Insurance Journal West 2023-06-19

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EEOC Targets Construction Diversity, Equity & Inclusion

The construction industry is critical to our nation’s economy. It is also one of the country’s largest industries, employing nearly 11.8 million people in 2022. But for more than a decade, construction has struggled to recruit and retain enough workers to meet the sector’s growing demand.

The Associated Builders and Contractors reports that by 2024 the construction industry will need to bring in more than 342,000 new workers to meet current industry demand, and that’s presuming construction spending growth slows significantly next year.

But according to a new report by the U.S. Equal Employment Opportunity Commission (EEOC) titled, “Building For The Future: Advancing Equal Employment Opportunity in the Construction Industry,” federal infrastructure investments into the construction space may provide a new opportunity to hire and diversify the construction sector’s workforce. The Infrastructure Investment and Jobs Act of 2021 and the CHIPS and Science Act of 2022 provide an opportunity to build a more inclusive construction industry and ensure that it is equally open to all qualified workers, the EEOC says.

“Many construction companies and industry groups are making good faith efforts to comply with civil rights laws and are undertaking proactive steps to reduce the barriers that have historically limited access to good construction jobs,” the report says. “Nevertheless, discrimination remains a substantial barrier to entry, retention, and advancement of women and people of color in construction.”

The report provides findings and next steps based on the agency’s enforcement experience, witness testimony presented at the EEOC’s May 2022 hearing on discrimination and harassment in construction and other Commission hearings and academic research.

The report’s key findings say:

• Women and people of color are underrepresented in the construction industry and especially in the higher-paid, higher-skilled trades.

• Discrimination based on sex, race and national origin persists and contributes to the underrepresentation of women and workers of color in construction.

• Harassment is pervasive on many worksites and poses a significant barrier to the recruitment and retention of women and workers of color in the industry.

• Racial harassment in construction often takes virulent forms and nooses appear with chilling frequency on jobsites across the country.

• Harassment in construction is a workplace safety issue as well as a civil rights issue.

• Construction workers who experience discrimination often do not know to whom or how to report violations.

• Retaliation is a serious problem in the construction industry and hinders efforts to prevent and remedy unlawful discrimination and harassment.

The EEOC’s report on advancing equal employment opportunity in construction is available at: https://www.eeoc.gov/.

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

Staff Accountant Sarah Kersbergen | skersbergen@wellsmedia.com

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: Frederick Fisher, Tim Hardcastle, Dr. Robert Hartwig, Rachele Holden, Matthew Mitchell, Matt O’Brien, Jim Sams

Columnists: Chris Burand, Tony Caldwell, 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

‘[D]iscrimination remains a substantial barrier to entry, retention, and advancement of women and people of color in construction.’

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News & Markets

33 Million Homes at Risk, but New Models Aim to Better Predict Storm Surge, Losses from Hurricanes

About 33 million U.S. homes with a combined reconstruction cost value of $11.6 trillion are at risk of hurricane-force winds. But two new computer models promise to help property owners and insurers better predict where those winds will hit in the coming hurricane season and beyond.

CoreLogic in late May released its 2023 Hurricane Risk Report to mark the start of the Atlantic hurricane season and found that more than 32 million single-family residences and 1 million multifamily residences are at moderate or more significant risk of sustaining damage from hurricane-force winds. Nearly 8 million homes, with an RCV of $2.6 trillion, have direct or indirect coastal exposure, making them susceptible to storm surge.

More than 4 million homes are in the New York City metropolitan area with combined RCV of $2.4 trillion are at risk. Other major metro areas with substantial hurricane wind risk are the HoustonWoodlands-Sugar Land and Miami-Ft. Lauderdale-Pompano Beach areas, with combined RCV of $649.8 billion and $585.0 billion, respectively, said CoreLogic.

The same week, the National Hurricane Center announced it had improved its Probabilistic Storm Surge model to version 3.0, which will provide coastal surge predictions up to three days in advance. That’s an improvement over the two-day warning that officials had previously used.

“It’s a big upgrade,” NHC storm surge specialist, Cody Fritz, told National Public Radio.

The system, which combines wind and storm tracks with new data on vegetation in the storm’s path, also allows surge modeling for the first time for Puerto Rico and the U.S. Virgin Islands, which have been hard-hit by storms in recent years. The changes don’t come a day too soon, officials said.

“We are seeing a sharp increase in catastrophic storm surge impacts in our coastal communities,” Ken Graham, director of

NOAA’s National Weather Service, said in a statement. “Our new capabilities to effectively and accurately model and forecast storm surge (are) critical to upholding the NWS mission of protection of life and property.”

Also, Aon, the global data analytics firm, unveiled a new computer model and forecasting system that allows insurers to better assess portfolio losses as soon as a hurricane’s landfall point becomes clear.

The Auto Event Response program combines NHC data with up to 10 academically reviewed models to produce real-time impacts on exposed properties, Aon Managing Director Daniel Hartung explained in a webinar.

The system, which examines properties in a storm’s actual path, rather than basing losses on simulations or probabilistic forecasts, can produce a “quantifiable loss estimate at various granularities,” he said.

It also provides a better idea of the

actual wind speeds as hurricanes move inland and decay, he said. A report will be delivered automatically via email to subscribers, within an hour of a forecast update.

A new version of Aon’s Impact Forecasting, an enhanced hurricane model, is now being reviewed by the Florida Hurricane Commission, Aon’s Will Skinner said.

Forecasters recently have called for an “average” hurricane season in the Atlantic. But “average” does not necessarily mean less risk or lower costs.

The 2022 Atlantic hurricane season was close to average, with 14 named storms, eight hurricanes and two major hurricanes, but one of those was Hurricane Ian — among the strongest hurricanes to ever make U.S. landfall. Ian was also one of the costliest hurricanes in history in terms of insured losses, causing an estimated $60 billion.

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Single Voicemail Enough to Violate Telephone Consumer Protection Act

By Jim Sams

Asingle voicemail message left on a cellphone without permission is enough to allow an individual to proceed with a class-action lawsuit alleging violations of the Telephone Consumer Protection Act of 1991, a panel with the 6th Circuit Court of Appeals ruled on June 1.

The appellate panel reversed a District Court ruling that found Matthew Dickson lacked standing to pursue a lawsuit against Direct Energy LP because he suffered no concrete harm.

“The 6th Circuit’s ruling in Dickson v. Direct Energy resolves a critical legal issue for TCPA plaintiffs on Article III standing and will allow our case to move forward and hopefully secure a judgment for the in excess of 2.5 million class members who were subjected to Direct Energy’s illegal prerecorded telemarketing calls,” Dickson’s attorney, Brian K. Murphy, said in an email.

The TCPA allows civil penalties of $500 per call, or $1,500 for “willful violations.” Murphy, a partner with the Murphy Murray Moul + Basil law firm in Columbus, Ohio, said Dickson is seeking damages in the range of $1.4 billion to $4.2 billion for Direct Energy’s robocalling campaign.

Dickson alleged in a lawsuit that he

received “multiple” ringless voicemails, known as RVMs, on his cell phone in November 2017. RVM technology allows telemarketers to automatically dial telephone numbers and deliver prerecorded voice messages without triggering the device’s ringer.

Congress passed the TCPA in 1991 to bar automatic telephone calls to people who have not given permission. Dickson alleged that the pre-recorded messages placed on his cell phone by “Nancy Brown with Direct Energy” were a nuisance and a violation of the law. He filed a lawsuit and sought class-action status to seek damages for an estimated 2.5 million consumers who received voicemails during Direct Energy’s telemarketing campaign.

During discovery, Dickson said he received 11 ringless voicemails from Direct Energy. An expert for Direct Energy, however, concluded that only one of those RVMs came from the company, which sells electricity distribution plans to residents and businesses.

U.S. District Judge John R. Adams, with the Northern District of Ohio in Akron, ruled that a single RVM was not enough concrete harm to give Dickson standing because Dickson was not charged for the call and the call did not tie up his phone.

Dickson appealed, arguing that even one call was an “intrusion upon seclusion.”

The 6th Circuit panel said it has never before been asked to decide whether a single call is enough to give a consumer standing under the TCPA. The panel reviewed several decisions by the Supreme Court and other Circuit Courts to decide that it is. Citizens have a common-law right to privacy, which includes the right to be left alone, the panel said.

“From a lay perspective, we can see why members of the public and Congress, through the TCPA, deemed such calls intrusive,” the opinion says. “For example, some consider their phone number a matter of private information in and of itself. People commonly exercise discretion in publicizing their phone numbers, entrusting them only to their circle of friends, family, and select others.”

The panel said the District Court relied on two 11th Circuit rulings that found an invasion of privacy must be “substantial” to create a concrete harm that would give Dickson standing to pursue his lawsuit. Those rulings are “not persuasive,” the panel said, because they did not look to “both history and the judgment of Congress to determine whether an intangible harm is sufficiently concrete to constitute an injury in fact.”

“Dickson’s receipt of an unsolicited RVM bears a close relationship to the kind of injury protected by the common law tort of intrusion upon seclusion; and his claimed harm directly correlates with the protections enshrined by Congress in the TCPA,” the panel said. “Therefore, Dickson suffered a concrete injury in fact sufficient for Article III standing purposes.”

Sams is the editor of Claims Journal.

‘[W]e can see why members of the public and Congress, through the TCPA, deemed such calls intrusive.’

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Figures

$14,000

The monthly salary California goat grazing services and herding companies could be required to pay herders — up from about $3,730 — if no changes are made to state labor regulations set to take effect Jan. 1. Goats are in high demand to clear vegetation that could fuel wildfires. One herder typically handles about 400 goats. Many herders are from Peru and live in employer-provided trailers near grazing sites. Herding companies say the new rules affecting overtime pay will make it unaffordable to provide goat grazing services.

$24,000

$267,622

The amount in penalties the U.S. Department of Labor’s Occupational Safety and Health Administration proposed against Dollar General Corp., citing the company for two repeat and three serious safety violations at two stores in Southeast Oklahoma. OSHA says the Oklahoma violations are part of a trend. In 12 inspections in six states from October through December 2022, OSHA cited Dollar General stores for dozens of violations, including many repeat violations and proposed nearly $4.5 million in penalties. Since 2017, OSHA has found violations in more than 240 inspections at U.S. stores operated by Dollar General Corp. and Dolgencorp LLC, and proposed more than $21 million in penalties.

The amount in settlements Florida investigators allege a former Progressive Insurance claims adjuster pocketed via a scheme in which she used claimants’ identities to submit fraudulent auto claims. Kiyuana R. Pasley, 41, of Homestead, was an adjuster at Progressive from 2019 to 2022. The Florida Department of Financial Services said in a news release that an investigation “revealed that Pasley hijacked up to 11 active claims without the knowledge of the insured.” She has been charged with fraud.

$10 Million

The amount E. Jean Carroll, the advice columnist who won a $5 million sexual abuse and defamation award against former President Donald Trump, is seeking in a court filing aiming to hold him liable for remarks he made after the verdict. The amended lawsuit was filed in New York City by Carroll’s lawyers, who said Trump “doubled down” on derogatory remarks about the former Elle magazine columnist during a cable television appearance a day after the $5 million verdict was handed down.

Declarations

California Insurance Options

“Our first priority is helping consumers to understand their options for finding insurance with another company or the California FAIR Plan.”

— A California Department of Insurance (CDI) spokesperson said following State Farm’s late-May announcement that it was no longer writing new personal or business property/ casualty policies in California. The insurer cited increased risks from wildfires and inflation among its reasons for ceasing to write those types of policies in the state.

China Cyber Threats

“The U.S. intelligence community assesses that China almost certainly is capable of launching cyberattacks that could disrupt critical infrastructure services within the United States, including against oil and gas pipelines and rail systems. … It’s vital for government and network defenders in the public to stay vigilant.”

— U.S. State Department spokesperson Matthew Miller said in a press briefing after the department warned that a Chinese cyber-espionage campaign had been aimed at military and government targets in the United States.

‘A Deep Concern’

“There’s a lot of weight there, a lot of people there. … The average elevation in the southern part of the island is only 1 or 2 meters (3.2 or 6.5 feet) above sea level — it is very close to the waterline, and so it is a deep concern.”

— U.S. Geological Survey Lead Researcher Tom Parsons said new research shows New York City is slowly sinking under the weight of its skyscrapers, homes, asphalt and humanity itself. USGS research shows the city’s landmass is sinking at an average rate of 1 to 2 millimeters per year.

Teen Labor

“The consequences are potentially disastrous. … You can’t balance a perceived labor shortage on the backs of teen workers.”

— Said Reid Maki, director of the Child Labor Coalition, which advocates against exploitative labor policies, about legislation in several states that would allow children as young as 14 to work in more hazardous occupations, longer hours on school nights and in expanded roles including serving alcohol in bars and restaurants. Wisconsin, Ohio and Iowa are actively considering relaxing child labor laws to address worker shortages, which are driving up wages and contributing to inflation.

Marathon Refinery Deaths

“We will be suing Marathon and the other entities for gross negligence over Higgins’ death. … Marathon put its profits over worker safety.”

— Houston attorney Tony Buzbee said regarding suits filed against Marathon Petroleum MPC.N. in relation to worker deaths and injuries at the company’s refineries in Texas. Scott Higgins, a 55-year-old machinist, was killed and two contract employees, including Eduardo Olivo, were injured in a fire at Marathon’s giant Galveston Bay Refinery in May. Higgins was the second worker to die at the Marathon refinery this year. A contractor was electrocuted on Feb. 28.

‘A Lot of Us’

“There’s a lot of us like me that are displaced. Nowhere to go. … There’s a lot of homeless out here, a lot of people living in tents, a lot of people struggling.”

— Chef Michael Cellura, 58, of Fort Myers Beach, Florida, said of the many now homeless survivors of Hurricane Ian, the Category 5 hurricane that blasted the barrier island last September. At that time, Cellura had a restaurant job and a fancy new camper home on Fort Myers Beach. He now lives in his older Infiniti sedan with a 15-year-old long-haired chihuahua named Ginger. Like many others, he’s struggled to navigate insurance payouts, understand federal and state assistance bureaucracy and simply find a place to shower.

EEOC Warns Employers to Check AI Workplace Monitoring Tools for Bias

action. In March, the operator of tech job- search website Dice.com settled with the agency to end an investigation over allegations it was allowing job posters to exclude workers of U.S. national origin in favor of immigrants seeking work visas. To settle the case, the parent company, DHI Group, agreed to rewrite its programming to “scrape” for discriminatory language such as “H-1Bs Only,” a reference to a type of work visa.

By Matt O’Brien

The head of the U.S. agency charged with enforcing civil rights in the workplace says artificial intelligence-driven “bossware” tools that closely track the whereabouts, keystrokes and productivity of workers can also run afoul of discrimination laws.

Charlotte Burrows, chair of the Equal Employment Opportunity Commission, told The Associated Press that the agency is trying to educate employers and technology providers about their use of these surveillance tools as well as AI tools that streamline the work of evaluating job prospects.

And if they aren’t careful with say, draconian schedule-monitoring algorithms that penalize breaks for pregnant women or Muslims taking time to pray, or allowing faulty software to screen out graduates of women’s or historically Black colleges — they can’t blame AI when the EEOC comes calling.

“I’m not shy about using our enforcement authority when it’s necessary,” Burrows said. “We want to work with employers, but there’s certainly no exemption to the civil rights laws because you engage in discrimination some high-tech way.”

