Million

Packers Sanitation Services Inc., a Wisconsin-based cleaning service for food processing companies, was ordered to pay $1.5 million in penalties after a U.S. Department of Labor investigation found the company employed more than 100 children in dangerous jobs at 13 meatpacking plants across the country. Over the past three years, children were found to be using caustic cleaning chemicals and cleaning dangerous power-driven equipment, like skull-splitters and razorsharp bone saws, according to a DOL principal deputy administrator.

3,434

The number of pedestrians struck and killed by U.S. drivers in the first half of 2020 — up by 5%, or 168 more deaths, from the same period the year before, according to an analysis from the Governors Highway Safety Association (GHSA). This projection follows a 40-year high in pedestrian deaths in 2021 and continues a decade-long trend of more people dying while walking on U.S. roads.

$6.4 Million

The estimated amount of loss a Boston-based labor union’s health fund suffered from a cyber attack that was discovered in February and reported to federal and local law enforcement agencies.

Personal information of members of Pipefitters Local 537 does not appear to have been stolen or compromised, according to the Associated Press. The fund is insured and employees now are receiving advanced cybersecurity training.

Declarations

Bent Track

“These conditions can change certainly after a heavy freight train passes over it. If it wasn’t noticed by a crew member, then you have several tons of train crossing over that so it could change.”

— Former NTSB investigator Robert Chipkevich commented on an investigation into a fatal 2021 Amtrak derailment in Montana, which found that the railroad track was bent along a curve near the accident site.

Questionable Lawsuits

“My suspicion is that it is victimizing both policyholders and insurers, so this is a double-rare situation.”

— Louisiana Insurance Commissioner Jim Donelon said his department issued a cease-and-desist order to McClenny, Moseley & Associates, a Houston-based law firm that filed more than 1,500 hurricane-damage lawsuits in the state — many of which duplicated filings made by other attorneys. Donelon said MMA made more than 850 misrepresentations to insurance companies, stating that policyholders had retained the law firm even though that wasn’t true. Deputy Commissioner Nathan Strebeck said the department can levy penalties of up to $25,000 for each violation, for a total of up to $500,000.

Norfolk Southern Apology

— Norfolk Southern CEO Alan Shaw told residents of East Palestine, Ohio, that the company will take responsibility for cleaning up the environmental damage from the recent train derailment and controlled detonation of hazardous materials. Shaw said the company had so far set aside a $7 million “down payment” to help the town recover and had sponsored the removal of 4,600 cubic yards of contaminated soil and 1.7 million gallons of polluted water.

Crypto Pushback

Virginia Workers’ Comp Ruling

“We find that the claimant’s workday began when he began preparing the company vehicle for operation, and he was in the course of the employment when he sustained his injuries.”

Not Retroactive

“All of our research shows that the law is not retroactive. Members of the Legislature, in fact, have said it was not retroactive.”

— Said a spokesperson for payment processor Visa, which, along with Mastercard, is slowing plans for partnering with crypto firms following a string of collapses in the crypto market, according to Reuters. Both Visa and Mastercard are pushing back the launch of certain products and services related to crypto until market conditions and the regulatory environment improve, said spokespeople for the companies who asked not to be named as talks were confidential.

— Virginia Workers' Compensation Commission said in a ruling in a case involving an employee who was injured while scraping ice off his company-owned truck parked at his home. The commission ruled the employee is entitled to workers’ comp benefits, reversing a deputy commissioner’s denial of benefits. The commission differentiated the case from those falling under the “coming and going” rule, under which injuries sustained while traveling to or from work are generally not compensable, as employees are not considered to be “on the job” before arriving at their workplace.

— Said Chip Merlin, a claimants’ attorney in Tampa, about Florida Senate Bill 2A, which was approved by the Legislature in December. The law took a big bite out of plaintiffs’ lawyers’ incentive to sue over insurance claims when it ended one-way attorney fees. Now, some insurers contend the law is retroactive, trimming fees for lawsuits filed after the law took effect but for policies written before then. Lawyers for policyholders strongly disagree.

“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services.”

“We’re going to do what’s right for the community.”

Business Moves

by Amy Leicht-Craig and Matt Leicht, Craig & Leicht has earned a strong reputation for their multi-faceted experience in a wide variety of industries, specializing in contractors, retail, and habitational risks.

Operations for Craig & Leicht will continue from their Houston location, with clients receiving the same service and benefits as before with added access to XPT’s wide selection of high-quality products, programs and carriers.

Southeast

SterlingRisk, Worldwide Insurance

National

Stone Point, Truist Insurance

Truist has agreed to sell a 20% stake in its insurance brokerage business to private equity firm Stone Point Capital for $1.95 billion.

Mubadala Investment Co. and other co-investors are participating with Stone Point in the investment into Truist Insurance Holdings, the sixth-largest insurance broker in the U.S., valued at $14.75 billion.

Truist Insurance Holdings operates more than 250 offices through its wholesale, retail, and insurance services divisions. Its insurance units include McGriff Insurance Services; CRC Insurance Services; Crump Life Insurance Services; AmRisc; and premium finance companies AFCO Credit, Prime Rate Premium Finance and CAFO.

The transaction is expected to close in the second quarter. At closing, a five-person board will be formed to oversee Truist Insurance Holdings, made up of four members appointed by Truist and one member appointed by Stone Point.

Truist said the deal gives it “strategic flexibility” and the broker business can use Stone Point’s insurance industry expertise to accelerate growth. Truist said it will preserve and enhance its client service approach to offering leading insurance products to its banking clients.

East World Insurance, Durfee Buffinton

National insurance broker World

Insurance Associates acquired the business of Durfee Buffinton Insurance Agency Inc. of Fall River, Massachusetts.

Durfee Buffinton provides personal and business insurance in the New England region. The agency has roots that date back almost 100 years. The business now is run by third generation Brown family members, led by president Walter A. Brown III. World Insurance Associates is headquartered in Iselin, New Jersey.

South Central Hub International Limited, Dwight W. Andrus Insurance

Hub International Limited has acquired the assets of Dwight W. Andrus Insurance Inc., Dwight Andrus & Richard Insurance, Inc., and DAI Shreve LLC (Dwight Andrus Insurance). Terms of the transaction were not disclosed.

Dwight Andrus Insurance is headquartered in Lafayette, Louisiana, with six additional locations in the state. For more than 75 years, Dwight Andrus Insurance has provided commercial insurance, surety and bonding, captive and alternative risk insurance, personal insurance, and employee benefits.

Dwight Andrus Insurance leadership, including Dwight Andrus IV, Dwight Andrus III, David Andrus, and Charlie Babineaux, and the Dwight Andrus Insurance team will join Hub Gulf South.

XPT Specialty, Craigh & Leicht

XPT Specialty acquired Texas-based wholesale agency Craig & Leicht. Founded

New York-based SterlingRisk, a privately held insurance broker, has acquired Worldwide Insurance Group, headquartered in Coral Gables, Florida.

Worldwide’s founder and president, Anthony Ruidiaz, will become managing director of SterlingRisk of Florida, and is now a partner in SterlingRisk. The merger creates a full-service commercial insurance practice, including real estate development, construction, environmental, aviation, benefits, manufacturing and wholesale distribution.

Ruidiaz began his career in yacht insurance in south Florida, then branched out to provide tailored insurance programs for affluent clients.

SterlingRisk also operates an aviation practice group in Destin, Florida.

West

ALKEME, ACW Group

ALKEME acquired the ACW Group, headquartered in Honolulu, Hawaii.

ACW Group also has California offices in San Francisco and La Quinta. It was established in 2009 by Russell Akamine, Kirk Christman and Jeffrey Wall, and has 20 licensed agents focused on services for restaurants, artisan contractors, attorneys, condo associations, security guards and property managers. ACW offers commercial lines, personal lines, benefits and financial services.

Ladera Ranch, California-based ALKEME is backed by GCP Capital Partners. Its services include property/casualty, benefits, surety, risk and wealth management.

&

Architects & Engineers Insurers Seek More Rate Increases: Ames & Gough

According to a new survey from specialty broker Ames & Gough, insurers of professional liability for architects and engineers are planning additional rate increases to keep pace with rising claims costs, a backlog of litigation, worker shortages, and supply chain disruptions.

Fifteen of 16 insurers — a significant representation of the overall U.S. marketplace, said Ames & Gough — have plans to raise rates in 2023, with about half looking for increases up to 5% and the others seeking increases of 6% or more. About a quarter of insurers surveyed are planning increases across their entire book of business. Others plan to target high-risk projects like condominiums and schools, or high-risk disciplines such as structural engineering and geotechnical engineering.

The reasoning is clear, according to respondents. Claim severity in 2022 increased for 75% of insurers, with 88% citing social inflation as a major factor. One

insurer noted claim settlements rose 50% over the last decade, said Ames & Gough.

“Today, insurers must deal with emboldened plaintiff attorneys, claimants unwilling to negotiate settlements, ‘nuclear’ jury verdicts, and escalating settlements in both indemnity and defense expenses,” said Jared Maxwell, vice president and partner, Ames & Gough and co-author of the survey. “When a design firm has a large loss, particularly one exacerbated by social inflation, its leadership should engage with their broker and underwriter to understand how the claim might impact the renewal and explain steps they’re taking to prevent a recurrence.”

The majority of insurers surveyed also reported paying multimillion dollar claims in 2022, with 38% paying a claim of $5 million or more, including 13% paying claims between $10 million to $19.9 million.

Many of the largest claims involved what insurers consider high-risk projects or disciplines. They also included incidents with

bodily injury, environmental impacts or significant structural issues, or other errors and omissions that led to serious project delays and substantial cost overruns.

“With most insurers again planning to apply higher rates to firms with poor loss experience, design firms need to maintain a strong focus on sound risk management,” said Cady Sinks, assistant vice president and partner, Ames & Gough, and co-author of the survey. “This includes mindful client and project selection, careful selection and management of subconsultants, effective quality control measures, thorough review of contracts, proper contractual risk allocation, and timely documentation of communication with owners and project participants.”

To obtain a complimentary copy of the Ames & Gough Survey, PLI Market 2023: A/E Firms Maintain Growth Amid Expanding Risks and Rising Claim Costs, email info@amesgough. com.

People

National Liberty Mutual

Insurance appointed Marc Orloff president of Global Risk Solutions (GRS) North America, middle market.

Orloff most recently served as president of field operations and marketing for GRS North America, where he was responsible for delivering commercial and specialty products across all lines of business.

Liberty Mutual also appointed Dieter Korte as Global Risk Solutions North America chief underwriting officer, middle market.

Korte has more than 30 years of underwriting and leadership experience. Before Liberty Mutual, Korte led CNA Financial’s middle market team and was senior vice president, global excess casualty manager at Chubb NA, where he spent 25 years.

Gabriel Galanski joined AXIS Capital Holdings Limited as head of North American property/casualty programs. Before joining AXIS, he served as a vice president with the Macquarie Insurance Facility. Previously, he was an associate client executive at Marsh & McLennan.

Monica Ningen has been named CEO of U.S. P/C Reinsurance

at Swiss Re, effective July 1. Ningen replaces Keith Wolfe, who has decided to pursue opportunities outside of Swiss Re.

Ningen has nearly three decades of experience in the re/insurance industry, starting her career at E.W. Blanch, a reinsurance broker. She joined Swiss Re in 2006 when Swiss Re acquired GE Insurance Solutions. Since that time, she has held several leadership roles in property underwriting, including head of property underwriting, U.S. and Canada.

Jolee Crosby was appointed to take over Ningen’s former role as president and CEO of Swiss Re Canada and English Caribbean.

East Risk Strategies, based in Boston, named S. Stuart Spector chief operating officer, national employee benefits and related specialty group companies.

Spector comes to Risk Strategies with 30 years of experience in the benefits space. Before joining Risk Strategies, he held senior positions at Willis Towers Watson, Center for Medical Technology Policy, National Council on Aging, Vertafore and Benelogic. Most recently, Spector served as the regional operating officer at Willis Towers Watson, where he was responsible for leading the Eastern Region.

Midwest Valley Insurance Agency Alliance (VIAA), a network of more than 160 independent insurance agencies in Missouri and Illinois, promoted Thomas “TJ” McCoy IV to personal lines manager for VIAA’s sister company Powers Insurance & Risk

Management, headquartered in St. Louis, Missouri.

