Insurance Business America issue 3.07

IBAMAG.COM ISSUE 3.07

CARRIERS Find out which carriers get top marks from producers for rates, quoting, marketing support and more

ENVIRONMENTAL EASE WHY PROTECTING AGAINST POLLUTION LIABILITY HAS NEVER BEEN EASIER

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CONTRACTOR COVERAGE WHAT YOUR CLIENTS NEED FOR TODAY'S CONSTRUCTION MARKET

BERKSHIRE HATHAWAY A LOOK AT WARREN BUFFETT'S GLOBAL INSURANCE FOOTPRINT

24/07/2015 1:40:27 AM

ISSUE 3.O7

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CONTENTS

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UPFRONT 04 Editorial

Is carriers’ commitment to brokers waning?

CARRIERS CE RAN BUSIN SU N

2015 RS IE

IVE STAR CA RR SF ES

I

COVER STORY

22

FEATURES

GOING MAINSTREAM

Environmental insurance is becoming more necessary – and more affordable – than ever before

PEOPLE

INDUSTRY ICON

The debate about calculating premiums

10 News analysis

Brokers’ role in auto insurance in the driverless car era

12 Intelligence

Seven ways brokers can help control workers’ comp costs

FEATURES

40

COVERAGE FROM THE GROUND UP Contractors need a whole new range of insurance products to do business in today’s market

16 Technology update

Are your clients lying to you about their ridesharing activities?

21 Opinion

Why gun liability insurance is a concept worth considering

FEATURES 38 Agency insight

Gregory & Appel Insurance of Indianapolis

PEOPLE 46 Career path

PEOPLE

44

PRODUCER PROFILE

Clark Lindley uses his decades of farming experience to connect with clients

2

08 Head to head

14 Workers’ comp update

Berkshire Hathaway Specialty Insurance CEO Peter Eastwood discusses the insurance giant’s role on the global stage

18

A look at why the marine market matters

This month’s big movers and shakers

FIVE-STAR CARRIERS

Last month, producers revealed what’s most important to them in a carrier, from rates to technology. Now find out which carriers are making the grade

32

06 Statistics

David Egosi’s entrepreneurial spirit has led him to a wide world of opportunities in insurance

48 Other life

Lonestar-Integra’s Brian Pool takes tailgating to a whole new level

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NAPSLO

UPFRONT

EDITORIAL

Antsy agents fear carrier motives

N

othing gets under the skin of an independent agent quite like suggestions that the broker distribution channel is headed the way of the travel agent. Every time an analyst writes the channel’s obituary, the Insurance Business America inbox fills with emails from agents eager to refute the predictions, assuring us that their business are healthier than ever.

In some measure, that’s true. According to a report from the US Bureau of Labor Statistics, the agent/broker segment of the insurance industry gained 27,500 jobs this spring – up 3.9% from the same month last year. Yet to say independent agents are completely unconcerned with the future of their channel would be disingenuous.

Last month’s Producers on Carriers survey revealed that carrier commitment to the broker distribution channel is of the utmost importance to agents.

Unfortunately, the industry’s carriers have done a lukewarm job of assuring agents of their value: Nearly 14% of respondents rated their carriers at the low end of performance.

Educating agents about the underwriting process and internal operations would go a long way in helping them feel like equal partners However, agents did offer suggestions on how insurers can strengthen their relationship with their appointed agents. First, they’re looking for more value-added services from their carriers – specifically in education, training and recruitment. Being committed to the broker distribution channel means investing in its future, not simply continuing to rely on it until the process of shopping for insurance becomes automated.

Second, many agents feel they are left out of the conversation regarding rate changes. Educating agents about the underwriting process and internal operations would go a long way in helping them feel like equal partners.

Finally, it seems agents want from carriers just what they’re offering to clients – a personal relationship. One-on-one meetings may be difficult in an era of high-speed Internet and bottom-line motivations, but a sense of ease can go a long way in healing any distrust or static in a professional relationship.