The federal agency recently released its latest set of guidance on the use of automated systems in employment decisions such as who to hire or promote. It explains how to interpret a key provision of the Civil Rights Act of 1964 known as Title VII that bars job discrimination based on race, color, national origin, religion or sex, which includes bias against gay, lesbian and transgender workers.

Burrows said one important example involves widely-used resumé screeners and whether or not they can produce a biased result if they are based on biased data. “What will happen is that there’s an algorithm that is looking for patterns that reflect patterns that it’s already familiar with,” she said. “It will be trained on data that comes from its existing employees. And if you have a non-diverse set of employees currently, you’re likely to end up with kicking out people inadvertently who don’t look like your current employees.”

Amazon, for instance, abandoned its own resume-scanning tool to recruit top talent after finding it favored men for technical roles — in part because it was comparing job candidates against the company’s own male-dominated tech workforce.

In some cases, the EEOC has taken

Much of the EEOC’s work involves investigating the complaints filed by employees who believe they were discriminated against. And while it’s hard for job applicants to know if a biased hiring tool resulted in them being denied a job, Burrows said there is “generally more awareness” among workers about the tools that are increasingly being used to monitor their productivity.

Those tools have ranged from radio frequency devices to track nurses, to monitoring the minute-by-minute tightly controlled schedule of warehouse workers and delivery drivers, to tracking keystrokes or computer mouse clicks as many office employees started working from home during the pandemic. Some might violate civil rights laws, depending on how they’re being used.

Burrows noted that the National Labor Relations Board is also looking at such AI tools. The NLRB sent a memo last year warning that overly intrusive surveillance and management tools can impair the rights of workers to communicate with each other about union activity or unsafe conditions.

“I think that the best approach there — I’m not saying not to use it, it’s not per se illegal — but is to really think what it is that employers are looking to measure and maybe measure that directly,” Burrows said. “If you’re trying to see if the work is getting done, maybe check that the work is getting done.”

Copyright 2023 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Business Moves

National Specialty, Socius Insurance Services

Ryan Specialty has signed a definitive agreement to buy national wholesale broker Socius Insurance Services from Abry Partners, employees, and other shareholders.

Socius will become a part of RT Specialty, Ryan Specialty’s wholesale distribution specialty.

Terms of the transaction were not disclosed. It is expected to close in July.

Socius generated approximately $40 million in revenue for the 12 months ended April 30, 2023. The Northern Californiabased wholesaler has deep expertise in complex lines of business such as management, professional and cyber liability, as well as property/casualty insurance. Socius also has significant concentrations of top tier local talent in key hubs such as San Francisco, Miami, and Tampa, which will provide complementary scale and distribution capabilities to RT Specialty, according to Chicago-based Ryan Specialty.

W. R. Berkley Corp., Berkley Specialty Excess

W. R. Berkley Corporation has formed Berkley Specialty Excess to offer excess liability coverages in specialized markets, with an initial focus on the environmental and energy industries.

John Termini was named president of the new business.

Termini has nearly 30 years of experience in the property/casualty insurance market, with a focus in the environmental and energy sectors. He has held various executive and leadership positions, and most recently served as the head of the environmental and energy division of a global specialty (re)insurer.

Midwest

Ohio Mutual Insurance Group, United Mutual Insurance

Ohio Mutual Insurance Group plans to merge Medford, Wisconsin-based United Mutual Insurance Co. as a subsidiary under Ohio Mutual’s mutual holding company structure.

The boards of directors for both organizations voted on May 17 to approve the transaction, subject to regulatory approval and a vote of United Mutual policyholders.

The transaction is expected to be completed in the third quarter of 2023.

Founded in 1878, United Mutual currently serves nearly 6,000 policyholders in North Central and Western Wisconsin through a network of nearly 40 independent agencies.

Ohio Mutual Insurance Group, founded in 1901 and based in Bucyrus, Ohio, partners with nearly 400 independent agencies to distribute property/casualty insurance products throughout Connecticut, Indiana, Maine, New Hampshire, Ohio, Rhode Island and Vermont.

Southeast Risk Strategies, Combined Underwriters of Miami

Risk Strategies, a specialty insurance brokerage with national reach, has acquired Combined Underwriters of Miami, an independent agency that offers commercial and personal insurance and benefits products in south Florida.

Combined Underwriters of Miami has been around for 30 years, specializing in a range of commercial insurance for apartments, hotels, restaurants, shopping centers, warehouses, freight forwarding operations and more. Susana SanchezArmengol is president.

Risk Strategies has more than 100 offices across North America.

Terms of the acquisition deal were not disclosed.

Maury, Donnelly & Parr, CANUSA Insurance Services

Maury, Donnelly & Parr, a Marylandbased broker and risk consultant that’s almost 150 years old, has acquired CANUSA Insurance Services in Sarasota, Florida.

The merger marks a continued expansion by MDP, which acquired Connecticut-based Northeastern Underwriters in 2021.

CANUSA is headed by Charles Hosie, who has 35 years’ experience in personal

lines insurance. The office’s name and branding will remain the same.

MDP was founded in 1875 as a marine insurer for businesses using the Port of Baltimore.

Arthur J. Gallagher & Co., Insurance by Ken Brown

Arthur J. Gallagher & Co., the global insurance brokerage and consulting firm, acquired Florida-based Insurance by Ken Brown Inc., a retail broker specializing in coverage for construction and swimming pool companies in the Southeastern United States.

Ken Brown, Derek Brown and the team will remain in their Altamonte Springs headquarters, under the direction of Peter Doyle, head of Gallagher’s Southeast retail property/casualty brokerage operations.

Gallagher, headquartered in Rolling Meadows, Illinois, operates in 130 countries.

Terms of the acquisition deal were not disclosed.

Arthur J. Gallagher & Co., Bernard Benefits

Arthur J. Gallagher & Co. also acquired Nashville-based Bernard Benefits, an employee benefits brokerage serving clients in Tennessee, Indiana and Texas.

Bernard, which focuses on small businesses, is a subsidiary of Bernard Health.

Bernard’s Brian Tolbert, Matt Kleymeyer and the team will remain in Nashville and will report to Robby White, head of Gallagher’s South Central region employee benefits consulting and brokerage operations.

West Inszone Insurance Services, Specialty Contractors Insurance Services

Inszone Insurance Services acquired Specialty Contractors Insurance Services. Specialty Contractors Insurance Services has predominantly served business owners and contractors. It is headquartered in Sacramento, California.

Inszone is a national provider of benefits, and personal and commercial lines insurance.

Product Recalls Hit Four-Year High in First Quarter 2023: Sedgwick

Data from the first quarter of 2023 shows that the number of product recalls in the U.S. increased 14.2% from the previous quarter. According to Sedgwick brand protection’s latest U.S. product recall index report — which analyzes recall data from five key industries — this marks the highest single-quarter total in four years.

After a second consecutive record-breaking year for the number of units recalled in 2022, stakeholders have been watching closely to see whether that trend would continue into 2023. However, data from the first quarter of 2023 reveals that the number of recalled units fell 21.6% from the previous quarter and lags far behind the number that

had been recalled by this time in 2022. With three quarters in the year yet to be reported and regulatory and consumer scrutiny continuing to increase, there is still the possibility of a third consecutive year with over 1 billion recalled units. Released quarterly, Sedgwick’s industry-leading recall index report offers in-depth analysis of the latest product recall data, safety regulations, and key challenges for the automotive, consumer product, food and beverage, medical device, and pharmaceutical industries.

Highlights From Q1 2023 Product Recall Data

Automotive recalls increased 3.4% to 245 events. Electrical systems were the leading cause

with 48 events, followed by equipment with 46, and airbags with 17.

The consumer product industry recorded the most recalls in a single quarter since Q3 2015, with 94 events. The number of units recalled also increased significantly from the previous quarter, up 442.1% to 23.1 million units. Only one quarter in the last five years saw more units recalled.

While U.S. Food and Drug Administration (FDA) recalls increased 23.2% from the previous quarter to 117 events, the number of units impacted decreased 78.7% to 39.3 million. In contrast, the number of U.S. Department of Agriculture (USDA) recalls held steady at 11 events for the second consecutive quarter, even as

the number of pounds recalled increased 1,129% to 2.9 million. The number of medical device recalls increased 4.6% to 252 events. While manufacturing defects accounted for the greatest proportion of these (with 59), quality concerns were the leading cause in terms of units impacted, with 68.5 million or 82.3% of all recalled devices.

Q1 2023 marked the most pharmaceutical recalls in a single quarter in the past 18 years, with 144 events. The number of units impacted increased 1,071.8% to 49.5 million after an unusually low number of units were recalled in Q4 2022.

Projections

for the Rest of 2023

Technology advancements and increased adoption of

Cyber Insurance: A Growth Market for Insurers With Some Caveats

As demand for cyber insurance continues to grow, insurers must remain vigilant in managing the changing risk associated with the line of coverage.

According to DBRS Morningstar, while cyber insurance is a market opportunity for insurers, it also presents a different type of risk to manage, one that can be more difficult to value and price than most other insurance risks.

With artificial intelligence, cyberattacks will continue to evolve, meaning insurers will need to monitor and manage the risks accordingly. “The challenge arises in part due to the relative lack of com-

prehensive and credible data given the evolving nature of cyber crime, its potentially catastrophic nature as well as the high level of technical expertise necessary to correctly value this risk,” DBRS Morningstar said in a recent commentary. These challenges can be handled with “Appropriate policy terms and conditions and risk management measures that are effective in managing the volatility of the loss ratio and the containment of cyber-related losses are critical determinants in an insurers’ ability to manage underwriting cyber risk exposures.”

Reinsurance can assist in mitigating unexpected large losses, the commentary noted,

though the limited availability and cost could limit an insurer’s ability to increase its cyber market share.

As the line matures, it is expected that insurers offering the coverage will benefit from a revenue source with continual high demand and more stable profits. The latter will arise as a result of better claims experience data accrual, leading to more accurate pricing and stable loss ratios.

While loss ratios rose considerably between 2018 and 2020, improvements were seen in 2021 and are expected to continue in 2022.

The authors of the commentary, Komal Rizvi, vice president, Insurance, Global

Financial Institutions Group, and Marcos Alvarez SVP and global head, Insurance, Global Financial Institutions Group, expect more refined cyber coverage offerings, the result of a maturing market as well as a better understanding of claims drivers. Cyber policy evolution will occur more quickly than in other lines, mainly due to the evolving nature of cyber attacks.

Even so, there is the risk of constrained growth, given the high demand for cyber insurance coupled with a large cyber protection gap, the commentary noted.

“Cyber risk can be vulnerable to mispricing given that losses can fluctuate widely, and, in

electric vehicles (EVs) will push regulators to move quickly to ensure that vehicles equipped with the latest features are safe for the road. Manufacturers should be prepared for a slate of new regulations and guidance as regulators work to ensure vehicle safety.

The U.S. consumer product industry will see strict regulatory enforcement continue from both the Consumer Product Safety Commission (CPSC) and the Federal Trade Commission (FTC). The CPSC will likely continue its more public efforts to pursue remedies from manufacturers and its practice of issuing civil penalties.

Manufacturers will want to update their recall and communications plans to align with CPSC’s new, more aggressive enforcement strategy.

The FDA has outlined an

ambitious list of topics it will tackle in 2023 with draft or final guidance, including allergens, dietary supplements, food additives, topics related to the Food Safety Modernization Act (FSMA), and labeling. The infant formula industry is also on notice from the FDA, which issued a constituent update and sent a letter to stakeholders encouraging them to quickly improve their processes and implement the programs it outlined.

For the medical device industry, the FDA is focused on improving the supply chain and preventing shortages with a higher allocation for related programs in its draft budget

for FY2024. The FDA is also testing two pilot programs that implement digital solutions for new product submissions and enhancing stakeholder communications. Cybersecurity and protecting patients from cyber threats and their consequences will be top

of mind for the FDA and device manufacturers.

some cases, can be extremely high. The losses can be difficult to model and quantify given the wide scope of loss events involved, including the costs of reputational damage, compensation to any victims of the cyberattack, business interruption costs, and ransomware demands, to name a few,” the

report outlined.

Because cyber coverage offers insurers a source of income that isn’t correlated to catastrophic weather events, this could be beneficial to insurers that might have a substantial proportion of their business in the property insurance market.

Another benefit to insurers is the ability to offer ancillary services to cyber insurance customers, “such as access to professional advice, assessment of cyber security processes and procedures cur-

rently in place, and assistance in containing damage and preventing further fallout once a breach occurs.”

These services could be crucial to small to mid-size businesses that do not have the ability to source these services on their own.

One caveat remains, the potential for systematic, widespread losses in digital supply chains. This can be remedied, according to the report, by adequate diversification in the risk pool.

Mitigating risk through reinsurance, along with policy language clarity, and a disciplined underwriting process will be key to managing tail risk.

With the COVID-19 public health emergency now officially ended, pharmaceutical companies will need to be mindful of changes in drug distribution, clinical trials, and oversight that were granted during the pandemic. Cannabis and tobacco products will be another focus for the FDA, which has begun research on the medical uses of cannabidiol and proposed tighter regulations around the manufacture of tobacco products.

“As the number of recall events increase across industries, the risks to manufacturers grow more serious, with increased regulatory enforcement and a more publicized recall process,” said Chris Harvey, Sedgwick senior vice president of brand protection. “Regulators are working to prioritize product safety while balancing innovation with oversight — meaning manufacturers can expect to contend with new rules and regulations. Businesses will need to remain agile to keep pace with these changes and prepare for future ones.”

People

National John

Kuhn is now senior vice president, management liability and head of large public at Ascot

John Kuhn

Based in the New York office, Kuhn will lead the development and execution of Ascot’s large public directors and officers (D&O) strategy, with a focus on underwriting and portfolio management through dual distribution channels.

He will also be responsible for recruiting and onboarding talent, implementing new processes and systems to enhance underwriting excellence and collaborating with business units across Ascot to facilitate effective partnerships and manage exposures.

Prior to joining Ascot, Kuhn was head of public D&O at AIG, where he spent nearly a decade in various financial-lines roles.

Sompo International named Risa Ryan as chief underwriting officer (CUO) and member of the executive team. Ryan is based in Florham Park, New Jersey.

In this newly created position, Ryan will create a collaborative global framework exhibiting best-in-class underwriting and pricing tools to ensure a consistent underwriting approach, delivering products and services that address the multinational needs of our clients.

Before Sompo, Ryan was global head of standard insurance products at Swiss Re. Prior to that, she was senior vice president, head of analytics North America at QBE.

Cowbell, a provider of cyber insurance to small- and medium-sized businesses, hired Matt Byrne as vice president of tech E&O underwriting.

Byrne has over eight years of underwriting experience in cyber and professional lines at traditional carriers and MGAs, supporting SMEs with up to multi-billion revenue risks. In addition to working on professional lines, Byrne has experience working on traditional property/casualty lines supporting larger programs.

He is based in the San Francisco Bay Area and is focused on retail and wholesale relationships across the U.S.

Conning named Matt Daly, head of the corporate and municipal bond teams, as the new head of Conning North America, effective September 30. The current head, Mike Haylon, will retire at the end of 2023.

Daly has over 25 years of industry experience, with more than 20 of those years at Conning.

Conning also named Cindy Beaulieu, chair of Conning’s investment policy committee, as chief investment officer of Conning North America, as of September 30. Beaulieu has over 29 years of industry experience and joined Conning in 2011.

Steve Searl, with 35 years of corporate bond research experience, and Mike Griffin, with 18 years of industry experience in portfolio management and trading, will serve as the new co-heads of the corporate and municipal teams.