McCoy will service a highnet-worth book of business and assist in the training and best practice standards supervision of eight team members. He previously served as a personal lines service coach for VIAA. He also has served as an account manager at Bowersox Insurance Agency, Spectrum Insurance Group LLC and Marine Insurance Services LLC.

Church Mutual Insurance Co., based in Merrill, Wisconsin, promoted Dawn Bernatz to assistant vice president, corporate communications, and Koleman Brenner to assistant vice president, shared service operations.

Bernatz will manage internal communications, public and media relations, special events and multimedia production. She joined the company in 2016 as director of marketing strategy and communications.

Brenner will continue to lead support functions, including business process management, vendor and financial management and shared services reporting. He also assumes responsibility for commercial operations, corporate services and home office-based facilities. Brenner joined the company in 2017 as advisory IT people manager.

Brotherhood Mutual Insurance Co., based in Fort Wayne, Indiana, named Abel Travis senior vice president, affiliate operations.

Travis will lead agency enterprises, American Church Group

LLC, and Brotherhood Mutual Insurance Services, operationally and strategically, and provide strategic leadership for MinistryWorks – payroll services and HR solutions.

Travis served most recently as the vice president and head of AF Group company, Fundamental Underwriters. He also has served in leadership roles at The Hanover Insurance Group, Chubb and Travelers.

David Mace joined Overland Park, Kansas-based Lockton Affinity as producer member for its recently launched crisis management and global casualty insurance practice, Latitude Risk.

Mace formerly served as executive vice president of product for FocusPoint International and has more than 18 years of experience in special risk underwriting, brokerage and incident response. Mace was a founder of SportifyInsurance and has previously served as Americas representative at Griffin Underwriting Ltd. and assistant vice president – zonal manager, crisis management division at AIG.

Southeast Larry Chapman Jr., recently an agent with Alfa Insurance, is the new deputy insurance commissioner for the Alabama Department of Insurance Chapman will be the

Dieter Korte

Marc Orloff

Monica Ningen

Thomas McCoy Abel Travis

Larry Chapman

department’s liaison with other government offices and industry associations and will manage the public outreach and media relations program, and administration of the department.

He joined Merck Pharmaceutical in 1997, followed by 12 years in sales with Blue Cross Blue Shield of Alabama. He ran his own insurance and consulting firm, CSS Advisors, for six years before joining Alfa in 2018.

Sanjeev Chaudhuri, the former chief actuary at Alfa Insurance, is the new chief actuary for the department.

Chaudhuri has more than 20 years of experience in property/casualty insurance, life insurance, and accident and health, and is a fellow of the Society of Actuaries.

Philip Baddour has been appointed to a second six-year term as a full commissioner at the North Carolina Industrial Commission, which handles workers’ compensation claims disputes. If approved by the state General Assembly, his new term will begin May 1, 2023.

Baddour in 2017 was appointed to his first term as a commissioner, after he served as a deputy commissioner for 17 years. In 2019, he was as chairman of the commission.

Before joining the Industrial Commission, Baddour

practiced law in his hometown of Goldsboro, North Carolina. Baddour also previously served as a JAG officer in the North Carolina National Guard.

Elias Admassu is now deputy commissioner at the Industrial Commission.

He litigated claims before the Industrial Commission from 2009 through 2020, representing employers and insurers. He also served in the North Carolina Division of Employment Security and as counsel to the state Department of Justice.

Most recently, Admassu was a special deputy attorney general, representing the North Carolina Department of Health and Human Services in complex employment, labor, disability, and constitutional law litigation in federal and state courts and before administrative agencies.

Byars/Wright Inc., a 77-yearold independent agency in Alabama, named Gabe Clement president.

Clement, who joined the firm in 2014 as a broker, helped launch the Birmingham branch in 2019 and was named sales team leader in 2021.

Clement also serves on the Associated Builders and Contractors of Alabama Board of Directors and was awarded the Alabama Associated General Contractors of America 2020 Top 40 Under 40 In Construction.

Previously, Haig Wright was president and CEO of the agency but the two positions were recently separated. Wright remains CEO of the agency, as well as CEO of the parent company, WRM Group, which was formed last year after the merger of Byars/Wright and

Pritchett-Moore Insurance in Tuscaloosa.

West

Aspire General Insurance, based in Rancho Cucamonga, California, named Byron Storms chairman of the board.

Storms has worked in senior leadership positions, including president of National General. He joined Aspire General in 2015 and will continue to serve as president and CEO.

Storms has spent over 30 years in the insurance industry, working in various roles, including senior vice president of sales, president, and CEO, as well as launching and running a general agency.

In addition, Tom Newgarden was appointed to Aspire’s board of directors.

Newgarden has more than 30 years of experience with carriers across the property/ casualty personal lines spectrum. Newgarden’s previous roles include executive vice president, chief underwriting officer, chief analytics officer and president of National General Preferred.

AMERIND announced the return of CEO Derek Valdo following a year-long religious leave as appointed spiritual leader (3rd War Chief) for the Pueblo of Acoma. Before his departure in January 2022, Valdo appointed Chief Operating Officer Robert Dahl acting CEO.

AMERIND, headquartered in Ana Pueblo, New Mexico, creates affordable, sustainable insurance products and services for Indian Country, strengthening Native American communities and economies and elevating tribal sovereignty.

AMERIND was founded in 1986 and is a 100% percent Tribally owned and operated insurance company.

Scott Kipper was named insurance commissioner at the Nevada Division of Insurance for the third time. Kipper was appointed to the post following the resignation of Barbara Richardson, who had served in the role since 2016.

Kipper served prior stints as Nevada Insurance Commissioner from 2008 to 2010 and again from 2011 to 2015. He has more than 30 years of experience in the insurance industry.

Kipper most recently served as the deputy director of operations for the State of Washington Office of the Insurance Commissioner. Prior to that he founded a private consulting firm providing technical expertise on insurance issues.

He has also served as the insurance administrator of the Oregon Insurance Division, deputy commissioner at the Office of Health Insurance for the Louisiana Department of Insurance, and senior regional director for State Affairs at America’s Health Insurance Plans.

Sanjeev Chauduri

Philip Baddour

Byron Storms

Derek Valdo

Scott Kipper

Closer Look: Marinas & Boats

A Variety of Risk Exposures Exist at Marinas Big and Small

By Patrick Wraight

Marinas are places where people interact with boats. Maybe that’s not earth-shattering to you but consider all that it means to operate a marina and all of the different ways that risk is present at a marina.

Marinas can be small, local places where everyone knows which boat belongs to whom and when they’re likely to take it out again. They can also be bigger, where there are dozens of slips (where boats park) of all sizes and it’s as likely that you’ll see a small charter fishing boat as you will a 50-foot yacht.

The exposures faced by these operations are as varied as the different marinas can be. If you’re considering working with a marina in their risk and insurance program, consider that you will need to know a few things about the risks they might face.

People Get Hurt, Break Things

A primary category of risks a marina can face is the risk associated with the premises. Premises exposures are created when a business invites people to come to their location and do things. Marinas have premises exposure like many other businesses, but they turn

it up to 11 in some ways.

Of course, there is the risk of the slip and fall, like many other places. However, add to the normal slip and fall risk the fact that there’s water everywhere. Are most parts of the marina generally dry enough? Sure they are, but consider that a marina does have a large outdoor area (most, if not all, of the slips are outdoors) where customers and other visitors are walking, running, boarding or disembarking from boats, and doing other outdoor things.

Not only is there a large outdoor part of the property, but much of that is built over,

or floating on, the water. It doesn’t matter if that water is a lake, river or ocean; the slips and docks are on the water. A well-built dock that is secured to the floor of the body of water is stable, so it doesn’t move much, no matter what the water is doing, but when you have floating docks, they are directly impacted by the weather, which means people are walking in places that are possibly wet and possibly moving. In addition, the weather might be bad nearby, changing the probability of bodily injury or property damage.

Thinking about property damage, boats move and sometimes, the people operating them aren’t as skilled as they think they are. Not only are there different types of pilots, but there are different types of boats. They can all drive at different speeds, and they all have different steering abilities. Some are small, quick and nimble. Others are small and slow. Some are big, and don’t turn very easily. And if you thought an 18-wheel truck was hard to stop, try stopping when there’s no actual ground underneath your vehicle.

As is always the case when you’re looking at the risks of a business, the idea isn’t just to point out the bad things that can happen, but to point out ways to mitigate the risks so that fewer accidents happen and fewer claims are filed and happier people are everywhere.

These premises risks need

proper signage to remind people not to run, fool around, or otherwise tempt fate when walking on the floating docks. A few speed limit signs and maybe wake warnings out in the water don’t hurt.

People Eating and Drinking

People like to eat and drink, and they like to do it at places that have wonderful views.

Marinas make a great place to have a good meal while enjoying the sights of the lake or the bay. That tells us that marinas might also experience all the exposures that are resident in any restaurant.

There is the risk of fire because of the kitchen. There is the risk of bodily injury from undercooked, or improperly stored food.

When you serve adult beverages, you add exposures related to that, as well.

The same risk management techniques that are available

to a restaurant downtown are available to the restaurant at the marina, so there’s no need to explore that too deeply. It’s time to move on to a major risk for marinas.

Was That Rain? Is the Wind Blowing?

Weather, in particular water and wind, is a serious consideration for marinas. Weather events can shut down a marina, and potentially create an exposure that the owners weren’t thinking about.

Consider the marina that has a boat storage facility on premises. What happens if there are 20 boats in dry storage when the hurricane comes by and grabs one boat out of the water and throws it into the boat storage facility?

One of my favorite restaurants used to be a seafood place sitting on a river. It wasn’t next to the river. It was on the river. Pull your boat up to the dock

and you’re three steps from getting a table in the dining room. Its biggest problem was that every other year or so, in the rainy season when the river would rise, the river would come into the restaurant. Until the river level dropped, there was no way that they could serve dinner.

Then there were the gators that had to be removed from the dining room. They overstayed their welcome but wouldn’t leave until they finished their entrees or at least until they were good and ready.

Weather is a serious consideration for the risks that a marina deals with.

Fuel Spill at Pump Three

Marinas often have exposures like the gas station on the corner does.

Maybe not the old coffee exposure, but the exposure that the fuel pumps might malfunction and spill fuel into the water. At the gas station down the road, at least there is usually concrete that can help contain spills and you might even be able to find some materials you can use to clean it up. When the fuel ends up in the water, it takes more to clean it up.

What if there is an accident between two boats and they both have fuel and oil on board? There’s another potential environmental issue. These are just some of the risks that a marina faces. A well-trained risk manager who understands how to identify and analyze risks can find ways to mitigate some risks while arranging for insurance or transfer of the risks to serve the marina and help them to keep serving their customers.

8th Circuit: COVID Stay-at-Home Orders Did Not ‘Quarantine’ Skiers

By Jim Sams

Government orders that restricted access to non-essential businesses during the early days of the COVID-19 pandemic were not “quarantines” that require a travel insurer to reimburse policyholders who did not get full use of their ski passes, a panel of the 8th Circuit Court of Appeals ruled in late February.

The appellate panel affirmed a decision by the U.S. District Court for Western Missouri to dismiss a purported class-action lawsuit filed by people who sought partial refunds after the pandemic put an early end to the 2019-2020 ski season.

The Ski Pass Preserver policy sold by Arch Insurance Co. promised coverage for travelers who are “quarantined,” which the panel majority said means “compulsory isolation.”

Public health orders issued by authorities in California and Colorado did not fit the bill, the majority said.

“Although these measures and the closure of ski resorts restrained the plaintiffs from certain activities, the degree and manner of the restraints imposed cannot

plausibly be considered a mandatory requirement to isolate from others,” the panel’s opinion says.

Mark Rossi, Ronald Osborn and Nolte Mehnert each purchased an Ikon Pass for the 2019-2020 ski season and an optional Ski Pass Preserver policy from Arch. The passes, which cost from $600 to $1,000 each, allowed unlimited use of several ski resorts.

The ski season was cut short because of the COVID-19 outbreak. The three skiers and others from throughout the country sued after Arch denied their claims for partial refunds. They argued that they were “quarantined” by the stay-at-home orders issued in March 2020, or at least that the policy language was ambiguous.