The team at Insurance Business America

www.ibamag.com AUGUST 2O15 EDITORIAL Senior Journalist Caitlin Bronson Journalists Ryan Smith Tim Garratt Donald Horne Jordan Maxwell Copy Editor Clare Alexander

CONTRIBUTORS Samantha Wright Peter Kochenburger

ART & PRODUCTION Design Manager Daniel Williams Designer Joenel Salvador

SALES & MARKETING Vice President Cathy Masek Media Sales Managers Chris Wills Chris Anderson Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

Production Manager Alicia Salvati Traffic Manager Kay Valdez

EDITORIAL INQUIRIES caitlin.bronson@keymedia.com

SUBSCRIPTION INQUIRIES subscriptions@keymedia.com

ADVERTISING INQUIRIES

cathy.masek@keymedia.com chris.wills@keymedia.com chris.anderson@keymedia.com

Key Media 78O7 E. Peakview Ave., Suite 115 Centennial, CO 80111, USA tel: +1 720 316 0151 www.keymedia.com Offices in Denver, Toronto, Sydney, Auckland, Manila

Insurance Business America is part of an international family of B2B publications and websites for the insurance industry INSURANCE BUSINESS AUSTRALIA peter.smith@keymedia.com.au T +61 2 8437 47OO

INSURANCE BUSINESS CANADA john.mackenzie@kmimedia.ca T +1 416 644 874O

INSURANCE BUSINESS NZ peter.smith@keymedia.com.au T +61 2 8437 47OO Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss.

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23/07/2015 10:42:21 PM

UPFRONT

STATISTICS

Plain sailing in marine market

As President Obama seeks trade agreements across the globe, marine insurance has never been more important THE GLOBAL marine market is of vast importance to all manner of businesses. Its evolving, diversified risk profile ranges from fire and foundering to piracy and cyber, offering brokers an opportunity to grow and develop business.

Allianz Global Corporate & Specialty estimates that more than 90% of trade is transported by sea, which means marine insurance affects

Canadian Arctic and Alaska Total losses 14

Newfoundland Total losses 13

North American West Coast Total losses 17

almost every business, both small and large.

The industry, particularly in the United States, is safer than ever: Industry losses are down 50% since 2005, and the majority of those losses are coming from East Asia. However, increased risks – from sophisticated cyber attacks to disease outbreaks – are presenting this industry with challenges that are as big as its opportunities.

Great Lakes Total losses 7

United States Eastern Seaboard Total losses 14

Panama Canal Total losses 2

WORLD’S SAFEST WATERS

2,773

32%

75

Number of casualties due to shipping incidents

Year-over-year decrease in large ships lost worldwide

Number of large ships lost worldwide

$1 billion

Potential maximum loss from a single event

Compared with some of the world’s most treacherous seas, North American waters had considerably fewer commercial losses between 2005 and 2014

Source: Allianz Global Corporate & Specialty Safety and Shipping Review 2015

TOTAL LOSSES A DECLINING TREND

Number of large ships lost

Since 2012, losses have trended downward; the lowest number in a decade was recorded in 2014 170

THEFT STILL PLAYING MAJOR ROLE

150

The International Union of Marine Insurers has rated the United States as having a high risk of theft; these industries are among the most popular targets Food/Drinks 27% Electronics 14% Home/Garden 10% Metal 10% Building/Industrial 7% Clothing/Shoes 7%

130 110 90 70

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Allianz Global Corporate & Specialty Safety and Shipping Review 2015

6

Auto/Parts 6% Alcohol/Tobacco 6% Miscellaneous 5% Pharmaceuticals 4% Personal Care 4%

Source: IUMI Brussels Meeting 2015 Cargo Presentation

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Russian Arctic/Bering Sea Total losses 31 North Atlantic Total losses 16

British Isles, North Sea, English Channel, Bay of Biscay Total losses 96 East Mediterranean & Black Sea Total losses 163

North Pacific Total losses 5 Japan/Korea/North China Total losses 158

Arabian Gulf Total losses 82 Gulf of Mexico Total losses 24

South China, Southeast Asia, Indonesia & Philippines Total losses 253 East African Coast Total losses 41

West African Coast Total losses 59

South Atlantic/ East Coast South America Total losses 26

Total losses, 2005–2014 Fewer ships lost More ships lost

Source: Allianz Global Corporate & Specialty Safety and Shipping Review 2015

FOUNDERED SHIPS REMAIN BIGGEST LOSS For the past decade, foundering (sinking or submerging) has been the biggest cause of loss in the marine market. Last year saw a significant reduction in the number of fires and explosions 49

Foundered Wrecked/ Stranded

One vessel in the Great Lakes region has been involved in 19 incidents over the last eight years – including six in 2013 alone.