East Lockton appointed Joe Caruso as its financial institu-

tions practice leader in the Northeast.

Caruso is based in New York, New York.

Caruso brings 30 years of experience to his new role, joining Lockton from Allianz Global Corporate & Specialty, where he served as regional head financial lines/ financial institutions. He also worked as financial institution industry practice leader at AIG and served at Marsh.

Lockton is headquartered in Kansas City, Missouri.

Frank Verdi joined Alliant Insurance Services as vice president within its employee benefits group. Based in Boston, Verdi will focus on strategic employee benefits for clients throughout the Northeast.

Verdi has 35 years of experience on both the carrier and brokerage sides of the business. Before joining Alliant, Verdi was area vice president for Gallagher.

Alliant is headquartered in Newport Beach, California.

Marsh McLennan Agency named Kate Moher president of national employee health and benefits.

Moher joined the White Plains, New York-based agency in 2018 as national employee health and benefits practice leader. She has 28 years of industry experience and previously served as chief executive officer at C2 Solutions and as national vice president broker strategy and development at UnitedHealth Group.

Harford Mutual Insurance

Group, headquartered in Bel Air, Maryland, named Jeffery Bischoff as assistant vice president of information technology.

Bischoff has 25 years of IT experience. Most recently, he held the position of technology solution manager in the policy platform department at American Family Insurance Group.

Previously, Bischoff held technical positions at Selective Insurance Group, Housing Authority Insurance Group, and Travelers Insurance before joining New London County Mutual Insurance in 2015 as assistant vice president of IT.

Insurance broker NFP has Josh Jeter as a senior vice president and aviation specialty practice leader in the company’s aviation industry group.

Jeter comes to NFP from Gallagher, where he served as area vice president in its aerospace practice. Before Gallagher, he served as an aviation underwriter specialist at Allianz Global Corporate & Specialty and as assistant manager of aviation and reinsurance at Ironshore Insurance Services.

NFP is headquartered in New York, New York.

The Hartford promoted Hayes Henderson to head of sales and relationship management for group benefits; appointed Karen Raftery head of a newly created business vertical in group benefits focused on small and mid-

Joe Caruso

Jeffery Bischoff

sized employers; named Lynn Kennedy head of sales and distribution for small commercial; and appointed Paul Hiscox chief sales and underwriting officer for personal lines.

Henderson will be responsible for developing strategies to enhance The Hartford’s market position and drive profitable growth for group benefits. His appointment is effective July 1.

Most recently he served as regional vice president in the east region for group benefits sales and has more than two decades of group sales experience, including 15 years at The Hartford.

Raftery will lead the new group benefits vertical focused on providing employers with 2-499 employees competitive employee benefit and leave management solutions. Her appointment is effective July 1.

Raftery, who has 17 years of group sales experience at The Hartford, most recently served as regional vice president for the central region.

Kennedy is taking on an expanded role, which consolidates all small commercial sales under one leader. She will be responsible for leading all small commercial distribution channels, which include agency, alternative and direct, as well as the field and sales performance teams. Her appointment is effective June 1.

Kennedy joined The Hartford in 2006 and was most recently head of alternative distribution for small commercial.

Hiscox is also taking on an expanded role leading all personal lines distribution channels, including direct, agency, partnerships and The Hartford’s write-your-own flood program. In addition, he continues to lead personal lines

underwriting. His appointment is effective June 1.

Hiscox joined The Hartford in 2001 and was most recently head of underwriting and direct sales for personal lines.

Midwest

Lockton, in Kansas City, Missouri, hired Jason Sandler and Craig Taylor in its intangible asset and contingent liability practice, a division within its broader transaction liability practice.

Sandler and Taylor bring significant expertise in IP matters and associated credit and monetization strategies, including collateral protection insurance. They will advise clients on the placement of coverages that support the residual value of IP, in addition to working with Michael Perich, head of litigation insurance, on policies that provide support for IP-related disputes and litigations.

Sandler most recently served as a senior vice president at Marsh. Before that, he was an IP attorney at Cravath, Swaine & Moore.

Taylor most recently served as a senior vice president at Marsh. He has spent over a decade in the insurance industry.

Valley Insurance Agency Alliance promoted Amy Russell to lead Pod marketer and hired Michael Welch as commercial marketer.

Russell, who previously served as

marketing specialist and account manager, has more than 30 years of experience in the insurance and marketing industries. She pioneered VIAA’s Pod marketing program, a carrier rating platform that assists agents with obtaining the best quotes for commercial clients.

Welch has more than 35 years of insurance experience. Before joining VIAA, he worked in commercial marketing at various insurance agencies in the Northeast.

VIAA is headquartered in St. Louis, Missouri.

South Central

Stephens Insurance LLC, an affiliate of Stephens Inc., hired Chris Bettina as a senior vice president within the property and casualty practice.

Bettina brings nearly 15 years of experience in the insurance industry that spans global insurance and captive markets. He most recently served as a senior vice president at Arthur J. Gallagher & Co. Bettina is based in the Houston, Texas, office of Stephens Insurance.

Stephens Inc. is headquartered in Little Rock, Arkansas.

Southeast

Nashville-based Davies Group, a rapidly growing professional services and technology firm serving the insurance industry, named Jen Morrissey group chief operations officer. She will head up Davies’ global technology, mergers, procurement and real estate functions.

Morrissey was previously chief information officer with Unison Risk Advisors and was with Willis Towers Watson before that.

West Gordon Rees Scully

Mansukhani hired Rachel T. Velilla as a partner in the firm’s Los Angeles, Orange County and San Diego, California, offices.

She joins the firm’s insurance, trucking and transportation and commercial litigation practice groups.

Velilla represents individuals, corporations and self-insured entities in general liability matters, including premises, vehicle accident, trucking, transportation and common carrier liability.

The company is based in San Diego.

Venbrook Group LLC named Juan Aguilar chief financial officer.

Aguilar has 20 years of industry experience, most recently serving 15 years at Aon PLC, where he held leadership roles across finance, operations and business strategy and development.

Before Aon, he held senior finance roles at Abbott Laboratories.

Venbrook is headquartered in Woodland Hills, California.

Aihara & Associates Insurance Services named Mike Kinoshita executive vice president.

Kinoshita is a third-generation insurance agent and current senior client advisor at The J. Morey Company, an Ori-gen Family Company.

Aihara & Associates is based in Los Angeles

Amy Russell Michael Welch

Juan Aguilar

Risks to Watch in the Personal Umbrella Market

By Allen Laman

Increases in auto accident severity, attorney involvement and litigation, as well as recreational activities are driving claims in the personal umbrella space — and one expert believes their impacts will only accelerate into the future.

In a recent interview with Insurance Journal, Shannon Cragg, vice president of personal lines claims at Nationwide, encouraged agents to have holistic conversations with their clients to ensure all their assets are protected.

The market for personal umbrella is active and

competitive. The AM Best rate filings website shows most filings made have been to increase rates, according to Nationwide. The amount of the increase depends on the carrier and their current pricing levels; several carriers have been particularly active and aggressive in filing for rate.

Auto Accident Severity

Data shows automobile claim severity has been increasing for several years.

According to a LexisNexis Risk Solutions report, automotive claim severity for bodily injury and property damage increased by 35% since 2019, while collision claim severity

has jumped 40%. LexisNexis said bodily injury claims were 8% to 10% higher than the prior year, on top of a more volatile surge in 2021 that led to the total bodily injury claim cost increase of 35% since 2019.

In the years immediately after COVID-19 surfaced, “we didn’t see the lower-severity accidents, the commuting back and forth to work, what I would call the ‘bumper hits,’” Cragg explained. At the same time, though, Cragg said there has been an increase in driving speeds and riskiness.

Recent Nationwide research supports this. It shows dangerous driving behavior has not improved since last

year. Nationwide reports that 59% of Gen Z drivers admit to being more impatient on the road than they were a year ago — while 47% report driving faster and taking phone calls on a handheld device.

And that’s not all.

Thirty-eight percent of Gen Z consumers admitted to looking at their phone more frequently while behind the wheel; 34% of Gen Z drivers video chatted while driving and 24% of Gen Z and 23% of Millennials used or checked social media while driving.

Fifty-four percent of Americans admit they’ve driven more than 10 mph above the speed limit over the past

12 months. More than a third (35%) of vehicle passengers witnessed their driver texting while behind the wheel.

“The trends we’re seeing are not heading in the right direction,” said Beth Riczko, president, P&C Personal Lines at Nationwide. “This unnecessary multitasking behind the wheel is not worth the risk and drivers create danger for themselves, the passengers, others on the road, and even pedestrians.”

Attorney Involvement, Litigation and Bigger Jury Awards

Cragg said nuclear verdicts and attorney representation are also on the rise.

According to the Institute for Legal Reform, “nuclear verdicts

are increasing in both amount and frequency.” The median nuclear verdict increased 27.5% between 2010 and 2019 — far outpacing inflation — and there was a clear upward trend in the frequency of nuclear verdicts over time.

“We’re seeing more attorney involvement,” Cragg said. “You’re seeing more increase of disputes, and then when you get a jury award, you’re getting these, kind of explosive awards, at times.”

Cragg believes this this appetite extends into libel, slander and defamation.

Numbers published by Risk Placement Services show that in 2022, awards from nuclear verdicts were more than $18 billion — compared to $9.1 billion in 2021 and $4.9 billion

in 2020. RPS reported that the most common losses were from auto claims, product liability, patent infringement, and, increasingly, in the construction space.

Recreational Activities

Cragg also sees more liability stemming from recreational activities, such as owning a boat or swimming pool or operating all-terrain vehicles.

“I think as those things are becoming more and more prevalent, it just becomes really important to make sure you’re protecting your entire portfolio,” she said when speaking about ATVs and sideby-side vehicles.

Advice for Agents

Understanding portfolios

and risks is key. Ensuring that clients understand bodily injury or property damage limits do not cap exposure is crucial. Cragg believes the challenges described here will continue to accelerate into the future.

She emphasized having proactive, holistic conversations with insureds.

“I think the challenges I just described are going to continue to accelerate at a faster pace,” Cragg said of the risks outlined in this story. “All of those things that I named — whether it’s medical costs, the tort responses — are outpacing inflation. And so from an industry perspective, how do you price appropriately for that? How do you help mitigate? How do you help inform?”

Closer Look: Firearms

Should Insurance Drive Increased Firearm Safety?

By Patrick Wraight

It seems almost weekly there is a story or two in the national headlines addressing gun violence in the U.S., and a recent Insurance Journal article indicated respondents of a survey thought insurance could have a role in firearm safety. It’s an interesting question, should insurance drive increased firearm safety?

Anyone with a degree of familiarity with the insurance industry might conclude that it’s possible. Insurance companies are famous (infamous?) for requiring that people and businesses take certain steps to mitigate the risks to their property and the risks of being sued by their friends and customers. You remember that time a friend of yours was

complaining because their insurance company told them to cut a tree away from their house so that limbs didn’t fall on it during a storm or when you had to call a client to tell them to implement a driver safety program for their business or risk losing coverage for their fleet of delivery trucks?

Let’s look at firearms from a risk management perspective and see if we can determine whether or not insurance can drive increased firearm safety. For our purposes, we are excluding firearms that people possess as a part of their career, including police, armed security officers, certain emergency medical personnel, and members of the military. Of course, all of these people could own firearms for personal use, so that would be included.

Why Do People Have Firearms?

For many people, having a firearm is simply a fact of life. For others, it’s a foreign object, something they have never seen in person, let alone used and kept around. So, why do people have them?

Some people use their firearms for hunting. For some people, hunting is a family pastime. They went hunting with a father, grandfather, or someone else, and they do it because it helps them to connect with their past. For others, it’s a way of providing for their family. They hunt to eat or to provide other resources for their family.

Some people use firearms for sport. Some people call themselves sport hunters, but that’s not what we’re dealing with here. There are competitive shooting competitions where

shooters are judged based on different criteria, including how well they shoot in different conditions. You might know someone who competes in three-gun competitions, which is an event where competitors are required to shoot targets of different shapes and sizes using three different types of firearms — a shotgun, a rifle and a pistol.

Some people have firearms for personal protection. Some keep firearms in their home, others keep them at their workplace, and others carry firearms. For these people, a firearm is meant to protect people and property from harm. They may have firearms because of the type of business that they have, or because of where they live. That leads us to one more reason people have firearms.

Some people use firearms to commit crimes. They intend to use them to frighten people to comply with their demands or they intend to harm people. Whether the harm is in the fear of what might happen, or the use of the firearm to hurt people, these people are using them in ways that are counter to society in general and to individuals specifically.

We look at these in light of the original question and that is, can insurance drive increased firearm safety? That brings us to the question of how insurance policies cover firearms.

What Can Insurance Policies Cover?

When it comes to firearms and insurance, we can look at them in two ways. First, as items of personal property, in which case, in general, firearms are covered just like other items of personal property. If you have a Homeowners’ policy based on the ISO Homeowners’ 3 – Special Form, there is a special limit of $3,000 for theft of firearms.

It is possible that some carriers may have other limitations on coverage for firearms as property, but we haven’t seen it, even when certain insurance companies made big news saying that they would severely restrict coverage for firearms on their policies.

When it comes to the liabilities surrounding firearms, that’s another story. Keep in mind the reasons that people have firearms include hunting, sport shooting, and for personal protection. Let’s look at three likely scenarios here.

A hunting accident. A hunter is out sitting in a tree

stand, waiting on the animal she’s hunting. She sees the animal near a tree on the opposite edge of a clearing. She takes aim and fires, missing the animal. That’s when she realizes that there was another hunter behind that tree. That hunter had made the sound that caused the animal to move at the last second and happened to have his leg sticking out in the line of fire. He was hit. He went to the hospital, has medical bills, and can’t go to work for a couple of weeks. How might the ISO HO-3 (03/22 edition) respond?

Coverage E – Personal Liability

If a claim is made or a “suit” is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” to which this coverage applies, we will:

1. Pay up to our limit of liability for the damages for which an “insured” is legally liable. Damages include prejudgment interest awarded against an “insured”; and

2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.

We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the “occurrence” has been exhausted by payment of a judgment or settlement. We aren’t taking the space to dig into the defined words. You can look them up for yourself. So far, we haven’t looked at any exclusions, so what we know so far is that bodily injury happened and that damages occurred because of the bodily injury. There is an exclusion,

however, that may be problematic.

Expected or Intended Injury

“Bodily injury” or “property damage” which is expected or intended by an “insured”, even if the resulting “bodily injury” or “property damage”:

1. Is of a different kind, quality or degree than initially expected or intended; or

2. Is sustained by a different person, entity or property than initially expected or intended.

You could make the argument that the hunter expected or intended to injure an animal and therefore this exclusion applies. The way it reads gives us the idea that since the shooter intended bodily injury to the animal, but bodily injury happened to someone else, this exclusion still applies.

I would attempt to make the argument that the context of the term bodily injury in the rest of the policy indicates the idea that a person was injured in some way and therefore the general meaning of the term should be interpreted to speak to bodily injury of persons, and since an animal isn’t a person, there was no expected or intended bodily injury and therefore it isn’t excluded.

Someone accidentally shoots themselves. We have all heard stories where someone picked up a firearm that didn’t belong to them, kids are playing around and find a firearm, or someone doesn’t realize that the firearm is loaded, and the end result of all of these situations is that someone gets shot. For the sake of this discussion, let’s set aside the irresponsibility of a firearm owner who fails to secure their

firearms or teach their children not to play with them.