The Judicial Panel on Multidistrict Litigation assigned the actions to the Western District of Missouri for pre-trial proceedings. U.S. District Court Judge Brian C. Wimes in Kansas City granted Arch’s motion to dismiss the lawsuit. Rossi, Osborn and Mehnert appealed.

The 8th Circuit panel said the Arch policy used the word “quarantine” as a verb which means “to isolate.” Individuals who are quarantined are compelled to

stay at a specific location. The panel said while the public health orders issued by California and Colorado restricted movement, they did not require the skiers to stay anywhere.

“In sum, the ordinary person at the time the Ski Pass Preserver policy was purchased would have understood ‘quarantined’ to mean the compulsory isolation of the insured,” the opinion says. “Reading the policy as a whole, this is the only reasonable construction, and we agree with the district court that the policy language is unambiguous.”

Circuit Judge L. Steven Grasz wrote a concurring opinion. Although he agreed with the result, Grasz said he disagreed that the term “quarantined” is unambiguous. He said most travelers would understand stay-at-home orders to be one form of quarantine.

The policy, however, also excluded a loss caused by the failure to supply services by a travel supplier. Grass said he agrees that the lawsuit should be dismissed, but because of the exclusion, not because the skiers weren’t quarantined.

Sams is the editor of Claims Journal.

Appeals

Board in California Defines How Close Water Must be for Workers

The California Department of Industrial Relations’ Occupational Safety and Health Appeals Board issued a decision related to the provision

of water at outdoor worksites, which required water must be as close as practicable to the areas where employees are working.

The case clarified the definition of what “as close as practicable” means with water placement at the workplace.

Cal/OSHA opened a safety inspection at the Rios Farming Co. vineyard in St. Helena in 2018. Inspectors reportedly found some workers had to climb through multiple grape trellises to get water. On Jan. 7, 2019, Cal/OSHA cited Rios Farming Co. for a repeat-serious violation for not having water as close as practicable for employees. Rios Farming appealed the citation, and an administrative law judge

affirmed the citation on Oct. 12, 2022, assesing a modified penalty of $27,000.

OSHAB’s decision clarifies that “as close as practicable” meabs water must be as close as reasonably can be accomplished to encourage frequent water consumption.

In the Rios Farming case, the judge found, and the OSHAB affirmed, that the trellises were an obstacle that discouraged employees from frequently drinking water. The judge and board further found that other options were available to the employer, such as providing a jug of water in each row where the employees were working or providing individual water bottles that employees could carry with them and refill from the jugs.

The California Division of Occupational Safety and Health, or Cal/OSHA, is a division within the Department of Industrial Relations designed to help protect workers from health and safety hazards on the job. The Occupational Safety and Health Appeals Board is a three-member judicial body appointed by the governor to handle appeals from private and public-sector employers regarding OSHA citations.

My New Markets

Workers’ Comp for Medical Temp Staffing Companies

Market Detail: Nixer Comp is a national, A-VIII Rated program designed specifically to provide workers’ compensation for the medical temporary staffing industry. It can offer guarantee cost, small, intermediate, and large deductibles nationally. Payment plans include pay-go and monthly-self-audits programs. The Nixer Comp Advocacy Based Claims Model creates a winning relationship between the injured worker, our client-insured, the host-employer, the retail agent, and the claims adjuster by following staffing-tailored claims-handling guidelines and procedures. This claims model includes 1-800-Claims Reporting, Nurse Triage, Telemedicine, Host Employer Claims Kit Generator, Rx Pharmacy First-Fill Card Portal, Concierge Claims Adjusting, Managed Return-to-Work (RTW) Program, Fraud Prevention Program, Web-Based Claims Portal, Quarterly claims reviews, and Claims-Coordinator Training for the internal employees. Nixer Comp also provides OSHA, risk management, safety, and human resources training through its web-based Learning Management System (nLMS). Web-based Risk Management Portal (nRMP) puts a plethora of tools and knowledge into your internal employees’ hands. $10 million maximum premium; $150,000 minimum premium; has pen. Available Limits: Not disclosed.

Carrier: Service American Indemnity Co. (SAIC); admitted; rated A-VIII by AM Best. States: Available in most states and District of Columbia. Not available in Ohio, Washington, West Virginia and Wyoming. Contact: Rob Schild, president, Nixer Comp Inc.; rob.schild@nixercomp.com; 407-919-6111.

Restaurants with Alcohol Sales

Market Detail: Rainbow offers customizable BOP product for restaurants with alcohol sales. Product is customizable with the following coverage options: general liability up to $2 million/$4 million; liquor liability up to $1 million; building, personal property, and betterments and improvements; business income ALS up to 18 months; property enhancement, with customizable coverage limits; hired and non-owned auto; employment practices liability; cyber liability. Has pen. Available Limits: General liability up to $2 million/$4 million; liquor liability up to $1 million.

Carrier: Incline Casualty Co.; admitted; rated A- (Excellent) VII by AM Best. States: Available in Arizona and Texas. Contact: Brandi Bingham; brandi@ userainbow.com; 214-701-1283.

Shock Loss/ Distress Trucking Insurance

Market Detail: American Standard Transport Risk Managing General Agency (ASTR MGA) has an admitted product available on A- paper for all radius trucking operations with large (shock) losses of $50,000 or more in paid/incurred losses in the past five years. Complete submissions required and rates in 48 hours, binding in times can be as short as two weeks. Submission requirements: complete application — email for specific; 10 or more units; three or more complete years in business; three to five years of loss runs depending on age of operation — not older than 60 days; driver list with dates of hire, DOB, state license — excel format; MVRs not older than 60 days; equipment list with VINS, ages, and values — excel format; four quarters IFTA for interstate; for five or more losses and/or greater than $50,000 — detail in excel format. We can provide sample. Exclusions: no international drivers; no hazmat; no rolled steel coils. Drivers — no more than 6 points, no major violations in last four years; Cameras are required; discount available if client already in use with approved vendor.

Available Limits: Not disclosed.

Carrier: Admitted; rated A-.

States: Available in most states and District of Columbia. Not available in Alaska, Louisiana, Massachusetts and Michigan.

Contact: Darren Yancy; dy@astr1.com; 817-447-9046.

Podcasts

Market Detail: Professional Program Insurance Brokerage (PPIB), Division of SPG Insurance Solutions LLC, can protect podcasters for single podcast production companies or individuals from a one off episode to a single series/season. We also offer coverage for annual podcast production companies to protect them from claims of negligence and mistakes. Available coverage options include: professional liability with up to $3 million/$3 million limits; defamation; intellectual property infringement; breach of license; authorship credit failure disclosure of trade secrets; fair use; $25,000 sublimit for public relations crisis management expenses; merchandise coverage available. We can cover individual and annual podcast productions. Program benefits: knowledgeable underwriters; claims advocacy and specialized claims handling; carrier has 10 years of experience with this industry; low deductible; legal reviews not needed.

Available Limits: Professional liability with up to $3 million/$3 million limits; $25,000 sublimit for public relations crisis management expenses.

States: Available in 50 states plus District of Columbia.

Carrier: Has 10 years of experience with this industry.

Contact: Susan Etter; info@ppibcorp.com; 415-475-4300.

www.mynewmarkets.com

Special Report:

Restaurants & Bars

By Andrea Wells

The restaurant and bar industry continues to serve up new ways to deliver their goods and services following the turbulent times experienced throughout the COVID-19 pandemic. While the most troublesome times have subsided, restaurants continue to reinvent their business landscape to meet consumer demands, industry insurance experts say.

“It has been really gratifying to see so many of our restaurant clients return to pre-pandemic levels, and even above that, in terms of their sales and more activity in opening new locations,” said Heidi A. Strommen, senior vice president, Primary Hospitality Programs, at Distinguished Programs. “It was a really good year for restaurants and for those of us that serve the industry.”

Strommen says while the industry lost thousands of restaurants during the pandemic those that survived, and subsequently thrived, are the ones that understand the need to innovate. “They had to innovate during the pandemic,” she said. And they continue to innovate.

The temporary “pivots” developed during the

pandemic — expanded delivery services, outdoor dining options, to-go alcohol offerings, and investments in technology — remain and now serve as the industry’s “new normal,” according to a new report by the National Restaurant Association.

New risks and exposures have emerged as restaurants innovated to stay afloat. Some 60% of full-service restaurants say delivery is a larger share of sales than 2019, the report noted. More than nine in 10 operators who set up outdoor dining and nine in 10 who started selling alcohol-to-go plan to keep doing so if it’s permitted.

The restaurants that thought they could just keep doing business as they were doing prior to the pandemic are the ones that did not do so well, Strommen says.

“The ones that realized that, even if they’d never done takeout before, figured out a way to do it,” she said. Even higher end restaurants that started offering takeout during the pandemic have continued that service today as demand for it continues, she added.

The National Restaurant Association report showed that 66% of adults say they’re more likely to order food for takeout than they were before the pandemic. Restaurants, even fine dining establishments, realized that takeout is a stabilizing revenue stream, Strommen added.

Some higher end restaurants innovated their menus with a more casual dining experience as well during the pandemic, and those options remain permanently, she said.

From a risk management perspective, many of the new food and service delivery

models, such as alcohol-to-go, haven’t been a big concern.

“Obviously there’s some additional exposure if they’ve taken on things like liquor to go, but so far that hasn’t created too many pain points,” said Christian Enwright, area president for Risk Placement Services (RPS). “Those new exposures haven’t been overly disruptive” to the insurance market, he said.

Paul Broussard, a risk advisor at Cavignac Insurance Brokers in San Diego, California, agreed.

“Liquor liability has stayed relatively flat. Rates are increasing but not as much as some of the other coverages out there,” he said.

There are some states with more stringent dram shop laws — laws that hold a business liable for over-serving a customer too much alcohol, or selling alcohol to minors. Some insurance companies will stay away from several states, including South Carolina, Alabama, and others. But adding alcohol-to-go hasn’t been a huge factor, he added.

“It might be a consideration from a rating standpoint, but I don’t think underwriting companies are declining the quote because of that being in their operations,” he said.

What has been disruptive to some restaurant insurance portfolios is property coverage, especially when it comes to restaurants in catastrophe-prone states and regions. But that is not unique to restaurants.

“We are having to pretty much mass market everything,” said Amy Vitarelli, senior vice president at Heffernan Insurance Brokers, who described today’s hard market as “way worse” than after 9/11 for insuring her restaurant clients located near the San Franscisco Bay area, or the Napa and Sonoma wine country. Property insurance is as hard as it’s ever been, she said.

“We can do the general liability, the workers’ comp, but we can’t do the property, and in some cases, we have to place the property with California’s continued on page 30

Industry continues to embrace operational changes to meet consumer demands and risk professionals need to keep up

Special Report: Restaurants & Bars

continued from page 29

FAIR Plan,” she said. There is capacity for property through the surplus lines markets, she added. But it’s not affordable.

“It’s more affordable in the FAIR Plan, even if that coverage is more restrictive.” When she compares the more limited FAIR Plan coverage against broader coverage available through surplus lines markets the cost difference makes it a tough buy, she added. “The cost savings is so dramatic, it’s so expensive to go with the broader coverage, that my clients will say, ‘I’ll take the more limited coverage because the cost is just outrageous.’”

Growing But Challenged

While the restaurant sector is growing, that growth is not always profitable. Staffing shortages and elevated costs remain top challenges for the restaurant sector this year.

“As a result, restaurant operators will still need to factor an elevated cost environment into their 2023 business model, and that will continue to squeeze margins,” according to the National Restaurant Association.

The restaurant and food service industry sales are projected to rise in 2023 to $997 billion in sales, up from $898 billion in forecasted sales at the beginning of 2022, and is projected to grow by 500,000 jobs, for total industry employment of 15.5 million by the end of the year.

Since rising food costs and higher menus prices are driving the increase in sales, that growth figure is distorted.

“If anything, profit margins are probably

somewhat diminished despite the fact that menu pricing has gone up,” Strommen said.

Rising costs for restaurants in California have led some of Vitarelli’s clients to move their operations entirely. “I see clients moving, like physically moving from one state to another,” she said.

For example, one large restaurant client with multiple locations in downtown San Francisco, moved to Arizona, she said. Insurance costs were considerably less there. “He (restaurant owner) literally thought I was lying to him when I gave him his budget for insurance in Arizona compared to San Francisco,” she said.