Among the disasters to befall this ship:

13

Fire/Explosion

Fire

4

Hull Damage

3

Machinery Damage/ Failure

3

Collision Miscellaneous

THE UNLUCKIEST SHIP

Engine failure Steering failure Hitting a submerged log

2 1 0

10

20

30

40

50

Total losses in 2014: 75 Source: Allianz Global Corporate & Specialty Safety and Shipping Review 2015

Source: Allianz Global Corporate & Specialty Safety and Shipping Review 2015

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23/07/2015 10:43:05 PM

UPFRONT

HEAD TO HEAD

Should irrelevant rating factors be removed?

Factors used to calculate premiums aren’t always explicitly related to the insurance in question – but should they be?

Dr. Robert P. Hartwig

John Huff

J. Robert Hunter

President Insurance Information Institute

Director/president-elect Missouri Department of Insurance/ National Association of Insurance Commissioners

Director of Insurance Consumer Federation of America

“Existing rating factors are predictive of future loss and should continue in the premium calculation. Insurers don’t collect factors that don’t correlate with loss. Credit score, for example, is highly predictive for every state and with every insurer.

Insurers do need to charge a premium that reflects risk – that’s the only way insurance can operate. In areas where fraud and abuse is more common, insurance premiums will be higher, though insurers try to drive those costs out of the system. It’s up to the insurer to charge a premium that covers those individuals using rating factors that are blind to race, ethnicity and social status.”

“While we welcome [the utilization of data], regulators remain concerned about the unintended consequences of using nonrisk rating factors. With practices such as price optimization, insurers are using basic economic principles to identify, attract and retain preferred customers.

Traditional insurance underwriting, based on factors directly related to risks consumers pose, are intended to prevent unfairly discriminatory practices that can disparately impact some demographic groups. Through the Casualty Actuarial and Statistical Task Force, the NAIC is currently reviewing the entire practice of price optimization and will be developing guidance to address these concerns.”

“There are certain factors that are directly relevant to people’s abilities to drive, such as driving record, miles driven and years of experience. But there are other factors insurers are using that don’t reflect any ability to drive. Credit score is a classic one, and right now it’s the most important factor insurers use.

We think credit score measures the prohibited factors of race and income, and we have quite a bit of evidence that credit scoring doesn’t work. During the recession, credit scores rose or at least stayed the same, but driving records sharply improved. So where was the credit score correlation with that? It wasn’t there.”

‘

TIME TO CURB CREDIT SCORES? Various points of view exist when it comes to determining what rating factors are irrelevant. But perhaps the most controversial is the use of credit scores to determine auto insurance premiums. A recent report found credit scores caused a 49% fluctuation in premiums, on average, though that figure varied by carrier and state. Those opposed to the use of credit scores to determine premiums suggest the practice is prohibitive and restricts those from a lower socioeconomic status from having access to affordable insurance plans. Proponents of their use, however, argue that certain seemingly unrelated factors are actually good indicators of a client’s personality and behavior.

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23/07/2015 10:43:56 PM

UPFRONT

NEWS ANALYSIS

Driving the future of auto insurance Driverless cars will complicate liability and disrupt traditional sales of personal and commercial auto insurance, but industry experts still foresee a role for brokers – perhaps an even greater one IF GIVEN the choice, more than half of Americans would surrender control of their vehicle to a self-driving computer. But it isn’t the novelty, the lower fuel consumption or the improved safety record of driverless cars that appeals to them, according to a survey from The Boston Group – it’s the measurable savings on auto insurance premiums.

Of the thousands of drivers interviewed, 55% said they were likely to buy a semiautonomous car, while 44% said they would buy a fully autonomous vehicle in 10 years.