This is one situation where the expected or intended injury does not apply. It’s truly an accidental situation. Someone was handling the firearm and for whatever reason didn’t realize that it was loaded and they pulled the trigger, injuring someone, possibly even themselves. This takes us back to the insuring agreement that tells us that there is coverage for bodily injury because of an occurrence that happened during the policy period.

A self-defense shooting. A business owner is in the office and hears glass breaking. He comes out of his office to see someone reaching their arm in through a broken window. The business owner has his handgun. When the person breaking in gets inside, he sees the business owner and brandishes his handgun at the business owner. The business owner then pulls his handgun and shoots the intruder, who later on files a suit for damages related to his injuries.

You might say that a person breaking into someone else’s business shouldn’t be able to sue for damages when they are injured, but things happen.

Let’s look at the business owner’s CGL policy (CG 00 01 04 13) to see how it might respond.

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

This is the insuring agreement for Coverage A – Bodily continued on page 24

Closer Look: Firearms

continued from page 23

Injury

and Property Damage.

Again, for the sake of space, we will let you look up any definitions that you don’t already know. This is, of course, not the whole insuring agreement and you could look that up, too. It is important that so far, we have found the possibility of coverage for this event.

We need to look at the exclusions and if you’re a policy-reading person, you already know which exclusion we are going to bring up.

Expected Or Intended Injury

“Bodily injury” or “property damage” expected or intended from the standpoint of the insured. This exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property.

This exclusion is a little different but tells us essentially the same thing. If the insured intends to injure someone, this exclusion applies. There is an exception, which was in the homeowners’ policy, but relevant at that moment. If the insured is using reasonable force to protect persons or property, this bodily injury is not excluded. You could make the argument about what is considered reasonable in this instance, but for the sake of our conversation, let’s just consider what happened was a reasonable response.

What Cannot or Will Not Be Covered by an Insurance Policy?

It seems that the biggest reason that people want firearm owners to buy insurance on their firearms is to compensate someone else for what might happen with that firearm and

that seems fair on the surface. If an accident were to happen with that firearm, the owner could be seen as negligent and, in that event, there should be a mechanism to pay the damages related to it.

But when you consider that the bulk of firearm deaths don’t come from accidents, that changes the conversation. Most firearm deaths occur in the commission of a crime or by suicide, both of which are arguably intentional acts, or an expected or intended injury, and the unfortunate truth is that many insurance policies simply do not cover those activities.

If we then consider that most deaths related to firearms are in some way intentional, not accidental, that begs one more question.

Can (Should) Insurance Be Used to Attempt to Improve Firearm Safety?

We’ve already covered how many insurance policies might respond to claims related to bodily injury related to a firearm. But that doesn’t address whether or not insurance could be used to improve firearm safety, or if it should.

According to a study by Johns Hopkins Bloomberg School of Public Health Center for Gun Violence Solutions in 2020, they ranked ways that people were injured and ultimately died in 2020. The highest cause of death in this chart was by poisoning (overdose), and the second highest cause of death was through the use of firearms.

What is more relevant to our topic today, is that the fourth-highest ranked cause of death was by motor vehicle traffic and the numbers for

each are very close to one another (45,222 by firearm and 40,689 by vehicle accident). This seems instructive because some of the requirements being asked of firearm owners are similar to the requirements of vehicle owners.

Licenses. If you want to drive a vehicle in the United States, you need a valid driver’s license. We accept this because this is the law and has been for over 100 years in some parts of the country. In every state, there is an application to process, a written test, time spent driving as a learner, and a road test to make sure that the driver at least knows the rules of the road and the basics of the laws in that state.

Some states are working on laws that require all firearm owners to have a license to purchase and possess a firearm. Since these laws do not currently exist in all states, and many states have very different philosophies and laws around firearm licensing, we cannot comment on this, other than to say that it is possible that some might suggest that a license to own a firearm could or should exist.

Registration. When you purchase a car, motorcycle, or other vehicle, it has to be registered in your state. That’s the process where you either apply for registration at the car dealer, or you go to the motor vehicle office and get a license plate for your vehicle. Every vehicle needs to be registered.

There are those who say that the same thing needs to be done for firearms. When a person purchases a firearm, they could become the registered owner of that firearm and they will need to maintain the registration as long as they own

it. You might be wondering what all of this has to do with insurance. Don’t you remember the last time you went to the motor vehicle office to update your registration? Didn’t you have to provide proof of insurance?

Insurance. When you drive or own a motor vehicle, you are supposed to have insurance in most states. There is at least one state that does not require drivers to have insurance, but they do require drivers to show proof of financial responsibility that meets a state minimum amount, so basically for most people, you need insurance there, too. If a driver is pulled over for a traffic violation or there is an accident, one of the first things that anyone asks for is proof of insurance.

When it comes to firearms, a good risk management practice would be to have some kind of insurance in place. For most firearms owners, that insurance would likely be in the form of their homeowners’ insurance, just like anyone driving a car would have automobile insurance.

This brings us to one of the misconceptions about insurance that came out in the above-mentioned survey. Many of the respondents believe that firearms owners should have a separate policy for each firearm. That would be unnecessary because there isn’t a per firearm limit of liability on the homeowners’ policy. It’s an occurrence limit.

Think about auto insurance. Each automobile that a person or family owns has the same opportunity to be in an accident as every other automobile because the same people are driving all of the cars on the policy. There is no need to

purchase an auto policy per vehicle.

Let’s go back to the original question. Would insurance requirements help drive firearm safety? Consider this question in the light of automobiles. Everyone who drives is supposed to have a driver’s license, but according to one 2020 story, over 11 million people drive every day without a license because their license was suspended. The licensing requirement did not stop them from driving.

We are required to show proof of insurance to get a registration, but many people drive without insurance. According to the Insurance Research Council, 12.6% of drivers did not have insurance in 2019. Even when people do have insurance, there are millions of drivers who purchase the minimum insurance required in their state, so they do not have enough insurance to pay for the injuries that they could cause. The insurance requirement does not stop people from driving.

Rather than driving safety, an insurance requirement may only drive firearm sales into venues where purchasers do not have to show proof of insurance. Private firearm sales between individuals would be difficult to track and validate insurance coverage, just like a private automobile sale between two individuals is. Additionally, the insurance requirement may make firearm ownership more expensive for

people, which could drive them from making their purchases at the gun shop where they check for insurance.

Automobiles and firearms are not the same thing and we aren’t saying that they are. People drive a car if they need to get to work, if they need to take someone to a hospital, or for many other reasons. They say that they have to drive a car and it doesn’t matter to them that they don’t have a license, registration, or insurance. As long as they don’t get caught, nothing happens to them. This attitude could also be held by some people who feel the need to own a firearm. They may not care if they don’t have the proper licensing, registration, or insurance. They feel that they need it. They want it and they will get it. As long as nothing happens, nothing happens to them.

As we already discussed, there are no insurance policies available to handle the result if someone owns a firearm with the intent of harming other people or damaging people’s property. Therefore, adding an insurance requirement does not increase firearm safety.

The question then remains as to whether or not the insurance industry should be the driving force behind firearm safety. Insurance companies are limited by two major factors. Can they get their rules, rates, and policy forms approved by the states that they operate in? Will customers buy those policies?

It’s hard to pin down whether or not insurance companies should work to drive increased safety because the bulk of firearm related injuries are not necessarily accidental and therefore not the purview of

the insurance company.

An insurance company should be involved in firearm safety as much as they are involved in safety in general. If they are helping their insureds to avoid fires, offering hurricane season tips, or other ways to combat common property losses, it seems reasonable that they would be involved in firearms safety. If they aren’t working to reduce other kinds of losses, any involvement in the firearms debate seems like the company is simply trying to be seen as “on the right side” of an issue, which might be part of their marketing plan, but doesn’t help in the overall reduction or management of risk.

Wraight, CIC, CRM, AU, is director of Insurance Journal’s Academy of Insurance. Email: pwraight@ ijacademy.com.

My New Markets

Motorcycle / ATV / Scooter / Golf Cart Rentals

Market Detail: MBA Insurance offers programs for various rental vehicles. On the Powersports Program (motorcycle/ATV/ golf cart rentals), the rental operator pays a monthly premium for each unit insured on the policy and there is a two-vehicle minimum requirement to qualify for the program. For the renter to obtain insurance for the rental, they are required to purchase an addendum through MBA for $15 a day. On the Powersports Liability Only Program (scooter rentals), the rental operator pays a monthly premium for each unit insured on the policy and there is a three-vehicle minimum requirement to qualify for the program.

Available Limits: Not disclosed.

Carrier: Not disclosed.

States: Available in 45 states; not available in District of Columbia, Hawaii, Maryland, Massachusetts, New York, Virginia.

Contact: Carlos Avila; carlos@mbainsurance.net; 480-946-1066.

Hard to Place Workers’ Comp

Market Detail: National Workman’s Comp Solutions offers coverage for hard to place workers’ compensation. Provides quote options for over 1,000 insurance agencies across the country. If you are having trouble securing quotes or considering the state fund, let us provide competitive options for your client companies. Insures all risk factors including: high hazard risks; roofing; staffing agencies; landscaping; high experience mods; general contractors and construction; high risk manufacturing; home health care; mold remediation/ asbestos and more.

Available Limits: Not disclosed.

Carrier: Not disclosed.

States: Available in 50 states plus District of Columbia.

Contact: Kyle Wilson; kyle@nationalwcs. com; 800-437-1009.

Long Term Care Facilities

Market Detail: Boz Insurance Services Inc. is a managing general underwriter specializing in professional and general liability for long term care facilities — including but not limited to assisted living facilities,

adult residential facilities, adult family homes, group homes, RCFE’s, and skilled nursing facilities. Minimum premium as low as $1,200 (varies by license type); minimum deductible — $0. Available Limits: Not disclosed. Carrier: A+ Demotech rating. States: Arizona, California, Florida, Nevada, Oregon, Texas, Utah, Washington. Contact: Quinton Goss; quinton@bozinsurance.com; 805-472-4869.

USA Softball

Market Detail: RPS Signature Programs provides insurance for softball teams, players, coaches, umpires, camps, clinics and. General liability insurance coverage for USA Softball events: The USA Softball Tournament/Clinic Liability Insurance Plan provides protection for lawsuits and court judgments that may result from bodily injury and property damage claims arising out of USA Softball sanctioned tournament or clinic operations. The policy includes participants liability insurance, which is one of the most important aspects of liability coverage for sports organizations. Covered under the USA Softball policy: tournament or clinic organizers; tournament or clinic officials; participating teams or players; individual team members; field owners (as additional insureds, if requested); tournament or clinic sponsors. Accident medical insurance coverage for USA Softball event participants: Under the USA Softball Tournament/Clinic Accident Insurance Plan, coverage extends to covered injuries incurred by tournament participants while practicing or playing in tournament games. For clinics, coverage applies to participants while taking part in clinic activities at the designated clinic site. There is no coverage for travel or off-premises activities under this plan. This policy is written on an excess basis; the policy

is secondary over any other valid and collectible insurance or healthcare plan the insured may have. Insureds need to submit expenses to their healthcare plan first, for this policy to consider a claim. If no other coverage is in force, this policy will pay the claim as primary, subject to the deductible and other policy terms. The policy only covers medical and dental expenses, which are incurred during the benefit period (within 52 weeks of the date of injury). Tournaments and clinics must be USA Softball approved or USA Softball sanctioned by their local USA Softball Commissioner to be eligible for this insurance program. The enrollment form must be signed by a USA Softball Commissioner in order to bind coverage. Coverage goes into effect as of the date the tournament or clinic starts, provided that the enrollment form and full premium are received by RPS Signature Programs prior to the start date. General liability and accident insurance may be purchased separately or as a package. Coverage automatically extends to make-up dates caused by weather, but no refunds are allowed for this program. Has pen.

Available Limits: Accident medical — $250,000 per claim; accidental death — $5,000; accidental dismemberment — $10,000 principal sum; chiropractic and physical therapy — $2,500 ($100 per visit); durable medical equipment — $1,000; deductible per claim — $500 for youth/$500 for adults; 90/10 % coinsurance; 52-week benefit period.

Carrier: Markel Insurance Co., rated A by A.M. Best.

States: Available in 50 states plus District of Columbia.

Contact: Cathy Fonseca; Cathy_Fonseca@ rpsins.com; 973-921-8124.

Idea Exchange: Contractor Matters

Performance Based Insurance Program: Why it is time to

California contractors began the year with many challenges: increasing wages and qualified labor shortages, high inflation impacting availability of credit and a slowing economy.

Daniel Dias

However, while wages have been increasing, workers’ compensation rates are at a 25-year low per the Workers’ Compensation Insurance Rating Bureau. With rates so low, insurance carriers are under pressure to raise rates to balance the increase in healthcare costs.

Performance-based programs can lower clients’ insurance rates, drive risk management best practices, raise the level of cash flow – but also expose clients to more severe risks if not well prepared.

Lowering Future Insurance Rates

Performance-based programs can allow contractors to offset the future rate increases in the California workers’ comp market. Most contractors buy guaranteed-cost programs based on historical experience modification, base rates and payroll. However, performance-based programs reward contractors for lower losses in the current year, which can compound that benefit in future years. Performancebased programs range from 100% self-insurance, large deductibles, retros and group and single parent captives – all allow contractors to assume a larger portion of risk in return for lower premiums.

One advantage of performance-based programs is they can provide greater control over insurance costs, allowing clients to assume great risk, and also help mitigate big fluctuations in year-to-year premiums. This can be particularly beneficial for contractors that bid projects one-to-three years in advance of completion dates, enabling them to know their long-term insurance costs.

Economic Incentive

Performance-based insurance programs also provide a financial incentive to reduce risk exposure. Contractors with fewer

claims are rewarded with lower premiums, incentivizing risk management strategies to reduce claims frequency and severity. As contractors scale, this becomes even more important. Clients that add a fulltime safety director often yield 3 to 5 times that salary in lower ultimate losses. Before entering into these programs, contractors should do a thorough internal review of their human resources, field safety, claims management and contractual risk transfer controls – or work with broker to help drive best practices.

Cash is King

Beside possibly lowering insurance costs, performance-based plans provide cash flow benefits, charging less premium up front and adjusting as losses become known. The trade-off is a sacrifice of some stability, because actual losses may be reflected in future year operating results. Further, because losses take time to fully develop, the final cost for a given coverage period may not be fully known for years. With a commitment to safety and loss control and the enhanced accountability driven by implementing risk management best practices, the long-term impact on the overall cost of covering a firm’s exposures

a consider

should be favorable.

Drawbacks

There are potential disadvantages of these programs: clients that assume a greater portion of the risk may be more vulnerable to large losses; adding risk management procedures and possibly personnel can be costly. But, having a proper risk management infrastructure, or working with a risk management partner, is key. This said, a transition from guaranteed-cost to performance-based insurance programs may not be suitable for all contractors, particularly those with a higher claims frequency or severity. Performance-based insurance programs can provide numerous advantages, but before taking on more risk, contractors should carefully consider all advantages and disadvantages of these programs.

Clients should work closely with a strategic risk management partner to complete an internal audit on risk management best practices and then determine what type of program is the right choice for their business.

Dias is a risk management specialist in large construction and national accounts at Cavignac. He has more than 25 years of experience.

Contractors

Report Examines Potential Risks for General Contractors

By Jahna Jacobson

Anew report from an insurer with a high concentration of general contractors in its commercial lines business recognizes the high-risk nature of the construction industry and offers insights that contractors and their risk advisors can use to help mitigate risk and limit financial loss.