Overall, Vitarelli sees property/casualty rates for most accounts with good loss history beginning to level off in the restaurant/bar space. Workers’ compis a bright spot, she added. “That’s the one area where we’re seeing actual rates go down and securing savings for our clients.”

With rising food and labor costs, it’s important that agents and brokers continue to work with clients to adjust the rating basis of their policies to an exposure base that is not as impacted by inflation such as location count, transaction

A Note on Business Income

While most restaurants have seen their revenues return to pre-COVID levels, given continued volatility in food and labor costs, business income values remain unstable, according to Lindsay Shipper, managing director and Southeast Zone Property leader, Marsh.

“To ensure accurate value reporting, and therefore accurate coverage limits, we encourage our restaurant clients to employ a forensic accountant to complete a thorough business income study. These studies factor in revenues as well as costs, to ensure accurate values based on the client’s current business operations, and can be updated as revenues and/or costs change to ensure continued accuracy.”

“Since COVID, communicable disease exclusions are the standard, and therefore no coverage is provided for pandemic. Other non-physical damage business income coverages, such as loss of attraction, cancellation of bookings, etc., have also been limited. The market has moved back to traditional business income coverage application, requiring a physical damage (such as fire, tornado, named storm) to trigger business income loss. Based on the current market conditions, we don’t expect to start seeing a broadening of non-physical damage business income coverages this year.”

count, or number of employees, Kristi Whistle, managing director, Marsh, told Insurance Journal. “As risk profiles are forever changed in some ways, we continue to partner with our clients to ensure proper coverage is in place,” she said.

“For example, delivery is certainly a high-risk factor, but the bulk of restaurant brands are relying on third party delivery aggregators and thus

transferring that risk,” Whistle noted.

Most of the work that needs to be done to help clients is not necessarily around insurance products put in place, but on the pre-loss side to ensure guests and employees are kept safe. “There are several factors to consider in making these types of changes but for many it is worth evaluating and can result in pricing stability in their workers’ compensation and general liability programs,” Whistle said.

Claims

Insureds with good claims histories will see less pressure on rates this year.

But in order to keep claims down, restaurants should make sure their safety efforts are top priority, said Cindy Smail, a senior vice president with Marsh Advisory.

Smail says one interesting

trend worth noting over the past couple of years has been a rise in the percentage of incurred losses stemming from restaurant workers under the age of 19. “One could speculate as to the cause of this, but it’s apparent that restaurants would be well served to focus on safety training younger workers,” Smail said.

She said safety efforts including hazard recognition and awareness, safe workplace design, and effective training and coaching are important for workers of all ages, but may be even more important with less seasoned employees new to working in restaurants.

Vitarelli says, overall, claims for her book of restaurants have trended up since the start of the pandemic. “It feels like claims are just up in general,” she said. Yes, catastrophe-related property claims have risen but the normal restaurant claims — the slips and falls, the customer or employee injury, or the food-related illness — those seem to be up as well, she said. “And then, add in things like vandalism and it definitely feels like claims are up a little. ”

Another trend impacting Vitarelli’s restaurant clients’ perception of the P/C market is

poor performance on claims.

“I’m having to explain to all my clients that the response times of carriers has deteriorated on claims handling,” she said. “Especially as we’re going through their renewal and they’re like, ‘Well, you know, so-and-so hasn’t been so great on claims.’ And I say … ‘it’s literally every major carrier right now. We have claims open with all the major carriers and none of them are doing a great job right now,’” she said.

“We are having to hunt them down, call them, email them, and bug the adjusters to get back to our clients,” she said. That hasn’t always been the case, and some clients have been so displeased they want to switch carriers. But Vitarelli advises that is not a good reason to move in this environment.

Keeping Pace with Changing Business Models

The willingness of restauranteurs to innovate and change their business model to survive tough times, and thrive, is not going away as concerns over the pandemic diminish, Vitarelli says. Business models continue to change and so will the risks.

“People are definitely

looking at the behaviors of their customers and trying to address what they think people want now, as we live with COVID,” she said.

Vitarelli points to a new client who is building a space to accommodate small groups, such as a group of 12 to 15 so that they’re not in the open in a big restaurant. “Those are the conversations that I’m having with clients, even those with existing locations.” They are looking at the behaviors of their customers and making changes to their business models, she added.

The most important thing for agents to do in a changing risk environment is to be a consultant for clients, advises RPS’s Enwright.

“I think the agents should stay focused on being consultative with their insureds and make sure that the focus stays on the coverage, not necessarily price,” he said. “When you’re dealing with the sub-limits and exclusions, it’s really important to try to provide as much coverage as we can.”

Agents must keep up with how restaurants are using technology today as well, Strommen said.

More than four in 10 restaurant operators plan to ramp up investments in equipment or technology to increase productivity in both the front and back of the house this year, according to the National Restaurant Association.

“Technology is growing and becoming more important to every restaurant operation but there are still far too many restaurants that do not buy even basic cyber coverage,” Strommen said. “That worries me and it’s the responsibility of all of us to help educate the restaurant owners on the importance of cyber. Retail brokers have the face-to-face interaction with restaurant owners to really help them understand that the exposure is significant.”

From Construction Costs to Cyber Crime, Educational Organizations Face Multiple Insurance Challenges

By Jahna Jacobson

As the costs and consequences of education escalate, educational institutions at all levels face a rapidly growing slate of property and liability risks, including increasing sports liabilities and coverage for “trauma loss.”

Lines such as property, general liability, professional liability, and directors and officers (D&O) have been hardening, and schools and educational institutions, from daycare centers to colleges and universities, have been hit hard, according to Joseph Harrington, an independent business researcher and writer specializing in property/casualty coverages and operations.

“A limited number of com-

panies will insure educational institutions,” Harrington said while an instructor in the Insurance Journal Insurance Academy online course, Risk and Insurance for Educational Institutions. “Several highprofile insurers that used to handle this type of business have exited the market. So, this is what school administrators, college administrators, managers of education, risk pools and everybody else invested in education are dealing with.”

Insuring Buildings, Purpose

Harrington said there are two not-always-compatible imperatives for stakeholders when it comes to insuring and protecting educational operations.

The first is the physical prop-

erty and facilities. “They want to sustain the school itself, sustain the physical location, and keep it up and running properly,” Harrington said. “This, of course, will lead to an emphasis on loss mitigation and property coverage and devoting sufficient resources to that end.”

Schools are vital for education but are also community centers. For example, communities often use schools as shelters for people displaced by disasters. Having schools open for children and the space available for recovery efforts can be critical to a community’s ability to rebound after a disaster.

When schools shut down during the pandemic, it showed people what a vital

role they play, he said. “So, the community value of schools, the physical locations, if anything, the importance of them has gotten more recognition in the recent past and creates an outlook toward risk management.”

The second imperative is sustaining the educational process, Harrington said. “It may seem like the same thing, but not necessarily.”

“So, there is really a growing demand for both reliability of schools as ongoing institutions, things that will be there when times get tough for everybody so that they can rely upon them,” Harrington said. “Not only to teach subjects but to actually be communal resources for managing young people, in particular.”

School services extend beyond education to include recreation, food service, basic health-care services, and in some cases, a full range of services and support that is growing over time, Harrington said.

While the pandemic showed that education, by its strictest definition, could continue outside the bounds of a physical school, it also showed the value of the various services schools provide and how critical they are for families, employers, and the community.

Older Schools, More Challenges

“There are many older buildings, particularly in poor, aging communities, susceptible to damage both from external perils, as well as internal hazards,” Harrington said.

Rising construction costs have stymied efforts to maintain and rebuild schools in ways that would align their coverage rates with budgets. Costs are further increased by the need for accessibility, flexible spaces and updates that support educational needs and help keep students competitive and aligned with educational standards. Costs are even higher during the typical demand surge following a natural disaster.

“Some of the school public education risk pools have undertaken to line up contractors to be able to, basically, reserve them for the work in the event of a disaster,” Harrington said. “That’s one of the advantages to being in a risk pool, is that you can, given that a number of schools or a number of districts may be in the pool, you can have a steady stream of work for

your contractors, and perhaps reserve that.”

However, he added, if you’re in a risk pool and it’s a regional pool, and everyone is affected by the same natural disaster, it can strain resources. It may even result in an additional assessment.

Trauma Losses: A New Exposure

Schools are also facing a relatively new insurance challenge due to “trauma losses,” Harrington said.

These losses result from a traumatic event such as a school shooting. Even if physical damage to the facilities is minimal and the spaces may be restored and functional, “given what has happened there, no one wants to send their child there,” Harrington said.

Some schools choose to move forward with a total demolition and rebuild, such as Robb Elementary School in Uvalde, Texas, the site of a mass shooting in May 2022, and Sandy Hook Elementary in Newtown, Connecticut, which was the site of a shooting in December 2012.

“Sadly, school shootings have become common enough that any school board will have to consider, ‘What would we

do if a tragic event happened in one of our schools?’” Harrington said.

to arm teachers, which would raise many other insurance issues, Harrington added. If a teacher wants to be armed, should a school district allow it? “What liability might they assume if they prohibit someone from being armed and that person is not armed in the case of an attack?”

“We all know the reality today,” he said. When it comes to exposure for a violent attack on a school by an outside assailant, there is a “whole host of of questions about what is sufficient action to address the risk. Locking doors, requiring only permitted passage, a host of things like that.”

As a result, “the new thing butting its way in is the school shooter active assailant coverage,” Harrington said. “This is an insurance that has emerged in the past ten years or so.”

The coverage can include security consulting to help schools stay safer, access to resources and negotiation resources during an event, for example. It can also cover public relations and counseling services in the aftermath of an event, helping a school and its community to respond and recover.

In some areas, there is a call

Harrington said. “These are tough questions that add to the ‘damned if you do, damned if you don’t’ dynamic that falls upon schools.”

Buses

One of educational institutions’ biggest insurance challenges is covering the transportation that brings students to and from school every day.

“While school bus accidents are thankfully very rare, they are tragic events,” Harrington said. “And one can just only contemplate the size of a major claim if a bus full of children is struck (whether) the bus driver was negligent or not. So, getting the excess coverage is a problem for everybody anywhere.”

Directly or indirectly, schools “are going to be exposed to the stress conditions for commercial auto liability,” he said. “That market is struggling to achieve and maintain stability.”

Steps like stricter traffic laws surrounding school buses and onboard safety measures like seatbelts may help prevent injuries and death. Still, all commercial auto liability coverage buyers are now affected by the nuclear verdicts lodged against major commercial carriers.

“Also, compounding that market is the persistent shortage of qualified drivers, continued on page 35

‘A limited number of companies will insure educational institutions …’

Spotlight: Homeowners

Opportunity to Bring Value in High-Net-Worth Space

By Allen Laman

Expertise and relationship-building are especially important when securing insurance coverage for high-net-worth individuals. In the dynamic high-net-worth (HNW) homeowners insurance space, independent agents and brokers can stand out with their advice and guidance.

High-value home insurance is designed for high-net-worth individuals with luxury homes and expensive valuables and assets. Unlike traditional homeowners coverage, high-value policies can offer guaranteed replacement costs, non-depreciated cash settlement options, deductible waivers, broad liability coverage and flexible coverage limits.

“It’s a market that greatly benefits from agents and brokers,” said Ana Robic, division president of Personal Risk Services at Chubb. “The advice and counsel, really, of an independent agent, to ensure that a

high-net-worth individual and family has the coverages they need to protect their uniquely valuable possessions. So, it’s a spot in the marketplace that really requires that intermediary.”

Major Moves

Major insurance companies are making notable moves in the high-net-worth space.

Chubb earlier this year announced that on the consumer side, core high-net-worth segments were up 12.5% during the fourth quarter of 2022.

Meanwhile, American International Group entered a binding memorandum of understanding to form an independent managing general agency — falling in line with AIG’s previously announced intention to move its high-net-worth business to non-admitted paper and other capital providers.

In an interview with Insurance Journal, Ross Buchmueller, president and CEO of

PURE, predicted that the concentration of wealthy living in places like Palm Beach, Florida, and Malibu, California, will mean that a small number of insurers can’t satisfy all the need or opportunity for highnet-worth coverage. He imagines “more people coming in to play in this space, but probably, selectively, expensively on a non-admitted basis.”

That’s just a prediction; Buchmueller doesn’t believe the HNW space should drift to E&S. He stressed he believes the high-net-worth space is and should be an admitted environment, though he did acknowledge there is a purpose for non-admitted policies in certain cases.