They are banking on a significant decrease in the average $800 they pay in annual auto

sionals to sort out what could be a complicated liability issue and a shift in the role independent insurance agents and brokers play in sourcing auto risk.

Robert Peterson, director of the Center for Insurance Law and Regulation at Santa Clara University, believes property/casualty insurers will see a major reduction in revenue for auto insurance premiums as a result of autonomous vehicles – primarily because vehicular communication systems in these cars reduce up to 90% of human error, thus transferring liability from the driver to the manufacturer.

“When, if ever, will a faultless driver be

“It’s totally going to have an impact on agents – auto has primarily been the initial product entry point ...”

Keith Moore, CoverHound insurance costs – discounts already available to European customers who have purchased semi-autonomous vehicles made by Volvo.

The sentiment is so strong, consulting firm IHS Automotive anticipates that the US can expect 11.8 million driverless cars on the road in the next 20 years. By 2040, the vast majority of vehicles will be autonomous.

That leaves little time for insurance profes-

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‘legally responsible’ for an accident or be ‘legally entitled’ to recover from a faultless, uninsured motorist?” Peterson says. “If there is any chance of lawsuits, car owners will want insurance of their own.”

Any liability remaining with the driver will likely be covered by a policy sold at a driverless car dealership, posits Keith More, CEO of CoverHound. What such a policy would look

like and the language involved is yet to be determined, but he believes carriers will back a warranty-like approach to liability and thirdparty damages for personal and commercial vehicles.

Of course, such an approach would significantly cut into broker business.

“It’s totally going to have an impact on agents – auto has primarily been the initial product entry point for a lot of agents and brokers, and even direct carriers,” Moore says.

“I’m not saying auto will go away in the next eight years, but because it is the main product that leads into homeowner’s, life and other insurance purchases, it’s really going to change the dynamic of how people connect with insurance.”

Not all industry representatives are so despairing of brokers’ future in the auto business, however. Thanks to the range of additional risks inherent with self-driving cars, many believe the advent of such technology will actually solidify the need for independents.

Of most obvious concern is how driverless

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DRIVERLESS CARS: TIMELINE

By 2040 More than 75% of vehicles on US streets will be driverless August 2015 Google announces that its driverless cars had made it across 300,000 accident-free miles and handled various traffic conditions 2015 An autonomous car fitted on an Audi Q5 SUV embarks on a 3,500-mile, coastto-coast journey across the US Late 2000s Google, Audi, Nissan, Toyota, Bosch and the University of Oxford begin to work on self-driving vehicles

cars will interact with traditional vehicles on the road. According to research from the UK’s Institute of Engineering and Technology, driverless cars may actually increase the risk of accidents, as human drivers have been proven to change their behavior when interacting with

could be hacked, causing chaos on the roads on increasing liability for both manufacturers and drivers.

Similarly, any auto-locking technology could result in drivers making mistakes – locking passengers in the vehicle remotely or

“You may not be buying a liability policy anymore, but you may need a cyber policy or an operator policy ...”

John Tiene, Agency Network Exchange autonomous cars, copying their driving styles and leaving less space between the vehicle in front of them.

While autonomous vehicles would be outfitted with sensors able to detect and react to this threat instantly, human reaction time is much slower.

Cyber ramifications are also top of mind.

The computers that operate driverless cars

irresponsibly leaving the vehicle unlocked and accessible to thieves.

“Owners of these cars may be taking on responsibility for a piece of technology when they purchase these vehicles,” says John Tiene, CEO of Agency Network Exchange, which represents thousands of independents.

“You may not be buying a liability policy anymore, but you may need a cyber policy

BY THE NUMBERS

$1.9 billion

Potential US fuel savings from driverless cars

81%

Percentage of auto accidents that can be avoided by using driverless cars

14%

Potential reduction in car crashes due to use of autonomous brakes Sources: MapsofWorld.com, EIA, Forbes, BizTech Magazine

or an operator policy or any number of new insurance products.”

For that reason, he says, the role of the independent agent is safe.