The 2023 Selective Insurance General Construction Risk Report outlines the changing construction risk landscape — from natural catastrophes to labor shortages to supply chain issues and technological advancements — and provides recommendations to aid general contractors in minimizing those risks.

Contractors represent almost half of Selective’s 2022 commercial lines customers, and the report compiles information from internal claims and underwriting, plus external data and input from Selective’s regional staff and independent agency partners. Areas of focus in the report include the rising cost of labor and materials, worker safety, building industry trends, technology impacts, and more.

Rising Costs

Inflation reached a record high of 9.1% in June 2022, and price increases for certain commodities soared into double and even triple digits. The producer price index of net inputs to construction industries rose to a yearly high in May 2022, according to the report.

Inflation decreased in the year’s second half,

dropping to 6.5% by December. Consequently, lumber, steel and aluminum all saw price decreases from the year’s highs. Industry economists expect construction material prices to stabilize as 2023 progresses, the report says, although the cost of some construction staples, like cement products and diesel fuel, may be volatile. Overall, price growth for building materials slowed by 60% over the year, according to the National Association of Home Builders.

Selective notes that residential construction continues to grow in every region across the country. The South leads home starts by a wide margin, accounting for 52% of new housing construction. The West follows with 21%, the Northeast accounts for 15%, and the Midwest 12%.

Material Impacts

Higher material prices contributed to coverage limit growth in Selective’s builders risk policies, which protect against damage or loss to buildings during construction or renovation, the company says. The number of builders risk policies Selective issued with coverage limits of $2.5 million and over jumped 23% in 2022. Selective’s data also shows a notable uptick in jobsite incidents tied to fires from hot work, such as welding and brazing, and spontaneous combustion of oily rags and sawdust after disposal in plastic bags or trash cans.

General contractors also face property loss risks from natural catastrophes, theft, explosions, and building system failures in foundations, scaffolding

and fencing. Unstable supply chains led many contractors to stockpile materials when they became available, leaving them vulnerable to material losses from theft, fire or flood, according to Selective’s report.

Worker Safety

The labor crunch has led to more inexperienced workers on job sites and higher workers’ compensation claim frequency rates. Workers under age 34 account for a larger share of claims than any other age group, according to Selective’s 2022 data. The report recommends emphasizing training and safety procedures for new and less experienced workers.

About one in seven workers’ comp claims Selective received over the last three years were for injuries related to ladder safety and injuries from falling objects. Safety management training with those risk factors in mind is recommended.

Injuries roughly track the

seasonality of housing starts, according to the report. So, general contractors may have opportunities “to offer safety training to employees during slow months, which typically vary by region,” the report states.

Building Trends

The evolution of building materials means there will be a new roster of regulations and rules to protect workers and property, according to the Selective report. It will fall to the general contractors to train employees and provide property safety protection.

When using new building techniques, such as 3D printing or solar roof tiles, contractors “should work with fire code enforcement officials and fire protection engineers to use the Alternative Materials & Methods provision in many building codes,” the report notes.

continued on page 31

By Andrea Wells

The U.S. construction sector continues to see strong growth in various sectors and geographies but higher interest rates, higher building costs, and a decadeslong shortage of skilled labor are contributing to a “cautiously optimistic” outlook for the rest of 2023 into 2024.

Insurance costs are among

Brokers Must Get Creative As Construction Market Grows Amid Project Delays, Labor Shortage, Higher Costs

those that are rising, which insurance professionals say means that they must find creative ways to structure and negotiate their risk management and insurance programs, including anticipating project delays, changing lending terms and increasingly complex contracts.

Despite challenges, overall construction spending and insurance demand continue to

rise, especially in the nonresidential sector. And insurance brokers report that markets are responding to the need.

“The bright spot is that we are ‘building’ and we are building a lot,” said Danette Beck, the head of industry verticals and national construction practice leader at USI Insurance Services. “At USI, there was only one sector, Class A office buildings, that wasn’t growing.”

Beck says that in some areas of the country, residential construction has slowed but overall residential remains a growth area. “I don’t have anything but a positive outlook from a construction economy standpoint,” she said.

Construction spending totaled $1.9 trillion at a seasonally adjusted annual rate in April 2023, that’s up just 1.2% from March’s spending

rate. Spending is up by 7.2% from April 2022, however, according to the Associated General Contractors of America (AGC). Spending on private nonresidential construction has increased 31.2% from April 2022, the largest year-over-year gain in more than 15 years.

According to the AGC, nonresidential spending increased for the year in every category with the largest segment, manufacturing construction, jumping 8.6% in April 2023. That has more than doubled over 12 months, rising 103.8%.

Commercial construction — comprising warehouse, retail and farm structures — climbed 23.7%, while highway and street construction rose 21.4%, in the past 12 months.

Private residential construction is the only segment that declined — 9.2% for the past year. Total residential spending was dragged down by single-family construction, which declined for the 12th month in a row, falling 24.7% since April 2022.

Not all residential has slowed. AGC reported that spending on new multifamily construction has increased 24.9% since April 2022, the largest rise since 2016.

Beck cautioned that the construction sector’s bright spots could fade if contractors don’t remain diligent about the types of projects that they sign on to and make sure they have enough workers to complete their jobs.

“I don’t know how many clients, especially large clients that I’ve talked to over the last 10 years, have said, ‘I could hire 100 people and put them to work tomorrow if I could find them,’” said Dan Dias, commercial risk advisor for San

Diego-based broker, Cavignac. “They just can’t find them.”

The Associated Builders and Contractors (ABC) reports that the construction industry in 2024 will need to bring in more than 342,000 new workers on top of normal hiring to meet industry demand, and that’s presuming that construction spending growth slows significantly next year.

The construction unemployment rate dropped to 3.5% in May. Unemployment across all industries increased from 3.4% in April to 3.7% in May.

“The construction industry unemployment rate is now below the economywide unemployment rate, and there are plenty of available, unfilled construction jobs,” said ABC Chief Economist Anirban Basu.

That puts more pressure on construction firms as the overall cost to hire qualified labor continues to rise. Average hourly earnings for production and nonsupervisory employees in construction — covering most onsite craft workers as well as many office workers — jumped by 6.0% over the past year to $34.07 per hour.

Construction firms in May provided a wage “premium” of nearly 19% compared to the average hourly earnings for all private-sector production employees.

“Demand for construction workers remains strong, outside of homebuilding,” said Ken Simonson, the AGC’s chief economist. “Contractors continue to report their primary challenge is finding qualified workers, not finding projects or most materials.”

Beck says the ongoing labor shortage makes it more important than ever for contractors to make sure they are still running

a solid risk management process so that they can stay financially healthy.

More subcontractors fail in a recovering economy than in a recessionary economy, Beck said. “You want to take on as much work as you can but if you’re not diligent about how to manage that work, then you could potentially get yourself into a financial problem where you can’t pay your employees or you start getting behind in paying suppliers.”

Property Costs

Construction is not immune to rising property insurance rates.

“We’ve had to spend a lot of time with our clients talking about their fixed property and their builder’s risk placements,” said Roger Cornett, leader of Holmes Murphy’s construction team. “Rates have skyrocketed, deductibles or retentions have increased, sometimes doubled or tripled and capacity is limited.”

The cost of cement, timber, steel, glass and paint have all increased over the last year, in some cases by around 50%, said Blanca Berruguete, global industry solutions director for Construction, Allianz Global Corporate & Specialty, when commenting on a recently released report (see page 32).

“Frame construction is really difficult and large projects are having to go to the surplus lines and/or having to be layered with multiple markets,” said Dias. “Property will be especially challenging this year, so work with a broker that is engaging the market early for every type of risk as this side of the market is struggling.”

Project delays that might stem from supply chain issues

or even labor shortages are adding cost as well.

Cornett says where delays are hitting contractors hard is in the cost to issue project extensions on their insurance.

“So that could be both in builder’s risk, but more frequently on their wrap up programs or otherwise known as OCIPs,” he said. “So the insurers, especially on the builder’s risk … they’d want more money. They’d want to charge more rate (on extensions) because they don’t want to extend that policy at last year’s rate, or two years ago.” Today’s rate will likely be higher.

“I have a client who’s building an entertainment complex that is unfortunately going to sustain a project delay of nearly a year due to simply waiting for an electrical substation, a transformer,” he said. “It’s a big deal and it’s our role and responsibility as a prudent construction-focused agency or brokerage to be talking to our clients way out ahead of those policy expiration dates and strategize so that we’re well armed when we go to that insurer to ask for a reasonable policy extension.”

A few years ago, the builder’s risk market was very different, Cornett added. “So it used to be, ‘OK, we’ll extend existing terms.’ But now, you’re basically renegotiating everything.”

“We have always spent a lot of time explaining safety programs, especially for work comp or their fleet safety practices for automobile, or their contractual risk transfer for general liability. Now we’re having to spend as much time or more so on the property to explain this marketplace,” continued on page 30

Special Report: Construction

continued from page 29

he said. “Frankly, for most construction firms [property] was more of an afterthought, or at least on the back burner. Now it’s front and center in every renewal discussion.”

Financial Concerns

Another reason for the cautious outlook for construction firms is the possibility that an economic recession may hit.

“Lending practices have been under review on a broad basis to ensure banking stability and that plays itself out into construction firms and owners looking to secure loans for construction projects,” said Matt Walsh, managing director of Alliant Construction. The challenges for construction are most pronounced right now

Creative Construction

Now is the time for construction specialists to get creative, says Roger Cornett, leader of Holmes Murphy’s construction team.

“It’s more incumbent on us construction-focused insurance brokers to be the most creative we’ve ever been in approaching risk management and risk financing for our construction clients,” he said.

Danette Beck, the head of industry verticals and national construction practice leader at USI Insurance Services, agrees, adding that construction specialists must be mindful of today’s market challenges and the extra time it takes to be creative.

“Operating off of 180-day

in the commercial space. “It’s very difficult to get a loan for a commercial office building right now.”

When lending is tight the market tends to see an uptick from insurance companies stacking collateral, he said. That ends up having a double impact on owners and contractors — the cost of the loan is higher and the insurers raise their security requirements to ensure portfolios are not subject to a financial downturn.

“There’s a lot of pressure coming from that segment to increase collateral requirements. And so that’s a discussion we have every day to make sure that we try to rationalize it to actuaries and do the best everyone can do to mitigate losses, and that comes

back to safety,” Walsh said.

When losses do arise, Walsh advises, contractors and their specialist brokers need to think about the trends inherent in those losses: “What are the inflationary impacts on those claims, whether it’s the cost of the vehicle or it’s a jury verdict? And then how does that impact ultimately, lending practices, which are reflective of people’s balance sheets.”

Fundamentally, risk allocation in construction is the critical point, Walsh added.

Risk allocation plays itself out, first and foremost, in the contracts among all parties.

“Ensuring that those are synchronized, that all of the parties are allocated risk upfront, very clearly, and whether they are looking at cost of materials or

they’re looking at the duration of a project that might be impacted by climate change, all of those factors are very critical,” he said.

At the top of that list of factors is finding the labor necessary to build, Walsh added.

“Everybody needs to be practical and cognizant of risk allocations and ensure that the risks are being managed by all the parties that are capable of managing that risk,” he said.

At the same time, unforeseen challenges need to be reflected in the contracts to ensure that the best outcomes possible are achieved even when there is a lot of uncertainty on the path to project completion.

renewal cycle isn’t doing anyone any good anymore,” she said. “And having risk as a part of a contractor’s conversation every day is important because buying insurance is only one part of a risk management strategy.”

Construction firms must be mindful of their internal controls, risk management strategies and understand the contracts they are signing.

“Contracts are getting much more complex, and [project] owners are looking to allocate risk to contractors a lot more now,” Beck said. “How do you deal with taking on more risk than you’ve taken on before? How do you manage that visa-vis with your insurance program to help support your contractual liabilities that you’re agreeing to?”

Beck says construction brokers can help their contractors stay on course to manage their financial health and wellness through risk management. “Potential recessionary environment, regional banking concerns, increasing interest rates, prospects of a federal debt ceiling crisis, and persistent skilled labor availability, all hit the top of risk issues currently plaguing contractors and subcontractors,” she said.

While these challenges are forcing contractors to be more mindful of contract terms, budgets and schedules, they will continue to enjoy some of the healthiest backlogs in construction work across most major market segments for the rest of 2023 and beyond, she predicts.

“Every item on that path can be impacted … if there are unfortunate worker injuries that throws off the schedule, or you can have quality issues that come up where you need to reconfigure work that’s been done,” he said. Then that impacts the entire project schedule. “The schedule is one of the most critical things and people from outside of the construction industry don’t necessarily understand how time impacts construction projects.”

Any sort of activity that sets that pathway off course, could be very challenging, and quickly slow the project down, he said. “That all impacts, too, the cost of finance per project because these projects are mostly financed.”

Even with rising costs, labor shortages and uncertain economic times ahead, the construction insurance market is favorable and moving in the right direction, Walsh added.

“There’s ample capacity to actually do the projects,” he said.

Spotlight: Contractors

continued from page 27

Solar installation is a growing area of risk. Solar tiles installation takes longer than traditional roofing, so workers spend more time at heights. To mitigate the increased risk of falls, Selective recommends that contractors train employees, maintain responsible and conscientious job sites, and monitor the use of fall protection equipment.

The increasing prevalence of multi-family construction, such as condominiums, apartments and townhouses, could lead to more construction defect claims from larger projects, according to the report. From 2020 to 2022, Selective saw three times more completed operations claims from residential general contractors than non-residential general contractors. Inexperienced project managers and subcontractors, supply chain issues and labor shortages can all contribute to construction defect risks. And, in larger projects, defects may be repeated over multiple

units. General contractors can face these claims long after project completion as the defects are discovered and reported.

Wood-framed condominiums and apartments are tied to higher fire risk, according to Selective, which notes that general contractors can mitigate risks by working with fire departments to preplan for the site, turning on hydrants, timing the activation of sprinkler systems, managing hot work and controlling project housekeeping.

Safety on the Road

General contractor commercial automobile claims exceed general liability claims by three to five times, with the most severe claims related to job site travel, especially in heavy-duty vehicles, and improper vehicle use, according to the report. General contractors are frequently found liable in business automobile accident-related tort claims. Along with driver training and vehicle maintenance, the report suggests general contractors can mitigate accidents

and exposure with in-vehicle technologies like telematics, dashcams and driver-assist features.

Impacts of Technology

Technology plays an important role in driving construction industry safety. Technologies such as wearables, robots, remote monitoring of job sites for fire and flood dangers, and virtual training are helping to keep workers safe and job sites protected, the report says.

Forecasts predict that as the industry continues to boom and evolve, risks will grow in frequency and scope. General contractors must look at every facet of a project to ensure they have the right coverage for workers, materials structures and vehicles, Selective advises.

Download the 2023 Selective Insurance General Construction Risk Report at https://www.selective. com/about-selective/blog/unique-perspectives/general-contractors-risk-report.

Construction/Engineering Sector Ranks Biz

Disruptions as Top Risk

By L.S. Howard

Business interruption/ supply chain disruption ranks as the top risk facing the construction and engineering sector, which has been hit by soaring construction costs, supply chain disruptions and labor shortages, according to a report published by Allianz Global Corporate & Speciality (AGCS).

Ranked as the second highest risk for the sector is natural catastrophes, followed by the energy crisis as a new entrant at number three.