‘Very Dynamic’ Market

Robic said the HNW homeowners insurance space is currently a “very dynamic” market. On one hand, carriers are expanding or entering, while others are retrenching and reconsidering. As a result, “there’s great opportunity to provide value

if you’re an agent or broker, with advice and guidance to these high-net-worth clients or prospects,” she said.

“They’re not accustomed to a market like this,” Robic said of high-net-worth individuals navigating an insurance market characterized by greater scarcity of options and increased pricing. “And instead of going to Google to figure out what solutions might exist, this is a much better hand-holding experience with an educated agent or broker.”

While the purchasing and building of high-end custom homes is growing, Lacey Garrison Strom, EVP and director of private client practice at Heffernan Insurance Brokers in California, said “we are seeing a shrinking insurance marketplace due to catastrophic risk and a massive increase in the cost of reinsurance, which carriers typically purchase for homes of a replacement cost higher than $10 million.”

She said the current HNW marketplace will have the ability to tailor programs that are both beneficial to the carrier and the client.

“Relationship building is the most important factor here,” she said of the HNW space. “The better the relationship a broker has with their underwriters, the more pre-underwriting a broker does on their own, and a broker that is brutally transparent will receive terms more consistently and faster than their competitors.”

knowledge. When Chubb writes new lines, for example, risk consultants inspect homes so closely they’ll use infrared cameras to assess cold spots.

PURE continually updates its loss prevention technology and wisdom, and has 77 full-time risk management professionals and engineers who know how to value luxury properties, identify exposure and prevent loss.

Giving people more value for much more expensive insurance is key.

Opportunity for Independents

The demands of serving demanding people require a sense of independence — and brokers who thrive in the space do so by working well for their clients, Buchmueller said. He added that’s more important today than ever.

“The fierce independence of our brokers is really one of our great assets,” he said. Insuring policyholders who own elaborate art collections, jewelry and boats requires deep valuation and protection

Spotlight: Education

continued from page 33

which is tough enough for commercial trucking to get people adequately trained, prepared, you know, for a CDL license,” Harrington said. “A bus driver, though, has to not only be a good driver, but also a good steward of children, or young people. And that makes the stakes even higher.”

Sports

“In the big picture, at least one of the things that continues to be an area of safety for schools is school sports,” Harrington said. As more sports are added “and as women’s sports expand, there are more participants and more injuries, including a growing number of injuries resulting from sports specialization.”

In the traditional history of school sports, students would participate in a few different activities throughout the

year. Today, however, students are more likely to specialize in a single activity at a younger age, which increases the risk of repetitive, long-term injuries in even younger students.

“How do we want to allocate the risk for injury and related damage and loss between the individual participants and their parents and the school?” Harrington said. “Who is going to bear that risk? And where’s the lion’s share of it going to fall? And how do we cover that?”

These are growing exposures that deserve “serious consideration at the local level,” he added.

Cyber Insurance

“Cyber coverage is now required. Okay?” Harrington said. “You cannot run a respectable educational institution without having some coverage, cyber coverage, at the very least for the personal

High-net-worth agents and brokers do a lot more than simply repair and replace for policyholders. They’re expected to share opportunities regarding predicting and preventing — helping clients avoid losses altogether.

“I think currently, we think there’s opportunity in the high-net-worth homeowners market,” Robic explained. “Where brokers and agents can work with the high-net-worth carriers to demonstrate the value that certain targeted insurance products have to those that are being underserved by standard markets.”

information that you have collected on your students and their families and their finances.”

Schools also need coverage for third-party exposures that may happen due to students using school computer labs, computers and networks.

“Schools are vulnerable to ransomware and demands,” Harrington said. “If your educational program is so heavily networked that a hacker could actually freeze the education process, I think you’re going to want a backup plan for that, for sure.”

The above article was based on transcripts from “Risk and Insurance for Educational Institutions – An Insurance Academy Online Course with Joseph Harrington. This course, and others, are available on demand with Insurance Academy membership at www. ijacademy.com.

‘The fierce independence of our brokers is really one of our great assets.’

Closer Look: Reinsurance

Reinsurance Recap: 2022 Results Mixed as Market Improves

By L.S. Howard

Full-year 2022 financial results, reported by a handful of international groups that write reinsurance, show mixed results in a market full of challenges — ranging from inflation to the Ukraine war to growing losses from natural catastrophes.

A wrap-up of these 2022 results follows for Munich Re, Swiss Re, Arch Capital, RenaissanceRe, and Everest Re — ranked in descending order by size of overall gross written premiums.

Munich Re

Munich Re posted a full-year profit of $3.6 billion (€3.419 billion) in the 2022 financial year, up from €2.9 billion in 2021, and surpassing its 2022 profit guidance of $3.5 billion.

The group’s fourth-quarter profit was $1.6 billion, compared to $918.5 million in Q4 2021. (Editor’s Note: Munich Re originally reported its figures in euros. For the sake of consistency with the other companies, the figures have been converted into dollars.)

“Munich Re absorbed the crises of 2022 well and continues to grow profitably,” Chairman Joachim Wenning said in a statement.

The group’s gross premiums written rose to $70.8 billion, a 12.7% increase over the $62.9 billion in 2021.

In the 2022 financial year, Munich Re’s return on equity amounted to 13.5%.

Munich Re’s property/ casualty reinsurance segment contributed $2 billion to the 2022 result. P/C reinsurance

premium volume grew “robustly” to $36.3 billion during the year, compared to $30.4 billion in 2021.

Despite high natural catastrophe losses in the market, the P/C combined ratio decreased to 96.2 of net earned premiums — an improvement over 2021 when the combined ratio was 99.6. Munich Re expects the combined ratio will improve to approximately 86 during 2023 for its reinsurance business.

Swiss Re

Swiss Re reported a 67% decline in net income to $472 million and a return on equity of 2.6% for the full-year 2022, compared with net income of $1.4 billion and an ROE of 5.7% for 2021.

“The decline was driven by the impact of economic infla-

tion on actual and expected claims in the property and casualty businesses, mark-tomarket impacts on listed equity investments and large natural catastrophe claims above expectations,” the company said.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler said the decline in 2022 results was driven by the impact of a challenging year, “marked by the war in Ukraine, surging inflation, the tail end of the COVID-19 pandemic and elevated natural catastrophe losses.”

For Q4 2022, Swiss Re reported net income of $757 million, up significantly from $179 million reported in Q4 2021.

Net premiums earned and fee income rose to $43.1 billion for 2022, a 0.9% increase over

$42.7 billion reported in 2021. The group’s gross premiums written (which include its P&C Re, L&H and Corporate Solutions units) rose to $47.9 billion for FY2022, compared with $46.7 billion in 2021.

P&C Re reported a net income of $312 million for 2022, supported by fourth-quarter net income of $595 million. The full-year P&C Re result was negatively affected by higher-than-expected economic inflation, for which Swiss Re set up reserves of $1.0 billion. (The reserves include prior-year and current-year reserves in the form of IBNRs.)

Net premiums earned for P&C Re came to $22 billion in 2022, compared to $21.9 billion in 2021.

Swiss Re’s P&C Re reported a combined ratio of 102.4 for the FY 2022, compared with 97.1

in 2021. The company blamed its underwriting loss on large natural catastrophe losses, negative prior year development and the impact of the Ukraine war.

Arch Capital

Arch Capital reported net income available to common shareholders of $1.4 billion for the full-year 2022, a 31% decrease from $2.1 billion reported the previous year. For fourth quarter 2022, Arch generated net income of $849.5 million, compared to $613.1 million for the 2021 fourth quarter.

Full-year gross written premiums for the group (which includes its reinsurance, insurance and mortgage segments) rose 23% to $15.3 billion from $12.5 billion in 2021, while they rose 32.6% during the fourth quarter to $3.8 billion from $2.9 billion in fourth-quarter 2021.

Gross premiums written by the reinsurance segment in the 2022 fourth quarter were 77.4% higher than in the 2021 fourth quarter.

Arch Capital Group and its subsidiaries reported a combined ratio of 81.6 for 2022, compared with 84.3 in 2021. For the fourth quarter, it reported a combined ratio of 73.5, compared with 77.6 in Q4 2021.

Its reinsurance segment reported a combined ratio of 92.2 for the full year, compared with 94.2 for 2021, with gross written premiums jumping 36% to $6.9 billion. The fourth quarter 2022 reinsurance combined ratio was 78.4, compared with 83.1 in the final quarter of 2021.

“For the fourth quarter of 2022, each of our three underwriting segments produced

exceptional results,” according to Arch Capital’s CEO Marc Grandisson.

“Our quarter’s results were buoyed by a lower than average cat loss experience, a significant favorable development in mortgage reserves and a higher level of profitable earned premiums from our recent growth,” he said during an earnings call with analysts.

With $1.8 billion of operating income and an operating return on equity of 14.8% for the year, Grandisson said, 2022 was the company’s third consecutive year of sustained premium and revenue growth.

He said the company’s net premium written growth from its P/C business “was exceptional.”

“The reinsurance segment’s [full year net written premium] grew 51% for 2022 as the team seized on market dislocations, while our insurance segment grew a robust 21% on the year.”

Everest Re

Everest Re reported net income of $597 million for fullyear 2022, a 56.7% drop from $1.4 billion reported for 2021. For the fourth quarter, the company had a net income of $496 million (vs. $431 million in the same quarter of 2021),

driven by continued underwriting margin improvement.

“Everest’s fourth-quarter results capped a strong year of consistent execution and positive momentum for the company,” said Juan C. Andrade, Everest president and CEO. “We grew both underwriting franchises [insurance and reinsurance] with improved margins, significantly reduced volatility and generated solid returns despite ongoing market uncertainty and another elevated catastrophe year.”

For the full year 2022, gross written premiums were nearly $14 billion, a 6.9% increase over $13.1 billion in 2021. For fourth quarter 2022, Everest Re reported gross written premiums of $3.6 billion for the group, an increase of 9% from $3.4 billion reported in fourth quarter 2021.

In constant dollars, gross written premiums rose 21% for insurance and 3.7% for reinsurance (excluding reinstatements).

The group’s full year combined ratio was 96.0, an improvement from 97.8 reported in 2021. For the fourth quarter, the company reported combined ratios of 87.8 for the group, 86.4 for reinsurance and 91.4 for insurance.

RenaissanceRe

RenaissanceRe reported a net loss of $1.1 billion for the year, compared with a $73.4 million loss for 2021. For the fourth quarter of 2022, the company reported net income of $448.1 million, up from $210.9 million for the same period in 2021.

Gross written premiums for 2022 were $9.2 billion for 2022, compared to $7.8 billion the previous year. The 21.2% growth in net premiums written during the year were driven by 41.6% growth in casualty and specialty.

Despite the annual loss, the company reported a 97.7 combined ratio, showing an improvement from the 102.1 reported for 2021.

“We finished the year with an excellent quarter, reporting an annualized operating return on average common equity of 29.6% driven by strong underwriting results, significantly increased net investment income and stable management fees. For the full year, we delivered a 6.3% operating return despite a net negative impact of $807.6 million from catastrophe losses,” Kevin J. O’Donnell, president and chief executive officer, said in a statement.

“At the January renewal we demonstrated leadership and discipline, achieving the step change in rate and terms investors required, while providing the reinsurance capacity customers needed,” he added.

The company’s weather-related large losses during 2022 had an $807.6 million net negative impact on the net loss attributable to common shareholders, adding 20.0 percentage points to the consolidated combined ratio.

Don’t Get Too Comfortable — The Cyber Rollercoaster Ride Isn’t Over: PLUS Conference

By Elizabeth Blosfield

Jeremy Gittler, practice leader and head of Cyber Americas at AXA XL, thinks of the cyber insurance industry as a rollercoaster. He says that after several years of turbulence with the advent of more sophisticated ransomware, the market is slowly inching back up, but that doesn’t mean insurers should let their guards down.

“It’s kind of been a wild ride or a swingy pendulum. So, if you think of it as a ride, I kind of think of a rollercoaster,” he said. “Everyone’s started feeling more comfortable with [cyber], and so at this point, now you have this huge influx into the market of capacity … Everyone’s kind of getting happy about it again. What I’ve seen though recently — and I find this a little concerning — is perhaps a little cockiness involved in that everyone wants to grow their book, but are they underwriting

the way they were a year-anda-half ago?”