“The reality is, there’s still going to be a huge need – maybe even a greater need – for professional insurance agents and risk managers to help owners of driverless cars navigate what will be a much more complicated insurance world than it is today,” Tiene says. “It may actually create more work.”

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23/07/2015 10:44:43 PM

PRODUCTS

UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

Aetna

Humana

If approved, the $37 billion takeover would deliver $230 per share to investors and create one of the industry’s largest carriers

Centene Corp.

Health Net

The increase of Medicaid managed care under the Affordable Care Act has boosted Centene’s ability to expand

Coverys

Archway Health Advisors

The medical professional liability insurer gains access to the Boston-based healthcare consultant

Fosun International

Meadowbrook Insurance Group

The deal represents Fosun’s first major insurance acquisition in the US and hands Meadowbrook greater access to capital

Genex Series

Integrated Care Management

The workers’ compensation firm will now have more than 1,700 employees

Marsh & McLennan

J.W. Terrill

Marsh increases its footprint by acquiring one of the largest independent agencies in the Midwest

Willis Group Holdings

Towers Watson

The combined company, called Willis Towers Watson, is valued at $18 billion and is projected to bring in revenues of $8.2 billion

Lloyd’s syndicate launches fraudulent instruction insurance

International Lloyd’s syndicate Beazley has introduced a fraudulent instruction endorsement on its commercial crime policy with limits of up to $250,000. It will cover the loss of funds due to the fraudulent instructions from a person claiming to be a vendor, client or authorized employee. Such schemes, which typically involve a business’s telephone numbers, IP addresses and bank accounts, are increasing in volume and affecting commercial entities across the globe. An Internet Crime Complaint Center report discloses that the average amount lost in these schemes is $55,000.

ACE acquires Chubb in $28.3 billion takeover

In the largest-ever acquisition between two companies in the insurance industry, ACE will pay $28.3 billion in cash and stock to acquire its rival, Chubb.

Under the terms of the agreement, ACE shareholders will own 70% of the new company, which will operate under the Chubb name and be led by ACE CEO Evan Greenberg. Chubb CEO John Finnegan will serve as executive vice chairman for external affairs in North America and oversee integration of the two companies.

The acquisition will allow ACE to expand its high-net-worth client base in the personal lines business through Chubb’s Masterpiece homeowners brand.

ACE also will have access to Chubb’s large middle-market commercial lines business. The insurer expects to gain annual expense savings of about $650 million as a result of acquiring Chubb. The deal comes as property/casualty insurance companies face downward pricing pressures from a softening market and diminished interest income on investments. Already, 2015 is on track to be the busiest year for mergers and acquisitions in the industry.

12

Farmers moves ridesharing coverage to new states

Farmers Insurance is expanding its ridesharing insurance products in states with legislation specifically requiring enhanced coverage for drivers with companies like Uber, Lyft or Sidecar.

Most ridesharing companies’ insurance policies do not cover drivers until they have been matched with a passenger; the Farmers product offers comprehensive and collision coverage for drivers who are involved in an accident after switching on their app, as well as coverage for both uninsured and underinsured drivers and medical payments.

The insurer launched the product in California and recently expanded services in Arkansas and Utah.

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PEOPLE

PEOPLE The Hartford expands professional liability for small businesses

The Connecticut-based insurer recently announced the availability of a new professional liability insurance endorsement to its business owner’s policy, tailored to the needs of small businesses. The endorsement is intended to protect small commercial clients when they are sued by a customer claiming a negligent act, error or omission.

AmWINS to offer new cyber liability product

Specialty insurance brokerage AmWINS Group has announced the launch of a new excess facility with higher limits for cyber liability insurance.

The new product will provide up to $100 million of excess cyber liability on a follow form basis, backed 100% by Lloyd’s of London paper. It is targeted at the North American market, with attachment points as low as $5 million. No classes or industries are excluded. The product is intended to help address the need in the market for higher cyber liability limits – something many organizations have had difficulty obtaining.

Nautilus enhances cyber coverage to fill gaps

Nautilus Insurance is enhancing its general liability product offering with an optional buyback for first-party cyber coverage for eligible classes of business. The endorsement was designed to help policyholders combat the stress of data breaches by offsetting costs associated with a cyber attack.