While the long-term outlook for the sector is positive, it faces a number of shorter-term challenges such as the prospect of recession; the shortage and rising cost of key equipment and materials given recent high inflation; a spike in procurement costs; ongoing shortage of skilled labor; longer lead times, schedules, and cost overruns; compromised supply chains; ever-changing workplace protocols; and increased competition, said AGCS in a briefing on the construction sector report, Global Industry Solutions Outlook – Construction.

The AGCS construction briefing uses data from the Allianz Risk Barometer 2023, published in January and based on a survey of 2,712 risk management experts from 94 countries and territories. The construction briefing is based on a survey of 161 respondents from that sector.

Not only is the cost of building replacement higher and taking longer, but materials

are also significantly more expensive, commented Blanca Berruguete, global industry solutions director for Construction at AGCS, who was quoted in the briefing.

“[T]he cost of cement, timber, steel, glass and paint have all increased over the last year, in some cases by around 50%, while construction inflation was in the range of 11% to 25% in countries such as the US, UK and Germany— but can often be simply unavailable due to logistics, shipping and supply-chain bottlenecks,” she continued.

The end result is that property damage and business interruption losses are now likely to be significantly higher than they were before the pandemic, the report said.

The Allianz survey revealed that the second highest risk worrying executives in the construction and engineering sector is natural catastrophes (which can lead to business interruption/supply chain disruption).

“Our analysis of construction and engineering insurance

Interruption/Supply Chain

industry claims around the world shows that natural hazards is already the second most expensive cause of loss, accounting for 20% of the value of claims in five years — second only to fire and explosion,” Berruguete continued.

“With climate change increasing the frequency and severity of extreme weather events such as hurricanes, floods, and wildfires this means that the costs of property damage and business interruption from these events are expected to escalate,” she said.

Given the fact that it is now much more expensive to repair or rebuild damaged properties, Berruguete said, it is important that businesses work with insurers to ensure they have accurate and up-to-date valuations of assets so that they are fully reimbursed in the event of losses.

Ranked at number three on the list of risks for the construction and engineering section is the energy crisis, which in combination with other factors, has contributed

to rising costs, given the fact that construction is an energy-intensive economic activity, the report said. In the mid- to long-term, however, the energy crisis could also act as a catalyst for the sector to fast-forward its green transformation, adopting more sustainable approaches, as it is a key contributor to greenhouse gas emissions.

Long-Term Outlook

The global construction market is set for a sustained period of strong growth in future years, driven by an expected surge in government spending on infrastructure, rising populations, rapid urbanization in emerging markets, and the global drive towards a more sustainable world, said the report. The construction sector is expected to see growth of US$4.2 trillion over the 15-year period from 2022 to 2037 — or growth of more than 40% in the size of the global market, said AGCS, quoting Oxford Economics.

Indeed, the drive to net zero will help deliver strong future growth for the construction

industry. The report warned that new technologies, innovative delivery methods and greener, leaner practices will also bring new risk scenarios such as potential defects and repetitive loss scenarios, or unexpected safety or environmental consequences.

“The switch to sustainable energy and the adoption of modern building methods will transform the risk landscape, with radical changes in design, materials and construction processes and the introduction of innovative technologies,” the report said.

“In order to meet carbon reduction targets, rapid adoption will likely be required, meaning close cooperation between insurers, brokers and clients, to share data and experiences to help underwrite what can be prototypical risks,” Berruguete said. “In any industry, deployment of new technologies can also bring new risk scenarios such as potential defects or unexpected safety or environmental consequences, as

well as benefits,” the report said, citing the example of modular construction, which can mean less construction waste, shorter

timelines and reduced disruption to the environment but also raises risk concerns about repetitive loss scenarios.

Fires and Natural Disasters Cause Most Construction, Engineering Claims

Fires and natural disasters are the top contributors to construction and engineering losses, according to an analysis by Allianz Global Corporate & Speciality (AGCS) of 22,000 insurance claims worth €12.8 billion during the five-year period from 2017 to the end of 2021.

Fire and explosion is the most expensive cause of loss, accounting for 27% of the value of claims analyzed, while natural catastrophes account for almost a fifth of claims by value (19%) and are also the most frequent cause, totaling 18% by number, said AGCS in a briefing on the construction sector titled Global Industry Solutions Outlook — Construction.

“Despite significant improvements in risk management and fire prevention, fire will always remain a significant hazard because of the nature of the work in the sector, which often involves open flames, such as welding, the application of heat with equipment like hot tar

boilers or the generation of sparks during leadwork and grinding,” the report said.

Embarking on these activities in the vicinity of combustible materials, which are plentiful on construction sites, increases the potential for a loss event, the report affirmed. “Regularly assessing and updating prudent fire mitigation practices, including preventative and extinguishing measures and methods, and contingency planning, are essential to lower the risk of loss from an incident.”

Addressing the remediation required for natural catastrophes, the report said, construction sites need to give more consideration to the impact of extreme events, such as wildfires, flash flooding and landslides in their risk assessments.

“With climate change increasing the frequency and severity of these events, the costs of property damage and business interruption are expected to escalate,” the report said.

Recent years have seen claims activity

from such catastrophic events, which can lead to temporary closure of sites and infrastructure projects due to safety concerns and power outages. The report noted that business continuity plans should be regularly updated and tested.

Rounding Out Top 5 Causes of Claims

Defective products are the third most expensive cause of claims (10%) and the second most frequent cause (13% by number) — any potential defects in design can mean that project losses quickly soar.

Faulty workmanship/maintenance (8%) and machinery breakdown (7%) round out the top five causes of loss by value of claims.

The analysis was conducted on 22,705 insurance claims worldwide between January 2017 and December 2021, worth approximately €12.8 billion in value. Claims include the share of other insurers as well as AGCS.

Spotlight: Builders Risk

Lessons Learned: Builders Risks Claims

Theft, fire and water damage are the top three claims for builders risk insurance. Here are examples of how they happen, and what insureds can do to mitigate the risks.

Long gone are the days when claims were more about vandalism than treachery, and when a damaged pipe or faulty fixture on a new structure was quickly repaired by a reputable crew that had been there, done that and knew you.

By Rachele Holden

We are now in an era of uncertainty, fueled by a scarcity of materials, higher prices and under-qualified labor. Ever since COVID, entire drop-offs of lumber, siding and other valuable building materials have been disappearing en masse, sometimes within hours of delivery. Most likely, these are inside jobs. Additionally, inexperienced, indifferent or inattentive crews, often reduced in size due to labor shortages, are leaving sites with open windows, unchecked plumbing and paint- and varnish-soaked rags packed inside combustible containers.

Theft, which often involves vandalism, is the most prevalent claim, followed by water damage, fire and, more and more these days, weather. Hail, tornadoes and wind have caused havoc in areas where we’ve not historically expected them to occur.

Regardless of the cause, there are ways your course-of-construction clients can mitigate risks. Here’s a list of suggestions I’ve compiled from my experience supporting builders risk claims investigations.

1. Schedule deliveries — especially large ones — for the morning. Materials delivered late in the day, after the job site

has been vacated, are at high risk of theft. If early drop-offs aren’t possible, conceal materials or position physical barriers to prevent unauthorized vehicles from accessing the site.

2. Leverage technology and surround the site with barriers. Pre-wire Wi-Fi when possible, and get electricity working, so alarms, cameras and lighting can be installed strategically. There are also portable, stand-alone security systems that provide 24/7 monitoring and could even eliminate the need for a full-time guard.

Additionally, physical barriers surrounding the site can provide a front-line defense to limit access or make it more difficult to steal large

scale materials and equipment.

3. Check connections after plumbing is installed. Leaks from flawed hookups don’t always manifest immediately, so monitor newly connected fixtures throughout the day to ensure there are no little problems that can become crises overnight. In cold weather, install heat before water

is turned off or make sure water is drained from pipes before leaving the site. Additionally, have equipment on hand to remove water immediately should an issue arise.

4. Store paint and stain rags in receptacles designed to prevent spontaneous combustion. These inexpensive containers, which range from six to 21 gallons, are available at building supply or big box stores such as Home Depot or Lowe’s. If using subcontractors, consider adding contract language that specifies use of these containers. Better yet, have subcontractors remove the rags from the job site each day.

5. Restrict smoking and guard against fire. It only takes one ember to create a blazing disaster. While it’s common, smoking should be prohibited near the job site, especially next to any debris pile. Also, paint and stain rags (even if stored

in appropriate receptacles) and other flammable materials should be kept away from kerosene- and propane-fueled portable heaters.

When cutting and welding are involved, have someone stay at least one hour after the workday ends to make sure there’s nothing smoldering after work has been completed.

In addition to these steps, clients should ensure fire extinguishers are strategically placed and workers know their location.

6. Close windows, be strategic about the roof installation and prepare for freezes. Contractors often don’t realize the amount of damage water can do, and how costly it is to repair.

Whether it enters through the roof or a broken pipe, there is the potential for extensive damage to flooring, baseboards and cabinets. In certain months, contractors should anticipate freezing temperatures by turning off water, draining pipes

and turning on the heat.

On top of that, mold and mildew often follow water damage, which can delay a project longer and become more expensive to repair or restore. Agents should encourage clients to talk to the claims adjuster for advice to mitigate loss even further.

Incidents such as theft, fire and water damage could raise the cost to insure future projects. That’s because builders risk rates are based in part on the experience of past jobs. Counseling clients to diligently mitigate their risks will help them keep rates low while furthering a healthy and long-term relationship between you, your client and the insurance provider.

Holden is senior vice president, head of product underwriting for US Assure, where she is responsible for product development, loss analysis, and rating and guidelines. US Assure exclusively distributes, underwrites and services Zurich’s builders risk insurance program across the U.S.

on top of my game.”

Peters - Producer at Hamrick Insurance Services & Satisfied Insurance Journal Subscriber

Idea Exchange: Human Services

What

Staffing Shortages Mean for Human Services Organizations

With staffing shortages across the landscape, and an overwhelming need to fill this gap, some organizations may feel pressure to hire less qualified employees to fill open roles to meet the needs of their clients. However, this exposes them to greater potential liability risks and other negative implications.

incident.

By Matthew S. Mitchell

Human service organizations play a critical role in our communities, making an important difference for the populations they serve. With demand for their services higher than ever, many human services organizations are facing staffing challenges — especially those providing direct client care to children, elderly, individuals with developmental disabilities, and those vulnerable to substance abuse or experiencing mental illness.

With organizations across the human services spectrum struggling to hire and retain staff, these organizations are facing increased exposure to liability risks. Independent agents are the perfect advisers to help their human services customers protect their businesses and those they serve.

Why the Staffing Shortage?

Coming out of the COVID-19 pandemic, retail and service operations began raising wages to compete for employees. The majority of human services organizations are nonprofit entities with relatively inelastic budgets, however, leaving them unable to match these increased wages to entice their employees to stay. Also, with the recent inflation impacting the country, a number of employees have left human services roles to seek alternate work with higher pay.

At the same time, the pandemic drove an even greater need for direct care services. For example, a recent study from ANCOR showed nearly 80% of organizations working with clients with intellectual and developmental disabilities had to turn away new referrals due to insufficient staffing — a 17% increase since the beginning of the pandemic.

The demand for mental health services also rose by 21.6% in 2021 alone, according to the Centers for Disease Control and Prevention.

Four Key Considerations for Direct Care Organizations

As independent agents work with human services organizations, it is important to keep these staffing challenges and impacts in mind to build effective insurance solutions. Below are some key considerations.

Hiring Protocols

Despite the challenge in staffing positions, it’s important that organizations follow their hiring requirements and protocols — maintaining standards, even if this may result in a less expedited hiring process. Taking this time up front can help minimize the risk of hiring an individual who isn’t a good fit or is potentially unqualified for the role.

Hiring best practices can play an important role here, and a big part of this is having proper procedures in place. A few important best practices are:

• Formal written procedures for hiring staff

• Employment applications completed by all applicants

• Personal interviews for each prospective new hire

• Verification of prior employment references, licenses or other credentials

• Comprehensive background checks on all prospective employees and volunteers

• Formal staff trainings conducted regularly, including documented training on physical or sexual abuse, recognizing signs of abuse, and reporting procedures for an

Some insurance carriers offer specialized, complimentary trainings designed for their human services insureds, which can be very beneficial in helping these organizations provide training to their employees — whether its around abuse prevention or mandated reporting courses. Similarly, carriers can provide access to services that help ensure job candidates are being effectively screened before being hired.

Increased Professional Liability and Abuse Risk

Higher employee turnover often can result in less experienced employees. In environments that require a high level of attention and personalized care, this can lead to an increase in professional liability and abuse claims. A simple mistake when

caring for vulnerable individuals can have devastating consequences.

For example, a client being provided care has trouble swallowing and needs to follow specific dietary restrictions to prevent choking. The caregiver turns away to assist another individual and leaves food on the table. Without the caregiver realizing it, the client who has a high risk of choking eats the food off the table, and when the employee returns the client is choking. This very simple mistake could have tragic consequences — and could all happen in minutes.

Similarly, newer employees are often unsure of when and how to report a potential abuse issue. When early reporting of a potential incident occurs, it can help address the situation quickly, ultimately helping prevent harm to clients. But when employees do not know how to report an incident, it can lead to an escalating situation, such as verbal abuse escalating to physical abuse.

There are additional increased risks in professional liability as more direct care organizations offer medical services to their clients. Some simply coordinate care, while others collaborate with healthcare entities, and some employ healthcare professionals such as psychiatrists or physicians. This creates a distinct challenge that requires specialized coverage for healthcare professional liability. If a patient brings a lawsuit due to improper care, traditional human services professional forms do not provide primary coverage for this type of medical professional on the policy.

This is typically covered by a separate medical malpractice policy, so partnering with a carrier that can offer both the broad form professional along with a healthcare professional liability policy will provide more seamless protection from a single carrier. Similarly, for abuse-related risks, there are still some forms that only offer coverage for sexual abuse, which is not the only type of abuse that these organizations face. Top agents often seek out carrier partners that cover both sexual and physical abuse.

Emerging Claims

With increased risks and the dynamics of the staffing challenges, there is also an impact on claims for direct care organizations. In recent years, some claimants have seen significant monetary verdicts, which may set unrealistic expectations around how much a claimant should be paid for a given case. This social inflation trend is being combined with attorneys who are seeking out cases with larger settlement potential, making it increasingly difficult to settle claims outside of court and driving up costs for all parties involved. When

a new staff member makes an innocent mistake, this could be detrimental to the organization — not only from a claims perspective, but also from a reputation standpoint. This makes it more important than ever to have a team of experienced claims professionals who are dedicated to handling claims within this industry to help defend human services customers. Carriers that have expertise in handling these complex claims scenarios will prove to be valuable, and a true differentiator, for human services insureds.

Risk Management Resources

Taking a holistic approach to hiring is a key component of addressing potential risks. Human services organizations require specialized professional liability and abuse coverage, along with key industry-focused risk management programs and services. With many of these staffing challenges not expected to subside in the near term, agents can help ensure their insureds have the right risk management programs by partnering with carriers that have expertise in human services and offer dedicated programs and resources.

For example, valuable risk management offerings from carriers may include trainings such as abuse prevention and mandated reporter trainings. In addition, discounted background checks can be another value-add as organizations face a continual cycle of hiring new employees, helping to ensure proper vetting.

Certain carriers may offer dedicated and experienced risk consultants who can help their insureds tailor a preventative risk management program specific to the risks they face. This hands-on consultation can make all the difference in protecting human service organizations.

As these organizations navigate the challenging staffing environment, independent agents play an important role. Agents can help address the increasing risks with the right insurance protection, strong risk management strategies and effective carrier partnerships, all helping to protect their customers for years to come.