He urged underwriters to remain bullish on cyber but to move forward with caution.

“We can’t be in a situation where we’re literally assuming everything is going to be fine,” he said. “This is not over with. It’s not.”

Gittler was speaking on a panel of experts at the 2023 PLUS Cyber Symposium held in New York City. Experts agreed that one reason cyber risk has been so difficult for insurers to manage is the amount of uncertainty in the space.

“The widespread events are definitely real … but the extent to which they can happen and the extent of damage that they might cause is really an unknown,” said Jason Glasgow, cyber lead at Allied World, noting that this uncertainty is more pronounced in cyber

than any other line. “And it’s really hard to price your capacity based on that uncertainty.”

Although it’s likely impossible to eliminate all uncertainty from the cyber market, if underwriters focus on becoming experts in the field, they can arm themselves with as much data and knowledge as possible to continue covering and pricing for exposures rather than eliminating coverage, he said.

“I think that you cover what you should cover, and you price for that exposure the way you know how rather than taking coverage out because you’re uncertain about it,” he said. “I think we need more data in terms of modeling, and more expertise. You want the decision-makers on this to be true experts in the field.”

Partnerships and Risk Mitigation

Liz Geary, president of insurance solutions at Liberty Mutual,

said much of this learning can come from better partnerships between insurers and their insureds.

“There is truly a partnership to work on risk mitigation together, and I think that does make the risk better,” she said. “And it makes us more comfortable with the risk.”

She added that the client and insurer relationship is changing as client requests continue to expand, moving beyond risk transfer to requiring much more of insurers.

“I think that the amount of work that we do for them has really increased pretty considerably,” she said. “It’s a very dynamic risk environment, so you’re only as good as your current intel, and you have to constantly change and constantly have this feedback with your clients to ensure that they are taking on a lot of your suggestions.”

Glasgow agreed, adding that a continuous dialogue between insurers and insureds is imperative in a changing risk environment.

“There needs to be that back and forth because, particularly in the SME (small and medium enterprise) space, maybe in the middle market … applicants want that relationship with their insurer,”

he said. “They really need that relationship.”

He said this means carriers will need to partner with insureds on all parts of the insurance contract, from risk management services to servicing claims, as well as suggesting vendors or tools to get them up to speed on their cybersecurity.

“Of course, you have the insurance contract itself helping to pay for issues that arise,” he said. “Companies need to see that’s the partnership that you’re looking for, so it’s not just about, ‘Am I buying an insurance policy for $30,000?’ It’s, ‘Am I getting a partner for $30,000?’”

Gittler said all of this will help with remediation and recovery as cyber attacks become more frequent, especially in light of the growing severity of ransomware.

“We know companies are going to get hit. The question is how quickly are you back up and running,” he said. “And that’s the reason why ransomware was so problematic, because even if you paid the ransom, it could still be a week or two before you’re back up and running, or more.”

If ransoms go unpaid, the recovery time could be even longer and add to the cost of business interruption, as well as data recovery, forensics, legal and, ultimately, the ransom payment itself. The solution, he said, is for both insurers and insureds to stay vigilant with underwriting and cybersecurity controls.

“As long as companies continue to do that, and there’s a marrying of solid underwriting and solid

controls by our insureds, I think we’re in a great spot,” he said.

Asking the Right Questions

Geary said that to sustain this partnership, it’s important for underwriters to ask even more specific questions of their insureds. This will allow insurers to gain a sense of clients’ business interruption impact if an incident does occur.

“I foresee a situation where underwriters could ask the clients, ‘Okay, who are those providers that you’re most reliant on? And what would the business interruption impact be if there were an incident?’” she said. “We don’t ask those kind of questions now, and I think that if we were to do that, then we would be better able to understand the implication of a disruption.”

Geary added that it’s not enough to ask clients who their cybersecurity providers are, but underwriters will need to dig into the specific impact to a client’s business, including to third-party vendors, in the event of a cyber incident.

“I think we ask a lot of the modeling companies with not a lot of information, and so I think that’s another way to think about it. Let’s be really specific with what types of providers you need coverage for,” she said.

“I think that

underwriting could be there. It’s not right now.”

Despite some needed cyber underwriting improvements, according to panelists, the market is attracting new buyers. Glasgow said some of this can be attributed to the increased insurer and client partnerships that

are already occurring. “Even in the hardest part of the cyber market during the last few years, there was still demand for new buyers, and there will be more new buyers coming into the market,” he said. “There is a limit as to what people will pay [for cyber coverage], and we’ve seen some of that on the upper scale, but I think that partnership and providing the services that we continue to do will add new buyers in the market.”

Blosfield is the deputy editor of Carrier Management.

Idea Exchange: The Competitive Advantage

A Better Method for Measuring Distributor Value

Carrier management teams are under intense pressure to cut expenses, but to make smart cuts, the right measures must be taken first. This is especially true when the cuts affect the distributors that generate all the carrier’s sales.

is designed 100% for the balance sheet, so measuring it solely by expense is a complete mistake.

proved beyond their ability to accept. So, the measures from the pre-slide rule days continue.

Compensation Buckets

For most agent-reliant carriers today, distributor costs are often near, or more than, 50% of their total underwriting expenses. The reasons for this high percentage rate vary. Sometimes this is because they manage their administrative expenses well and can afford to pay a higher portion of their expenses to agencies (a higher portion of their expenses, but not necessarily a higher portion of their premiums — two totally different measures).

Carriers that measure commissions only by expense make the same mistake. A distributor force in finance/insurance is like a machine in manufacturing. When a manufacturer buys an expensive machine, it is considered an investment and the value of that machine or new plant, for that matter, is measured on an ROI basis.

The smartest carriers will measure their distributors by ROI, not expense. Today, very few carriers, perhaps six, measure distributors by ROI. As someone said to me the other day, some carriers still have abacuses in their offices. Bear in mind that 150 years ago correct measures were difficult and often impossible to make. The results were simplified out of necessity. Therefore, commissions were counted and measured as a percentage of premiums.

Three major compensation buckets generally exist for carriers. Commissions are the largest. Contingencies are usually budgeted at 2% of net premiums written, plus or minus about two tenths of a percent. The third bucket is generically known as the excess compensation bucket paid in response to negotiations with distributors that fall outside of the first two buckets. This bucket has increased materially over the last 10 years.

By Chris Burand

Some carriers pay higher percentages of both premiums and expenses to distributors because they do not have any other value to offer. Their products are modest to poor, their claims servicing is modest to poor, their underwriting is usually poor and their staff turnover is generally high.

Regardless of any given carrier’s situation, when one single expense constitutes the largest underwriting expense by a large margin, it becomes a juicy target for budget cuts. A small cut in commissions might yield 10 times greater savings than all the postage stamp cuts for 10 carriers combined.

However, carriers that are looking for distributor expense savings are usually measuring the numbers incorrectly. It is the same mistake almost everyone in the industry and virtually 100% of consumers make regarding insurance. Consumers only see insurance as an expense while carriers only see commissions as an expense.

Consumers and most finance professors with whom I have interacted with in regard to insurance fail to recognize the balance sheet value gained. Insurance

One of my first large projects in this industry, around 1990, proved to a large national carrier that it was possible to accurately measure the ROI of each individual distributor. Breaking old habits when urgency does not yet exist is extremely difficult and the concept

These compensation factors are measured by carriers as a percentage of net written premium (NWP) in their financials, which made sense in the old world of straight up reinsurance with little geographic variance or machinations. In today’s more complex world, measuring as a percentage of direct written premium (DWP) is a better starting point because agencies are paid on DWP basis, not NWP. Correct measures are always related to function. Commissions are a function of DWP, not NWP. For some carriers it is a moot point because they buy relatively little reinsurance and what they retain is extremely consistent. Other carriers, however, buy a lot of reinsurance and are anything but consistent in how much business they retain. That inconsistency itself makes measuring on an NWP basis oxymoronic.

Next there is the question of, “Who cares how much commission is paid if the ROI is adequately positive?” Many companies generate a negative ROI at 13% commission and others may generate a positive ROI at 20%. The problem is that carriers do not distinguish in their commission rates between the good, the bad, and the ugly distributors. It is socialism. Everyone is paid the same.

If the goal of a carrier is to generate a 15% ROI and their largest cash expense (other than claims — which is not an

underwriting expense) is distributor compensation, it makes sense to measure input versus output. Furthermore, 13% commission is 550% more than 2% contingencies.

One can leverage outcomes much more effectively by affecting the 13% instead of the 2%. The 2% contingency is the only material distinction between satisfactory results and poor results that carriers have made in their compensation to distributors for the last 50 years.

Distributors to carriers are a lot like agency producers to agencies when graphed. The resulting curve is a Pareto curve (colloquially known as the 80/20 rule), whereby a few make the vast majority of sales. For carriers, unlike agencies, such production concentration has resulted in significant pressure to pay higher compensation to the large distributors. However, for a carrier that manages its distributor compensation and its distributors well, the curve, i.e. concentration, will be less extreme. The relationships will result in a more even line, which shows reduced expenses and less reliance on specific distributors who apply hard negotiating leverage.

The benefit of a good ROI measurement for distributors is that it acknowledges the value the best distributors bring. For example, why set a minimum book size requirement? What is the value of $500,000 DWP with a 40% loss ratio versus $2 million at a 65% loss ratio? It is not a straight trade off because loss ratios in the real world also affect expenses, surplus, growth capacities, and staff resources. A carrier can go broke, albeit slowly, at a 65% loss ratio. Simply pull the contract of the distributor that is not a fit with the carrier (and do not reappoint them when they join a network). One particularly successful carrier has zero volume requirements. Might they know better how to measure results?

Let’s say that all insurance companies have the same value formula of 10 times earnings. Let’s also assume two different carriers with that valuation have an expense ratio of 30% and an investment income of 5%. Let’s further assume the expense and investment ratios apply evenly for all their distributors. At a 40%

loss ratio and $500,000 premium, earnings are $175,000. At 10X, the value of that premium is $1.75 million. At a 65% loss ratio on $2 million, earnings are $200,000 or a value of $2 million. That is a tiny increase in value for four times more revenue and it is a realistic example. Different entities bring different values, and the smartest carriers will improve their compensation plans to reward the winners more than the losers.

Carriers really do not have a choice because less than one half of 1% of carriers have such good loss and expense ratios that they do not need to improve if they are to thrive, and maybe survive. The other 99.5% must improve to compete with the 0.5% that already possess serious competitive advantages. For most, this means that if they do not change the behavior of their distributors, the carrier will be put out of business, albeit probably slowly. Only so many surplus notes and unrealized investment gains can be booked to hide the massive profitability differences.

The benefit of a good ROI measurement for distributors is that it acknowledges the value the best distributors bring.

The third compensation bucket is what carriers are calling excess compensation. This is the compensation that the Spitzer probes seemed to target years ago (though the focus on the surface was contingencies, the actual target was excess compensation) and inadvertently made the issue larger rather than eliminating it. Carriers are mismanaging this expense horribly, mainly because they are mismeasuring it horribly. Carrier management and number crunchers are not even measuring it as a percentage of premiums, but as a percentage of total excess commissions.

Clearly those with the measuring tape don’t know what they should be measuring. Their perspective is, “I’ve allocated X% to excess compensation and no one should get more than Y% of the X% no matter how much value, or even premium, they generate.”

I cannot think of a good analogy of how bad that thought process is because even without considering the overall value generated, it should at least be measured as a percentage of premiums generated. Mismeasuring creates a phenomenal leverage point for distributors who bring an ROI of 0% or less because they know their negative value is being ignored. It’s money for nothing for them.

Carriers that want to measure ROI correctly for distributors and avoid throwing the baby out with the bathwater when they surgically improve their expense ratios, will find their measures begin to align with the desired outcomes.

The best place to begin improving expense ratios is by aligning profit share contracts with the correct measures. Profit sharing, historically and still mostly today, is based on the profitability and additional profitable growth of a book. The premiums used are DWP and sometimes earned premium. Yet it is measured and budgeted as a percentage of NWP without regard to growth rates or loss ratios. That is a complete breakdown between the measure and function. No commonality exists between the two.