Services provided include notification assistance, cyber investigation and crisis management expenses, as well as regulatory proceeding expenses. Nautilus offers this coverage as a $25,000 sublimit within its general liability policy for a flat, low-minimum premium on more than 1,100 ISO classes, based on certain eligibility guidelines.

NAME

LEAVING

JOINING

NEW POSITION

Joe Addison

Aon PLC

JLT Addison

Executive vice president, entertainment and hospitality practice

Carl Bach III

Navigators Pro

The Navigators Group

Managing director, Navigators Underwriting Agency, and president of London market insurance

Peter Caine

Aon PLC

Lockton Cos.

COO, St. Louis

Paul Cousins

Aon Benfield Group

Arthur J. Gallagher

Managing director of specialty, binding authority and facility division

Ken Fraser

Wells Fargo Insurance Services

Crawford & Co.

Executive vice president of strategy and performance development

Tim Gardner

Marsh

Guy Carpenter

CEO of US operations

Patrick Hickey

Zurich American Insurance Co.

Aspen Insurance Holdings

Executive vice president, marine

Alejandro Padilla

Swiss Re

Cooper Gay Swett & Crawford

General manager and head of broking for Mexico, Central America, Puerto Rico and the Dominican Republic

David Rahr

N/A

Marsh

Mid-Atlantic partnership leader

Joseph Reitzel

Willis Re

NAS Insurance

Senior VP, specialty reinsurance and programs division

Charlie Rozes

Barclays PLC

Jardine Lloyd Thompson Group

Group finance director

Ben Rubin

Lake Forest Bank & Trust Co.

Integro

Principal and head of mergers and acquisitions

Sanjiv Sharma

Rocket Fuel

Risk Management Solutions

Senior VP, cloud operations and information technology

Malcolm Tyler

Willis Group Holdings

Aon Risk Solutions

Global cargo practice lead

Fred Zutel

Marsh & McLennan

Willis Group Holdings

Senior VP, Willis of Miami

Cooper Gay Swett & Crawford announces new CEO Willis Group Holdings Deputy CEO Steve Hearn has left his position for the role of CEO at Cooper Gay Swett & Crawford [CGSC], beginning in November. The announcement directly preceded Willis Group’s merger with Towers Watson and followed the resignation of CGSC CEO Toby Esser. Willis has no immediate plans to announce a new deputy CEO.

Worldwide Facilities expands Connecticut team

National wholesale broker and MGA Worldwide Facilities announced the expansion of its Connecticut-based broker team with three new hires. Senior associate brokers Stacey Labbe (bottom right) and Suzanne Averill (top right) will work to expand the office’s book of business. Labbe brings more than 17 years of experience in excess and surplus lines to the new office, while Averill is a 32-year veteran with experience in both retail and wholesale brokerages. Alesha Hyatt-Lanuto (left) was hired as an internal broker and will be responsible for production in brokerage and binding throughout the Northeast region.

www.ibamag.com

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23/07/2015 10:46:52 PM

UPFRONT

WORKERS’ COMP UPDATE

How brokers can tame comp costs The National Council on Compensation Insurance offers ways brokers can help employers control costs

Business owners are finding themselves paying more for workers’ compensation as insurers increase rates in most states. Part of the issue is that experience modifiers – the adjustment of annual workers’ comp premium based on previous loss experience – have changed in most states.

For the 36 states where the National Council on Compensation Insurance [NCCI] determines the rules for workers’ comp and

NEWS BRIEFS

calculates the experience mods, NCCI made a substantial change to the experience mod calculation in 2013. The split point between primary and excess losses was increased from $5,000 to $10,000, and went up to $13,500 in 2014. It could top $15,000 in 2015.

The upside is that businesses now have greater ability to reduce their experience mod and control what they pay for workers’ comp – and brokers can be of great assistance in this

Prescription opioid epidemic threatens comp costs

An estimated 15% of US construction workers have engaged in illicit drug use that affects employers’ comp costs and has repercussions for other insurance lines, according to claims data from commer­ cial insurer CNA. Its new report finds that the use of opioids to treat work-related injuries has jumped 41% from 2003 to 2011, and has a negative correlation with insurance costs, as it often increases an employee’s time away from work. Prescription drug abuse is particularly acute in the construction and manufacturing industries.