Mitchell is president, middle market, at The Hanover Insurance Group Inc.

Idea Exchange: Is It Covered?

Logic & Language and Forms & Facts

Seriously, Insurance Is NOT a Commodity

Allegedly, this policy either didn’t cover flood damage at all or limited coverage to stationary vehicles.

By Bill Wilson

About three years ago, I published a book of 1,500 of my favorite quotations. As I was working on an updated edition recently, I came across a quote by 19th century British philosopher John Ruskin that I believe has significant relevance to the insurance industry: “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.”

In my January and February columns, I wrote about the incessant price-focused advertising that dominates the insurance marketplace and how this leads consumers to believe that most insurance policies are commodities differentiated solely by price.

The obvious problem this presents is that many consumers will buy the cheapest policy, oblivious to the fact that this policy may have significantly less coverage than one only slightly more expensive. In probably no other line of insurance is this more prevalent than personal auto insurance.

I was reading recently about an auto comprehensive claim in Florida where the driver’s vehicle was flooded when he entered an intersection with water deeper than he thought. According to the news account, his auto insurer denied the claim on two grounds.

One was that his policy excluded “damage resulting from driving through a flooded area.” He says he didn’t think the intersection was “flooded.” It had standing water, but it appeared to be only a few inches deep. Most personal auto policies cover “hail, water or flood” without any stipulation prohibiting “driving through a flooded area.”

The second exclusion cited by the insurer was that the vehicle was “being used for business purposes.” Most personal auto policies cover business use of certain autos with a few limitations such as use in an automobile business. Allegedly, his policy excluded “business use” — period. This is not that uncommon. I’ve seen policies that do this or policies that prohibit business use of non-owned autos or, specifically, pickup trucks, along with other variations.

Use of a vehicle as a public or livery conveyance, or words to that effect, is a common exclusion. The “public conveyance” provision usually applies to vehicles being held out to the general public for hire, such as a neighbor of mine who will drive anyone to the airport for $50. The “livery conveyance” provision would likely apply to another neighbor who will use his pickup truck to transport property from the point of purchase to someone’s home or take junk to the city dump. However, I’ve seen auto policies that exclude ANY type of “delivery” use, including one claim that was initially declined following an accident involving an insurance agency producer who was “delivering” insurance policies to customers.

I consulted on a claim a couple of years ago involving a personal auto policy that insured three vehicles. The insured was trading in one of the autos, the oldest one, on a replacement vehicle. The auto being traded was the only one of the three on which he had dropped collision coverage. So, of course, two hours after the trade was consummated, he totaled the new car in an at-fault collision.

Unfortunately, his policy only extended the coverage on the vehicle being

traded to the replacement vehicle. In other words, he had no coverage on the new auto until he reported it under this policy. Under an “ISO standard” personal auto policy, the replacement vehicle would have the broadest coverage available on any declared auto and that’s

been the case for almost 30 years.

All the other auto insurers the insured’s agency represented followed the ISO language except this one. What are the odds that coverage in this case might be found only on the agency’s E&O policy, perhaps within the deductible?

Most personal auto policies provide broad coverage for resident family members, but I’ve seen policies that exclude “undisclosed household residents.” How many families today have “boomerang” children who have moved back home

unbeknownst to their auto insurer?

My auto policy extends liability coverage for the personal use of virtually any vehicle with at least four wheels designed for use on public roads. Some policies exclude certain types of vehicles, e.g., those with a gross vehicle weight in excess of 10,000 pounds. If I rent a U-Haul truck to move some personal property, my policy extends liability coverage. Do all of the policies you sell do that?

Some policies exclude losses that involve “criminal acts.” If a claim is

accompanied by a DUI charge or perhaps even a speeding ticket, does that preclude coverage? What is a “criminal act,” a charge or a conviction?

In a couple of previous columns, I’ve described the difference among auto policies in how the “racing” exclusion applies to certain situations. Some policies only apply their exclusion for racing inside a facility designed for racing, others apply their exclusion to any organized racing event, and some exclude even “spontaneous” (unorganized) street racing.

Needless to say, this list of examples could continue indefinitely if space allowed.

Over the years, I’ve taught many dozens of all-day personal auto classes and talked about issues like this in hundreds of other seminars and webinars. I’ve never lacked for examples of claims denied under some policies yet covered under others.

Finally, keep in mind that, even if policy forms are identical, the insurance contract is only part of the “insurance product.”

Two people can interpret the exact policy language differently. Claims practices vary by insurer or even adjusters within an insurer in comprehensiveness and speed to resolution. Valuation is often subjective and more stringently applied by some insurers than others.

As the opening quotation in this article says, people who consider price only are usually the lawful prey of those that sell an inferior product cheaply. The policy matters. So does the agency advocate and the insurer itself. Choose wisely.

BWilson,

[T]his policy either didn’t cover flood damage at all or limited coverage to stationary vehicles.

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.” Email: Bill@InsuranceCommentary.com.

Idea Exchange: The Competitive Advantage

Underwriting vs. Coverage Standards

Historically, if an account met an insurance company’s underwriting standards, the account was provided coverage in exchange for the required premium. Sometimes insureds and/or agents lied about the account actually meeting those standards, which would only be discovered after a claim was filed. The carrier would then determine whether they would deny coverage.

extinguishers do not meet the standard, but the loss is caused by water. Or perhaps the insured is not complying with MFA cyber standards, but the loss would not have been prevented had the insured complied because the loss had nothing to do with MFA protections.

warranty applications.

The term “warranty application” might be new for some readers. Essentially a warranty application is a statement that all the information provided on the application is warrantied by the insured to be correct. If the statements prove to be incorrect, coverage can be voided.

By Chris Burand

The denial of claims in these situations is understandable and reasonable. I have never experienced nor even heard of any contentiousness when these claims were denied with the exception of some agents screaming bloody murder that they should not be penalized (i.e., having their contract pulled or suffering an E&O claim) for purposely misleading the insurance company.

More recently though, carriers have begun to institute risk management standards with which insureds must comply throughout the policy term. Moreover, some carriers have begun denying claims for failure to comply with the required standards even in situations where the standards have absolutely nothing to do with the claim. For example, the fire

I am pretty sure these coverage denials will not improve the industry’s image. The worse the industry’s image becomes, the less insurance people will purchase, and the more regulators will make life harder for insurance companies. Overall, I do not think these coverage denials are a good strategy, but carrier executives make a lot of money, so I am sure they are correct.

At the agency level, the changes in standards mean a decision needs to be made relative to what kind of agent you want to be going forward. Historically, an agent’s lowest standard of care required insureds to read and understand their policies without the expectation that the agent will explain much of anything.

However, these risk management requirements can override coverages.

What used to be limited to warranty applications is becoming far more widespread and is making a much larger portion of policies de facto warranty applications. Cyber is probably the best example of this situation because for all practical purposes, cyber applications should be considered

Technically all insurance applications could be considered warranty applications, but that is not how carriers have treated them in the past. For example, tens of thousands, maybe hundreds of thousands of personal auto policies are rated on a personal use basis of less than the three miles when the insured is actually driving much further to get to work. However, despite this disapprobation, I have never personally heard of a claim being denied when that driver had an accident. The worst I have seen when the agent/insured committed gross misinformation was the carrier charged an additional premium for all the lost rate they would have gained had correct data (i.e., honest data) been provided.

However, carriers are starting to deny claims in some instances in these situations. I understand their point when the misinformation/misrepresentation is directly applicable to the claim, but not otherwise. It seems unfair especially when application questions are worded so poorly.

Again, I will use cyber applications as an example, but these wording issues can be found in many other coverages. The application question is written with only a “Yes/No” option. The question cannot be answered honestly and correctly as “Yes” or “No.” Neither answer is correct.

A great example is a cyber application that asks if the insured is in compliance with privacy laws. The question should list the specific laws. The insured might be in compliance with some privacy laws and not others.

Most insureds are not aware of all the privacy laws that exist, so they cannot honestly answer this question correctly

without significant assistance from their attorney and their IT providers/executives.

Answer this question incorrectly, suffer a claim, and then learn all coverage is voided. The insured then asks, “Why buy insurance if they’re not going to pay my claims when I tried to answer the questions as honestly as I know how to do?”

The traditional property insurance world is moving in this same direction. Requiring an exact listing of the executives and requiring that the carrier be notified of changes in executives, fire control systems, and even fire extinguisher standards, are common examples whereby carriers have denied claims for failure to comply with policy standards and/or answering an application question incorrectly even though the claim had nothing to do with the question.

I am not sure what good peddlers of insurance can do in this more restrictive environment. Peddler agents make the industry look worse as claim denials grow and they hide behind low standards of care. Insureds need advice, not excessively restricted insurance policies sold by agents who have limited knowledge of coverages and coverage restrictions, and who basically sell insurance on a caveat emptor basis.

hopefully motivates the best agents to talk to their insureds throughout the year, reminding them of the need to maintain policy standard compliance throughout the policy period. It enables the best agents to tweak warranty applications in order to answer the questions correctly, rather than “Yes” or “No.” It also enables the best agents to assist clients with the inclusion of severability and non-rescission language in the policy.

This new environment enables the best agents to more fully protect their clients, and that is what agents should be paid to do. AI will handle straight procurement just fine and for 5% commissions.

First-rate agents have an excellent opportunity in this otherwise desultory environment to shine. Understanding that carriers are denying claims in this fashion

Burand is the founder and owner of Burand & AssociatesLLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.

If the statements prove to be incorrect, coverage can be voided.

Idea Exchange: Agency Management

ChatGPT: What’s the Big Deal?

ChatGPT, Bing Chat, Bard, Character.ai and others. And I’ll detail some of those things below. But for now, let’s compare a tool like ChatGPT to the human brain to help us understand not only its limitations but where it is heading.

By tony Caldwell

Late last year, most Americans began to hear about a new application of artificial intelligence (AI) called ChatGPT. Soon, this application, from a data science company called OpenAI, became the hot topic at every meeting, trade conference or internet search. Surely, by now, you have heard of it and perhaps you’ve even begun the process of thinking about how it will impact your life and business. I certainly have.

AI isn’t new. We’ve been using it for years in tools like Apple’s Siri and even in tools as prosaic as Microsoft Word with its spell check and sentence completion algorithms. Actually, scientists have been building the base for AI since the 18th century. A recent article by McKinsey pointed out famous scientists like Alan Turing, most widely recognized for cracking the Nazi’s Enigma code during World War II, have been making great strides since the middle of the 20th century. But, even with everyday use of AI tools over the last decade, most people have been shocked to learn the real capabilities of today’s generative AI.

Peter Diamandis, serial entrepreneur and author of Abundance, The Future is Better Than You Think, has a formula he uses to describe the exponential progress of a technology called the “6D’s Formula.” He says that technology is first “digitized,” then it is “deceptive,” then “disruptive,” followed by “demonetized,” “dematerialized” and, finally, “democratized.”

The process of digitizing AI began almost 80 years ago, and its capabilities have largely been deceptive since then. In 2022, we all became aware of its ability to disrupt.

AI vs. Humans

Right now, you can do some pretty amazing things in your personal life and business using generative AI tools like

ChatGPT was “trained” on 45 terabytes of data, according to McKinsey. That’s equivalent to about 25% of the Library of Congress’ holdings. While that sounds like a lot, consider that we are currently adding approximately 97 zettabytes of data annually worldwide according to Statista.com. That means ChatGPT has only learned about 5% of what the world added to data just last year. So, AI apps have much to learn!

As a comparison, the human brain’s memory capacity is estimated to be 2.5 petabytes, or one million gigabytes according to Scientific American. And, while supercomputers, which are running tools like ChatGPT, are fast, the human brain is still about five times faster.

What’s my point? As amazing as these new tools are, they are still in the infant stage of development. In Diamandis’ terms, they are just now moving from deceptive (we don’t see them) to disruptive (they are ready to change things).

If we go back into the midst of prehistory when humans first discovered fire, two really important learnings occurred almost simultaneously. Because it was new, fire was scary. As soon as someone touched it, it became terrifying. But, in the same moment or shortly after, someone else began to consider using fire to improve their way of life. With experimentation, millions of years later fire is perhaps humankind’s most ubiquitous and useful tool.

To speed generative AI on its way to becoming truly useful, nearly $2 billion dollars has been invested during the last three years in new start-up ventures just to expand the capability of the current tools. Over the next few years, we should expect to see these tools moving on Diamandis’ scale to the truly disruptive phase.

Using AI to Your Agency’s Advantage

So, what are some things you can do with these tools right now to improve your agency’s operations?

Email. Generative AI tools are just mega consumers of words with algorithms for prediction in their simplest form. Email is just a large quantity of words. ChatGPT can be used to read every email you’ve ever sent, learn your speech patterns, preferences and then compose and respond, schedule, set automated responses, prioritize your inbox and schedule your emails.

I did an estimate of my own time a few

years ago and discovered I spent up to 500 hours per year on email. How much time do you spend? What’s your time worth per hour? What would a simple application of a rudimentary tool translate to for you and your business? My son, CEO of a startup software company, with hours of emails to manage each day says it’s saving him several hours a day after a few hours’ investment in training time.

Marketing. ChatGPT and similar tools can create content of all kinds almost instantaneously — including articles, blog posts, videos, brochures, web pages and virtually anything else you can think of

that uses text, video or audio.

Do you have an agency brochure? Of course. Do you have a distinct one for the various niche markets you serve? Probably. But do you have one for every unique client or prospect that is written at their ultimate education level, with vernacular unique to their industry, hobbies, location and business size? You can, along with custom generated visuals designed to uniquely appeal to them.

Do you need exactly 653 words in a blog post about your agency’s new office location written in the words and style of Kevin Costner’s character John Dutton

on Yellowstone? No problem. Give me five minutes. If you can imagine it, you can probably do it, quickly, cheaply and effectively.

Research. Think of all the things you need to look up, read, learn and summarize in your daily work — unique products your prospect makes, the micro-economic forecast for a niche industry based on macro-economic trends, court cases on points of coverage, relative product strengths among the insurance companies in your agency, and so on. ChatGPT can assist with all of that and more. Think of Google search as your old Model T and ChatGPT as your new Bugatti Veyron.

Facing the Fear

I’ve listed just three examples of how these newly available tools can be useful to you right now. Hopefully, they will serve to ignite your imagination with the almost limitless ways you may be able to use them. But remember, in relative terms, today they have the capability and reach of a campfire. Within just a few years, as generative AI becomes in Diamandis’ scale “democratized,” these tools will be as commonplace as a kitchen match.

This brings me back to the two human reactions to fire, and many new inventions for that matter — fear and innovation. These new tools promise to speed up work processes, create efficiencies and potentially eliminate the work done now by many people.

That is scary. And there will be disruption as the tools gain increased capability, speed and adoption.

But these tools aren’t human, and even though Google’s AI may have passed the Turing test by creating a machine that can “think,” these machines aren’t human, they are only tools.

The future, without fear, is dependent on learning to use the new tools. Those who adapt to AI will have a brighter future. Those that do not, may have no future at all.

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

Idea Exchange: Technology

How

Carriers and MGAs Can ‘Kick the Tires’ and Stay On Point with Their Tech Investments

customers and lost market share that you can’t regain; like an oil stain that never comes out of the garage floor or your driveway.

By Tim Hardcastle

Car enthusiasts know there’s nothing quite as exhilarating as driving off the lot with a brand-new automobile. That moment when you hit the open road for the first time marks the culmination of an exciting and sometimes exhausting process. There’s intense research, discerning test drives, shrewd negotiation, and finally, success.