One way some carriers re-connect the two is with a stability clause — one of the greatest disincentives ever created in any industry. In one way or another, a stability clause states that if the carrier makes too much money, every agency’s contingency will be cut (because the carrier needs to stay within budget as a percentage of NWP). That clause is completely illogical, and every intelligent carrier should be sure to eliminate it from their contracts.

Profit sharing is profit sharing in its purest sense. Just as a CEO is paid a bonus based on profits, not on NWP, so should agents. As I proved to a carrier more than 30 years ago, using ROI correctly to measure individual distributor contributions will deliver the best of all worlds. The net result is alignment with distributors that are delivering the best ROI while eliminating those with negative ROIs.

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-4853868. E-mail: chris@burand-associates.com.

Idea Exchange: Is It Covered?

Logic & Language and Forms & Facts

Improper Claim Denials

By Bill Wilson

Iinitiated this column in 2019 with a 12-month series of articles summarizing the key points in my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” In my June 2019 column, I wrote about what claim declinations should and shouldn’t do.

For example, all claim denials should be in writing, cite the specific policy language (and only that language) that is applicable to the claim, and explain why and how that policy language works to exclude coverage. Virtually all state Unfair Claims Practices laws support these premises.

In addition, all claim denials should NOT generalize or paraphrase policy language, reference policy language excerpts that

misrepresent the intent of coverage and cite policy language as a basis for the denial that has no real relevance to the claim. These criteria are supported in most states, again, by Unfair Claims Practices laws or case law, often based on an interpretation of such laws.

Recently, someone came across my June 2019 column and asked for examples of these doctrines. Given that this is the fifth year of my column, in this issue, I’ll provide five examples of claim denials or coverage opinions that I believe were improper.

Paraphrasing

An insured had a bank-wired transfer intercepted and the funds were stolen. The claim was denied under a cyber crime policy on the basis that the fraud itself must physically take place from within the insured’s or the bank’s premises. The

denial paraphrased policy language to support this as follows: “… related to the use of a computer inside the insured’s premises or the premises of the bank.” However, what the policy language actually said was: “… related to the use of any computer to fraudulently cause a transfer of that property from inside your premises or from a banking institution or similar safe depository, to a person (other than a ‘messenger’) outside those premises or to a place outside those premises.”

The language in the denial, even though shown in the written declination in quotation marks, was paraphrased incorrectly from what the policy language actually said and covered.

Selective Form Language Citation

This was a coverage inquiry and not a claim but illustrates why it is critical to read the policy and provisions therein

completely and not selectively.

A condo owner rented the clubhouse for his child’s birthday party and the property management company required evidence of at least $300,000 of liability insurance. The underwriter said his condo policy did not cover this exposure because of an exclusion for liability “Arising out of a premises: (2) Rented to an ‘insured’.”

What the underwriter failed to read or cite in the policy was an exception further down that page such that the exclusion applied only to liability “Arising out of a premises: (2) Rented to an ‘insured’ … that is not an ‘insured location.’” The definition of “insured location” included “Any part of a premises occasionally rented to an ‘insured’ for other than ‘business’ use,” which was exactly what the insured was doing.

Citing Policy Language Inapplicable To a Claim

A homeowner returned from work to discover that the first floor of her home had flooded due to a burst water pipe in the kitchen that had gushed all day. The denial letter cited over a dozen exclusions ranging from wear and tear to pollution to “birds, vermin, rodents, or insects.” The denial consisted largely of entire pages of exclusions that had absolutely nothing to do with the loss.

In addition, the adjuster failed to mention a policy provision at the end of the exclusions that said, “If any of these cause water damage not otherwise excluded, from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water … .”

Failing to Explain Why Exclusions Apply

A crane operator overloaded a crane during a test, causing it to collapse, resulting in property damage. The denial cited, word for word, the ISO CGL policy’s Coverage A Insuring Agreement (including every definition referenced in the Insurance Agreement), Exclusions j.(1)-(6), k., l., m., n., and t., none of which applied

to the claim. The denial offered no explanation as to why any of these exclusions applied to the claim.

Sometimes an adjuster will cite one or more exclusions that he or she believes applies to a loss and, also, one or more other exclusions that, after investigation, might apply.

In a Reservation of Rights letter, that is entirely acceptable. However, it is not acceptable to simply cite almost every exclusion in the policy as if the validity of the denial is based on the extent of the verbiage cited in the declination letter or the weight of the paper it’s written on. It also is not acceptable to cite an exclusion or, worse, a litany of exclusions without explaining why and how such policy provisions apply to exclude the loss.

In Harleysville Group Insurance v. Heritage Communities, 803 S.E.2d 288 (S.C. 2017), the South Carolina Supreme Court opined, “[I]t is axiomatic that an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage … generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient.”

Improperly Denying an Uncovered Loss

A dentist’s office computer system was hit by ransomware that encrypted all of his customer files. Similar to the homeowner water damage claim, the adjuster’s voluminous denial letter cited most of the exclusions in the dentist’s business income and accounts receivable policies, none of which applied to the claim.

What was not cited and was relevant to the loss was the insuring agreement in each policy form that required “direct physical loss.” Based on case law in that jurisdiction, the insured’s loss was not a direct, physical loss. So, the claim wasn’t covered, but not for the reasons cited by the adjuster.

In denying a claim, it is critical that legal and ethical practices be employed whether the denial is proper or not. That is likely required by statutory, regulatory, or case law but, given that this month (March) is Ethics Awareness Month for the insurance industry, it’s also always the right thing to do.

Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com.

Idea Exchange: Health Care

Changing Cyber Landscape Poses Challenges For Health-Care Market

If you’ve sold a cyber liability insurance policy lately, you know how quickly the market has evolved. Policies that were once inexpensive and universally available are now high-priced and hard to find.

Just a few years ago, we could get bindable quotes fairly easily for an insured, no matter how exposed they were. Believe it or not, the questions on an application were: name of the organization; address; website and revenue. That’s it!

By Anjali Camara

systems with over 1,200 sites. And Fierce Healthcare noted an all-time high of 45 million people affected by health-care breaches in 2021, up from 34 million in 2020.

Hospitals are prime ransomware targets, according to Healthcare IT News, because they have large amounts of mission-critical data that can be encrypted, the money to pay the ransom and boards that aren’t particularly tech-savvy.

There’s no doubt that health-care facilities possess vital information about their patients, but cyber-risk today extends well beyond privacy. More recently, business interruption has become a top concern for medical providers.

Responding to Ransomware

Premiums were low, coverage was broad and policies had generous limits. Needless to say, a lot has changed. Nowhere have those changes been more apparent than in the health care market, which includes hospitals, nursing homes, doctors’ offices and other medical providers.

A Health Care Wake Up Call

Not too long ago, agents couldn’t even get their health-care clients to consider a cyber policy. They just didn’t see the need. But with an increase in data breaches, new threats such as ransomware and several high-profile, health-care-related cyberattacks, the medical community began to take notice. One of the early wake-up calls was a data breach in the UCLA Health System, where 4.5 million patient records were compromised.

Since then, cyberattacks have literally crippled the operations of hospitals and nursing homes, delaying critical care and jeopardizing the safety of patients.

Cyber-protection firm Emsisoft reported, “at least 68 health-care providers in the U.S. were impacted by ransomware in 2021,” including multi-hospital health

When ransomware strikes a hospital, it can be life-threatening. Doctors can’t access patient records or look up dosages. Machines can’t dispense medication or provide oxygen.

A good example is CommonSpirit Health, which has 142 hospitals in 21 states and is the second-largest nonprofit health system in the U.S.

In October, it suffered a disabling ransomware attack. As reported by Axios, the attack “delayed surgeries and caused widespread disruptions in patient care.” In addition, millions of patients were left wondering if their personal information had been compromised.

Luckily, hospitals are developing ways to counter these attacks. By creating layers of communication and redundant systems, hospital staff can access alternative infrastructure in the event of a cyberattack. This may include an external, secure cloud platform or a separate network that operates outside of the hospital’s main network.

Not every health-care provider has the resources to invest in these types of protections. Many are vulnerable to attack and haven’t done enough to defend against cybercriminals. This puts

them at a disadvantage when it comes to qualifying for cyber insurance.

Required: Basic Cyber Controls

To stem mounting cyber losses, carriers have become very selective in whom they will insure. Applicants won’t be considered for coverage unless they can demonstrate they have some basic cybersecurity controls in place. These include:

• Multifactor authentication (MFA) to log into data management systems, email and applications. Most insurers want to see

and Ryan Gillispie

MFA in place across the enterprise.

• An incident response plan.

• Endpoint detection and response solutions, which combine real-time monitoring and analytics, scanning the external environment at its endpoints.

• Upgrades and patches to ensure the most recent software and security protections are running on systems and devices.

• Regular backups of data — segregated and offline.

• Employee training to prevent and respond to cyberattacks.

In addition, the renewal cycle of existing policies is forcing relatively less secure enterprises that need coverage to enact continuity and cybersecurity reforms. That increases their costs and affects their

ability to make a profit.

While the health-care industry is better prepared for cyberattacks than it was a few years ago, there are still providers who don’t see a compelling need for cyber insurance protection. Agents should do their homework and be ready to make the case for coverage. Any provider that handles electronic medical records should have cyber insurance.

Tips for Agents

Following are a few suggestions for agents and brokers selling in this market. Provide cyber-risk assessment tools. Cyber-risk assessments are conducted by independent firms or made available through a carrier or wholesale broker. An assessment can identify security

vulnerabilities and suggest ways to reduce exposure, so your client has a better chance of getting insured.

Partner with a wholesaler that specializes in cyber. Cyber liability is a nonstandard coverage that varies from carrier to carrier. If you’re unfamiliar with this market, partnering with a wholesaler with experience in cyber insurance may be the best way to meet your client’s needs.

Make sure the right people are filling out cyber applications. Cyber apps have become extremely technical. Have someone with cybersecurity knowledge fill them out correctly.

Understand that coverage is only part of the equation. Make sure the carrier has proven claims-handling ability. Cyber liability lawsuits are expensive to defend.

Ask what the carrier will do to help your client mitigate risks and respond to incidents. What services or products can they provide your clients to help them reduce their cyber exposures, making them better insureds?

It’s not clear what the next big cyber risk will be for health-care providers. With the industry increasingly dependent on digital communication — think telemedicine — odds are high cybercriminals will devise new ways of attacking critical systems and networks.

Agents can help their health-care clients steer clear of danger by apprising them of the latest risks and working with them to secure needed cyber-liability protection.

Camara, Ph.D., is partner and head of cyber at Connected Risk Solutions, a wholesaler specializing in professional liability, cyber, health care and related lines of insurance. She can be reached at Anjali. Camara@connectedrisksolutions.com. Gillispie is managing partner, health-care practice leader, at Connected Risk Solutions. He can be reached at Ryan.Gillispie@connectedrisksolutions.com.

To stem mounting cyber losses, carriers have become very selective in whom they will insure.

Idea Exchange: Liquor Liability

Landlords and Their Tenant’s Liquor Liability

By Paul Broussard

Alandlord decides to lease a space in a retail strip center to a sports bar. The landlord’s commercial real estate representative sends the lease to the new prospective tenant to sign — it is a standard industry lease that has the typical insurance clauses like general liability, workers’ compensation, property, etc. — simple enough, right?

However, there is one important consideration for landlords leasing to restaurants or bars serving alcohol — liquor liability.

Chances are the tenant has liquor liability already even though it may not be required in the lease, and yes, the indemnification and hold harmless clause in the lease may be broad enough to encompass any liquor-related matters.

However, depending on the lease indemnification language and the structure of the tenant’s insurance policy, the tenant could be forced contractually to defend the landlord out of pocket or the landlord (and/or landlord’s insurer) would have to defend the landlord until the indemnification could be enforced against the tenant for both damages and legal expenses. You can see how this might create a sticky situation for a landlord-tenant relationship.

In some states, the landlord can be held liable for the actions of a tenant. While my understanding is that it typically applies to criminal actions, it is not unreasonable to believe a landlord’s vicarious liability could be applied to liquor liability claims depending on the state’s dram shop laws, especially if the landlord is grossly negligent (failing to vet/perform due diligence of tenant or turning a blind eye to

the tenant serving alcohol to minors).

Landlord Concerns

The first question a landlord might have is, “Will my tenant’s insurance cover me?”