In many ways, the car buying experience is similar to the tech-buying journey many carriers and MGAs will undertake. Cars have evolved rapidly over the years (self-driving auto, anybody?) and insurtech solutions have changed dramatically, too. Today’s top cloud-based systems deliver a level of performance not thought possible even a few short years ago.

If you’re evaluating technology solutions for your company, it’s time to get up to speed. Ready to start your engines?

When to Trade Up

Knowing the right time to upgrade your

existing technology has many similarities to knowing when to trade in your trusted family automobile. Three sure signs that it’s time to begin your buying journey include:

1. It’s harder to get products out to market quickly. When your car starts to slow down or doesn’t corner like it used to, you start looking for new options. The same is true with legacy systems. If it takes months or even a year for you to launch new products due to old-school technology, it’s a telltale sign you need the speed and flexibility offered by newer solutions.

2. IT costs are increasing. When your car needs repairs at the local garage every three or six months, the costs of keeping it start to outweigh the costs of buying new. The same is true with your insurer’s tech solution. Every carrier or MGA should expect their IT costs to decrease over time. If IT costs are increasing relative to processing volumes, it’s time to upgrade.

3. Written premium is static or declining. This is more of a subtle sign, similar to a tiny oil leak that grows over time. But if you wait until premium declines become severe, you run the risk of disengaged

Seeing the Road Ahead

Much like the temptation to hang onto your beloved first car — no matter how much it’s groaning and making noises — sometimes executives are compelled to stick with technology that’s long past its prime. After all, it’s human nature to be comfortable with things we are familiar with, even if they are woefully non-performant!

The reality is, dated technology, like an old car, keeps your insurance company in a low gear. Yet progressive carriers and MGAs are likely to be speeding past while you are stuck in the slow lane and yet still guzzling a disproportionate amount of gas! Forward-thinking insurers are always scanning the horizon for new or alternative solutions that can help them outperform the competition.

If your legacy technology is a decade old or more, it’s time to stop looking in the rearview mirror and start peering through the windshield. Many legacy systems were built long before online customer interaction became the norm, and the reality is you can’t innovate with technology

designed for a world that communicated only with landline telephones and emails.

Choosing the Right Options

In car and technology buying, options matter. Three must-have insurtech options that will prepare carriers and MGAs for their current and future needs are:

1. Interoperability. Any new system you choose must exchange information with your current systems seamlessly. If your systems can’t play nicely with one another, it will stymie your ability to innovate.

2. Data mobility. You must be able to own your own data and exchange it freely not only with your own front- and back-office systems, but also with your data warehouse. If you can’t extract your data from a system, it’s a serious red flag.

3. APIs. Open application programming interfaces (API) are the foundational elements of all modern software solutions, including insurtech. APIs make it easy to integrate software in a way that benefits the end users.

Finding the Right Dealer

Sometimes, people delay buying a car because they are overwhelmed by choices: price point, makes, models, dealerships, etc. The same can be true with choosing technology solutions. But the market

has started to separate into two distinct groups: incumbents and startups.

Be wary of well-established incumbents. Many have recognizable brand names and may even claim to offer some of the latest hallmarks of modern systems, such as lowcode platforms. In reality, many of these older systems were developed years ago. In some cases, this can be the equivalent of trying to put a 1979 Ford Pinto engine in a modern F-150 truck; it just doesn’t work. Also, as a rule, if you can only update a system by using code or changing database tables, it’s not a no-code platform, no matter what the salesperson tells you.

Startups can provide carriers and MGAs a faster path to value. In particular, there’s a small group of startups that have achieved exceptional product market fit and matured smartly over the last decade.

When interviewing vendors, ask them to explain how their solution will interact with the big three cloud providers, Microsoft Azure, Google Cloud and/or Amazon Web Services. This will help ensure your new technology is future proofed. Ask about their update process: how frequently updates occur and what the process is like. Legacy systems may tout a “modern” update process, when in reality, upgrades are infrequent, painful and expensive. Updates should

be frequent and automatic, requiring nothing resembling a re-implementation of products or features. Also, ask how their solution will use business intelligence and data visualization to help you improve underwriting and drive results.

One other word of caution: Some vendors will extol the virtues of a “rip and replace” approach, offering to replace legacy technology with new systems in one fell swoop. Doing so is high risk and high cost. A more elegant approach is to find a vendor who will help you integrate a new solution over time. This will help you gain aptitude with the new system as you slowly sunset your legacy technology.

Taking a Test Drive

It only takes a quick trip around the block to know whether a car is right for you. With technology purchases, it used to take far longer. But today, carriers and MGAs should expect vendors to prove value within 90 to 120 days, maximum. Making this a contractual obligation can help you reduce risk and buy wisely.

Another smart move is to create a hedging strategy where you choose a second vendor who can evaluate your existing environment and provide comparisons on economics, speed of response, and collaboration with your business teams. This approach will create tension within your supply chain and ensure vendors remain honest after the sale.

Hitting the Open Road

All carriers and MGAs deserve to experience a feeling of satisfaction when their chosen technology solution allows their business to hit top speed. By knowing when to upgrade, choosing the right options, selecting the right vendor and running simulations, you’ll gain an incredible sense of accomplishment and numerous business benefits. The only thing missing will be that new car smell.

Hardcastle is the CEO of INSTANDA, which provides insurance software solutions for carriers, MGAs and brokers. Prior to joining INSTANDA, Hardcastle served as a chief information officer for Hiscox PLC and Jarvis PLC. He can be reached at tim.hardcastle@instanda.com.

Idea Exchange: Extended Reporting Provisions

Subtle Problems with Extended Reporting Coverage — and Creative Solutions

For specialty line insurance policies such as directors and officers liability, professional liability, cyber liability etc., claims made insurance policies are the most common type of policy issued. They are complex, and depending on the definition of claim, as well as whether or not it’s a claims made and reported form, the policies can be extremely dangerous. What follows is the third installment of a three-part series on the complexities inherent in claims made policies with extended reporting provisions (ERPS).

By Frederick Fisher

The first article, It’s Just a Name Change and Other ‘ERPS’, published in the May 22, 2023, edition of Insurance Journal, addressed various problems that may arise

sometimes six years or more. The limits, thus, are never refreshed. So, if there are any claims during the extended reporting term, policy limits are being eroded. This could mean that policy limits could be extinguished by claim frequency, and the benefit of runoff would be lost when that happens before the term had even run out.

Eventually the ERP will expire. This means there is now a gap in coverage. Depending on the length of the original ERP, there still may be the potential for claims being made against the entity and/ or its directors, officers, and/or senior managers for wrongful acts that took place long before the actual transaction triggering these coverage events.

For instance, for a construction company, the statute of limitations for construction defects is 10 years. Thus, should

when the need for an ERP is triggered because a client decides to simply change the name of their business — or the organizational change to the business — and the differences between the two. The second installment, published in IJ’s June 5 magazine edition, took up where the previous one left off — with a discussion of the additional complexities involved when an ERP is triggered. This final article explores some of the subtler problems that may arise with extended reporting provisions. Overall, many of the more common issues were explored in previous articles. That is not to say, however, that these are complete solutions. I have long been of the belief that extended reporting provisions, when invoked, are an incomplete solution for long-term protection. That is because one is taking a limit of liability and stretching it across at least one year and continued on page 48

Idea Exchange: Extended Reporting Provisions

continued from page 46

a three-year extended reporting provision expire, there could be several years where the directors and officers of the corporation are exposed to construction defect claims. In this case, the reporting provision is an incomplete solution. This may also expose the buyer to those claims depending on the sale, i.e., if with a stock sale, it took over the company. Would any indemnification agreement between buyer and seller still be enforceable at that point? The buyer may have some exposure to the injured party before the date of transaction, but trying to get funds from the seller several years after the transaction has closed may prove to be a problem.

I am not aware of an insurer that might extend the term when it expires, even if it is claim free. I am also unaware of any new insurer routinely willing to offer an additional extended reporting provision to take over.

A Creative Solution

It is possible to think outside the box. Consider the following hypothetical.

If company “A” is an excellent risk, a

well-managed company with a good loss history, would that not be acceptable to any reasonable underwriter including honoring any prior act dates, etc. The answer would obviously be “yes.” What about company “B?” If company B is a good company, well-managed, good performance and has a good claim history, would that same insurer also like to write company B? Again, the answer is “yes.”

So why is it when company A buys company B — B is not a good risk? The perception now is that company B is a risky company, and the insurer will only pick up company B as a subsidiary on a go-forward basis. They will not provide coverage for any wrongful acts that took place before the transaction.

It doesn’t make sense, especially if they would write the company on its own standalone basis while honoring any prior act dates, etc. Why does the transaction suddenly make it a bad risk? This analysis becomes even more relevant if during the acquisition, the same staff and management is coming over, which would enhance the insurability of company A because they are getting experienced per-

sonnel and the continuity of the operation is more likely. It also shouldn’t matter if it’s a 100% asset sale as the selling entity will no longer exist.

This is possible and has been done. If the insurer likes company B and will write company B, there is no reason they shouldn’t be willing to write the acquired company either as a subsidiary or on an asset basis and still pick up all prior acts, etc. This would require unique endorsements to make it clear that the prior act exposures are being honored for the acquired company.

Eventually the ERP will expire.

In addition, there would be a necessity for one other endorsement. The insurance policy for company A would still have a transaction provision that would clarify that if they acquire a company, that company is automatically covered, sometimes for only a specified period until the insurer is advised, but only for wrongful acts that took place after the transaction. Obviously, such a provision would have to be amended so as not to apply to the transaction in issue. Still, it is possible to do it and I did so frequently as a wholesale broker.

How to Close the Gap When an ERP Expires

A similar approach might be taken when an ERP is about to expire. As all professionals know, for the insurance company to write a new piece of business insured with another insurer, one of the industry trends since the 1970s has always been to honor the existing prior act dates, and/or prior pending litigation dates. If they are unwilling to do so, it is dangerous for the insured to change insurers.

Usually, the only reason a prior act date might not be honored is due to a poor loss history giving rise to a non-renewal of the policy or prior act date by the existing insurer, thus requiring the insured to buy an ERP. A new go-forward policy that is retroactive date inception would also be needed by such a non-renewal, even though there probably is no transaction

triggering the need.

So, how can a policy holder or even a buyer be protected when the extended reporting term ends? What if there isn’t any “loss problem?” The basis for this is twofold, since traditionally no insured will move carriers unless all those prior act dates are honored. Those insurers wanted to make sure that there has always been coverage for prior acts for them to honor that date going forward.

Such is the case with an ERP about to expire as it operates similarly to a prior

June 19, 2023

New York Life Insurance and Annuity Corporation

51 Madison Avenue New York, NY 10010

The above company has made application to the Division of Insurance to amend their 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.

June 19, 2023

HDI Global Insurance Company 161 N. Clark St., 48th Floor Chicago, IL 60601

The above company has made application to the Division of Insurance to amend their 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.

act date because it covers prior activities of the insured for a specified period, no differently than a policy would cover wrongful acts subject to the retroactive date of that policy. The insured has had the appropriate prior act coverage despite whether it’s based on a prior act provision in the existing policy, or the runoff provisions of an extended reporting provision. Prior errors were covered. Should it matter that coverage was provided by an ERP rather than a prior act provision? Is it possible for an insurance company to

June 19, 2023

United Fire & Casualty Company

118 Second Avenue SE Cedar Rapids, IA 52401

The above company has made application to the Division of Insurance to amend their 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.

June 19, 2023

Grain Dealers Mutual Insurance Company

4601 Touchton Road East, Suite 3400 Jacksonville, FL 32246

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.

extend a prior act date to pick up the same when the ERP expires?

The answer is yes, it has been done and becomes another creative think-outsidethe-box solution.

Note: The above is the third and final installment in a series of articles addressing ERPs.

Fisher is president of Fisher Consulting Group Inc. and was the founder of E.L.M. Insurance Brokers, a wholesale and MGA facility specializing in professional liability and specialty line risks.

June 19, 2023

Crum and Forster Insurance Company

305 Madison Avenue Morristown, NJ 07960

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.

Closing Quote

Why Abuse Reforms Will Protect Florida’s Economy & Consumers

calculates that litigation abuse cost home and business owners nearly $20 billion in 2020 and drivers an additional $19 billion — making auto and home insurance premiums in Florida among the highest in the country. Even doctors were hit with a $1.1 billion legal bill, driving up already high healthcare costs.

tax sucked $40 billion out of the state’s economy in 2020 (equivalent to 3.6% of the state’s GDP), lining the pockets of the state’s plaintiff attorneys and funding a nonstop, 24/7, barrage of advertisements urging people to sue in even the most dubious of cases.

Florida’s reforms target exactly these abusive tactics.

By Dr. Robert Hartwig

Florida’s legislature and Gov. Ron DeSantis took a big step forward during the 2023 Legislative Session with the signing of House Bill 837, which protects the state’s consumers and business owners from runaway legal costs that were threatening to derail growth in one of the nation’s largest and best-performing economies.

Although the much-needed reforms were mischaracterized as a “scam” and “bailout” of insurers by an odd-couple alliance between former President Donald Trump and the plaintiffs' bar, the truth is that litigation abuse functions as a tax that cost the average Florida household more than $5,000 in 2020 — 40% above the national average, according to the U.S. Chamber of Commerce Institute for Legal Reform (ILR). The group

The ILR’s findings are consistent with previous reports suggesting that price and availability issues in Florida’s insurance markets are to a significant extent a manmade disaster. According to the Florida Office of Insurance Regulation, the Sunshine State accounted for more than 76 % of all homeowners insurance litigation nationwide in 2019 despite accounting for just 7 % of all homeowners insurance claims filed. Likewise, an analysis of insurer financial reports reveals that litigation defense costs as a share of homeowners premium written in Florida are five times what they are nationally.

Altogether, Florida’s tort

Gone now are a host of egregious laws, including one that allowed plaintiff attorneys to recover damages even when the plaintiff was majority responsible for the accident. Now, a plaintiff cannot recover if more than 50% at fault. In a similar salute to personal responsibility and common sense, the reforms make it harder for someone injured in the conduct of a crime to sue the owner of the property where they were injured.

The reforms also promote fairness and transparency. Juries deciding injury cases will now be shown the actual amounts paid by medical providers rather than the amount billed — which is typically much larger. The hope is that awards, which are often determined as a multiple of treatment

costs, will fall into alignment with actual economic damages, increasing fairness while lowering the cost of many types of liability insurance.

Gone too are “one-way attorney fees,” which allowed plaintiff attorneys to receive large, supplemental fee payments in addition to their cut of the award amount.

Battered by inflation and hurricanes, Florida’s legislature and governor delivered much-needed relief to Florida’s business owners and consumers. Florida’s legislative reforms should, over time, reduce liability costs. Improvements will be gradual because plaintiffs’ law firms filed more than 90,000 lawsuits in the days before Governor DeSantis signed the bill, clogging the courts. Moreover, the costs of litigation abuse — accumulated over the span of years — are deeply embedded in the price of virtually all goods and services in the state and will take time to unwind.

Florida’s reforms represent a rare victory for consumers and businesses over billboard attorneys. Preserving the benefits of those reforms is both a challenge and a necessity if Florida is to maintain its reputation as one of America’s greatest places to live and work.

Hartwig is the immediate past president of the Insurance Information Institute and currently is clinical associate professor of risk management, Insurance and finance at the University of South Carolina, and director of the university's Center for Risk and Uncertainty Management.

‘Florida’s reforms represent a rare victory for consumers and businesses over billboard attorneys.’