It depends. Typically, liquor liability is added to the Commercial General Liability (CGL) policy using a separate coverage form (like a CG 00 33 04 13 Occurrence form) that has its own insuring agreement, distinct limits, and its own conditions. If that’s the case, any “blanket” additional insured endorsement language will not be automatically extended to the liquor liability coverage part (unless the liquor liability coverage part is specifically listed as being modified by the endorsement).

Also, there is no contractual liability coverage provided in the liquor liability coverage part, so the lease indemnification will not trigger the tenant’s insurer to provide defense for the landlord. There may

be cases where the tenant’s liquor liability coverage is provided by endorsement that modifies the general liability coverage part, like in a Business Owners Policy (BOP). In that case, the “blanket” additional insured language should extend to the landlord for liquor liability, as well (when required by written contract).

The second question a landlord might have is, “Am I protected under my general liability policy?”

Again, it depends. Some landlords of triple net (NNN) leases don’t even carry their own liability coverage — something we advise against — because they assume the tenant’s insurance policy will cover them, which isn’t always the case. It also depends if the landlord has standard general liability policy language or if there is any absolute liquor liability exclusion.

The unendorsed Insurance Service Office (ISO) CGL (form CG 00 01 04 13) excludes liquor liability “if you are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.” If you don’t manufacture, distribute, sell, service, or furnish alcoholic beverages, any resulting liability would be covered. This is known as “Host Liquor” liability coverage.

That said, the landlord needs to evaluate their lease terms to see if they can be considered “in the business” of “selling” alcoholic beverages. For example, if the lease terms dictate that the landlord receives a percentage of the tenant’s gross sales, the landlord has a profit motive regarding alcohol sales. While the landlord is generally in the business of leasing space, this could be considered “in the business of selling alcoholic beverages” whether directly or indirectly.

Regardless, a good attorney could probably win both sides of this argument. As a precaution though, this landlord should endeavor to require the tenant to name the landlord as additional insured on the tenant’s liquor liability coverage part and/ or look into purchasing their own liquor liability coverage.

If the landlord does not have an alcohol-related profit motive, then the landlord should look to the Host Liquor coverage provided in an unendorsed ISO CGL pol-

icy to at least trigger their insurer’s duty to defend for their vicarious liability.

The third question a landlord might ask is, “How can I protect myself?”

Here are some suggestions for landlords with bar/ restaurant tenants:

• Require the tenant to carry liquor liability coverage with adequate limits.

• The liquor liability lease requirement should state there should be no exclusions for assault and battery or sexual abuse.

• Request or require by contract to be specifically named as a designated additional insured on tenant’s liquor liability policy using form CG 34 01 Additional Insured Owners, Managers or Lessors of Premises Liquor Liability. Please note that this ISO form was only introduced in 2019 so some carriers may not be using this form yet, depending on the state.

• If not allowed by the liquor liability carrier, consider contractual language regarding tenant’s duty to defend obligation to be immediately triggered for alcohol-related claims where landlord is named in the suit.

• Track and review tenant certificates of insurance with the applicable additional insured endorsements being requested by contract. Request and review the full policy to confirm no assault and battery exclusions and that landlord is named as additional insured for the liquor liability coverage part (not just general liability coverage part) where permissible.

• Track tenant’s liquor license renewal dates and ask them to provide renewed liquor licenses to you for confirmation. Most liquor liability policies exclude coverage for all insureds if the proper licensing is not in place.

• Maintain a landlord liability policy including host liquor liability with sufficient limits in the event the tenant’s

insurance does not adequately protect the landlord for liquor related matters.

• Discuss these matters with a qualified legal professional to structure leases properly and transfer the risk to the party that actively manages and controls the liquor exposure and stands to profit from the activity. The laws in every state are different regarding dram shops and contractual indemnifications, so an experienced attorney in your jurisdiction will be invaluable.

There are several insurance and risk management implications and variables when considering leasing to restaurants and bars serving alcohol. It is important that the insurance broker and legal counsel be involved early, and often, to ensure adequate protection for a landlord.

Broussard, CIC, MLIS, SBCS, PWCA, cyRM is a risk advisor at Cavignac Insurance Brokers in San Diego, California, and is experienced in hospitality risks, real estate risks, as well as professional trades such as architects and engineers.

Idea Exchange: Emerging Risks

3 Emerging Risks to Watch: Generative AI, Deceptive Design, Bidirectional EVs

Innovative technologies can be transformational for businesses, industries and our way of life, but they also represent risks. Advances in new areas of tech, such as artificial intelligence (AI), are creating unforeseen threats that insurers must grapple with or risk new exposures. However, three emerging risks rise above the rest as issues the insurance industry should monitor closely.

capabilities heighten the threat of criminals potentially gaining access to company or individual data and committing fraud or data breaches.

By Lee Shavel

Generative AI: A New Day Dawns … for Cyber Risk

Barely a day seems to go by without a story heralding a new milestone for Generative AI — the machine learning technique that can create original content such as images, text, video and computer code, from simple text prompts.

In January 2023 alone, we learned that Generative AI has been used to design homes, act as a defense attorney, and imitate human voices. Market researchers see Generative AI apps, such as OpenAI’s popular ChatGPT, creating plenty of revenue — potentially $109 billion by 2030. But the same creative power that has captivated our attention has also raised potential concerns.

Generative AI’s capacity to both mimic real-life people and have seemingly human interactions may be among the most pressing concerns for insurers. It’s taking the concept of a “deep fake”— an artificial likeness of an actual person — and giving it the added realism of interactivity. Today, many cybercriminals are often able to perpetrate fraud and phishing scams on a seemingly industrial scale using text and email. With Generative AI, it may be possible to generate video calls with deep fake imposters or possibly audio calls with an AI that sound identical to a living person. Those

We may only have scratched the surface of Generative AI’s capabilities, but already it appears that the potential for cyber mischief could be profound. Insurers and regulators are sure to keep an eye on this technology as its usage and capabilities expand.

Dark Patterns: FTC Shines Light on Deceptive Designs

If you’ve ever inadvertently clicked on a digital ad, found yourself hurrying to purchase an item before a countdown timer expires or spent countless minutes trying to cancel an account that took seconds to create, you may have been a victim of a dark pattern.

A dark pattern is generally a design practice that attempts to trick or manipulate people into a choice they likely wouldn’t otherwise make. While dark patterns existed before the internet, the digital era has led to renewed concern about the practice as it’s become easier to build, test

and deploy manipulative designs at scale. Regulators have taken notice — and action. In October 2021, the Federal Trade Commission (FTC) warned that it was ramping up enforcement against companies that resort to dark patterns. In December, they made good on the warning, announcing a $245 million action against a popular videogame maker. Several states are also explicitly referencing dark patterns in enacting privacy legislation, particularly as it pertains to obtaining consumer consent.

Insurers should take notice of these recent regulatory trends to ensure their own design practices don’t violate legislation, as well as keep an eye on potential exposure from any insureds using these design patterns.

Bidirectional EVs: Are Portable Power Plants Worth the Risk?

Most electric vehicles (EVs) today are sold with unidirectional charging — they receive alternating current from a charging source and convert it to direct current to charge the batteries that power and propel the vehicle.

But an emerging class of EVs and charging stations now support bidirectional charging. They’re equipped with inverters that transform the direct current used in their batteries to the alternating current needed for appliances, homes and even the electrical grid.

Bidirectional charging can essentially transform EVs into mini power plants.

While it’s not yet a mainstream feature, there are several tests underway involving vehicle-to-grid charging.

But while providing emergency backup power or a clean source of reserve power for an overstretched electric grid can provide obvious benefits, the incorporation of bidirectional charging functionality into EVs raises a number of as-yet-unanswered questions, such as:

• Will bidirectional charging impact

March 20, 2023

Pie Casualty Insurance Company 1615 L Street NW, Suite 620 Washington, DC 20036

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.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

battery performance?

• What are the fire risks associated with bidirectional charging applications?

• Could a hacked EV possibly become a vector for malware targeting homes or even the grid?

The answers to these questions should be of great interest to insurers, especially with the growing popularity of electric vehicles and the subsequent rise of automotive

March 20, 2023

Omaha National Insurance Company 9110 West Dodge Road, Suite 300 Omaha, NE 68114

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.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

March 20, 2023

Normandy Insurance Company 4800 N Federal Hwy, Suite A302 Boca Raton, FL 33431

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.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

cybersecurity incidents.

As these risks evolve, they are sure to have an impact on the industry, potentially increasing exposure. Keeping track of these issues will be critical to strategic planning and risk management as we journey into the future.

Shavel is president and chief executive officer of Verisk, a data analytics and technology partner to the global insurance industry. He brings nearly 30 years of experience advising and leading publicly traded companies to Verisk.

March 20, 2023

William Penn Life Insurance Company of New York

70 East Sunrise Highway, Suite 500 Valley Stream, NY 11581

The above company has made application to the Division of Insurance to obtain a Foreign Company License to transact Life, Accident, and Health Insurance in the Commonwealth of Massachusetts.

Any person having any information regarding the company which relates to its suitability for the license or authority the applicant has requested is asked to notify the Division by personal letter to the Commissioner of Insurance, 1000 Washington Street, Suite 810, Boston, MA 021186200, Attn: Financial Surveillance and Company Licensing within 14 days of the date of this notice.

Closing Quote

Fueling Agency Growth Through Succession Planning

by offering services you’ve not provided before.

By Alicia Chandler

For many business owners, succession planning is a task that can often fall into the “I’ll get to it someday” category. If you’re putting off succession planning, however, you may be missing an opportunity for organic growth for your agency. Here’s why.

Organic Growth Defined

First, let’s talk terms. It’s not just fruits and vegetables that come in organic and inorganic varieties — so do growth opportunities for your independent insurance agency. Organic growth happens when you use your own product or services to generate revenue for your firm. Inorganic growth occurs when you generate revenue by buying another business or

Both types of growth can be positive for your business. They each have their advantages and challenges. Efforts to increase your revenues organically could be thought of as “doing what you do, but doing it even better.” Building relationships with referral sources, strengthening company culture, and fostering client loyalty are traditional, low-risk ways of fostering organic growth. So, too, is succession planning, when structured strategically.

Inorganic growth options include purchasing another agency or offering new types of products. One example is using insurtech to create products like coverage for microevents (e.g., borrowing a friend’s car). Industry leaders are even exploring how to insure the metaverse. Inorganic growth strategies involve more risk but may come with greater rewards than organic growth methods alone.

Succession Planning

A succession plan with

a multi-year buy-in, while the owner is still active in the business, provides an additional revenue stream from the buyer’s payments. That revenue can be used to fund new producers or pay for technical upgrades, training programs, marketing efforts, and other tools to build the business.

The most obvious advantage of succession planning is that you know your agency will be in good hands after you leave the business. All the hard work you put into building your business and its reputation will not be lost. You will be able to focus on the daily activities of running and growing your business without the worry of wondering about your exit strategy. It also gives your clients confidence that their needs will be met even after you leave the business.

Benefits of Planning Early

Many owners put off succession planning until shortly before they expect to retire or sell, but starting early has many advantages. If you have a preferred successor who cannot yet afford a full purchase, allowing them to buy in through a phased-in approach over several years may bring the purchase within reach.

The business will benefit from your successor learning the ropes of agency ownership gradually under your leadership. Their ideas, operational style, and new ways of doing things can lead to positive growth for your business. Their buy-in payments will provide revenue that can be used to build the business.

Clients will benefit because they get to work with your successor while you’re still there, and they have confidence that if something happens to you, your successor and the rest of your team can immediately step in. With a succession plan in place and the additional revenue stream that comes with it, you can turn your attention to new opportunities for growth. Another benefit of bringing in a successor early is that you aren’t reliant on market prices and tax situations at the time immediately before you want to leave the business. Working with your lender and CPA, you can time the deal to take best advantage of market and tax conditions.

Getting Started

A good succession plan requires several areas of expertise. A lender is just one piece of the puzzle. We work with accountants, attorneys, and mergers and acquisitions advisors through the process. This team can help craft a plan that best fits your situation. It is wise to work with a lender who has experience with insurance agency transitions and the ability to provide flexible structuring for the eventual deal package. And remember, it’s never too early to begin discussing your ideas with your team of advisors!

Chandler is president of Indianapolis-based Oak Street Funding, a First Financial Bank company, with customized loan products and services for specialty lines of business including certified public accountants, registered investment advisors and insurance agents nationwide.