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area by helping employers understand how the experience mod works and how they can manage it. Here are seven ways brokers can help employers manage their experience mod: 1. Make sure their employees are classified accurately. A substantial part of the experience mod calculation is based on the nearly 700 employee classifications used by NCCI. 2. Emphasize how important it is to hire only employees who are fit to do the job.

This can be accomplished with a conditional offer of employment form, which states the employer is offering the job contingent upon receiving a medical opinion that the applicant is mentally and physically able to perform all the duties the position requires.

3. Make sure employers provide thorough and proper training for all equipment used on the job.

4. Stress the importance of creating and maintaining a culture of workplace safety, where employees know they must adhere to strict safety protocols.

5. When an injury does occur, make sure the company knows it is important to have it reported and treated immediately.

6. Stress the need for a clearly defined ‘return to work’ program, which will help get injured employees back on the job as quickly as possible.

8. Make sure the employer has relationships with doctors who understand their business and specialize in the workers’ comp arena.

Soft market prompts entry of new players

New players are rushing in to the soft workers’ comp market and creating heightened competition. As a result, account renewal rates were 2% lower in July 2015 than they were one year prior. Representatives of Lockton Cos., Willis North America and Aon Risk Solutions have all reported that clients renewing coverage at 2015’s mid-year point have all seen rates essentially remain flat, largely the result of all the competitors battling over the opportunity to write new business.

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Q&A

Eric Nordman Director, Center for Insurance Policy and Research NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

Ishita Sengupta, PhD Director, workers’ compensation NATIONAL ACADEMY OF SOCIAL INSURANCE

About the organizations NAIC members are state government officials who regulate the conduct of insurance companies and agents. NASI is a nonprofit organization composed of leading experts on social insurance.

The state of the workers’ comp marketplace Insurance Business America recently reported that Liberty Mutual Insurance has been reducing its presence in the workers’ compensation marketplace. In states where Liberty Mutual has a bigger share of the market, what will be the consequences of their reduced presence?

Ishita Sengupta: From a research point of view in the workers’ compensation market, in looking at the cost to employers, I think the [workers’ compensation coverage] options may be fewer, and if the options are fewer, workers’ comp may get a little more expensive for the employer.

If a major player like Liberty Mutual reduces their presence, does that create an opportunity for others to step in and provide workers’ comp coverage?

IS: Yes … one moves away, and there are other players in the market who will come in and do that, definitely. But it would take some time to get into the market and take that share. There are maybe smaller companies who’ll come [into the market], but that will be piecemeal.

Eric Nordman: When you have a company that decides it’s going to reduce its market share, generally almost all the jurisdictions have insurers who are willing to step in and fill that gap.

The trick to reducing clients’ claim costs

According to workers’ comp attorney J. Bradley Young, communication with injured workers is the number-one way employers can reduce claim costs.

Often, claimants say they would not have hired an attorney had the employer simply kept them in the loop regarding their rights.

“Whether it’s lunch meetings, breakfast meetings or in-house seminars, these scenarios can be facilitated by brokers,” Young said. “They just have to have the will and the access to someone who can do the speaking – they can even do it themselves.”

Currently, what are key challenges in workers’ comp that are common among states with competitive markets?

EN: The big issues that they’re dealing with right now on workers’ compensation are what I’ll call the mega-deductibles. There’s been a gradual increase in the size of deductibles, and that can have an adverse effect on an insurer because they’re essentially covering the workers’ comp risk, and they’re also covering the financial risk of the business that’s buying the policy from them.

[Another issue] seems to be a high level of opiate prescriptions in the workers’ comp world. It’s fairly pricey. It’s causing some discord on the claims settlement side.

And then, from a market conditions [perspective], it’s all over the map. Most of them have highly competitive markets that aren’t experiencing many or any problems.

What other trends have you noticed in regard to workers’ comp costs?

IS: Even though there has been some increase in covered employment in the last four to five years, benefits to the injured worker per $100 of covered payroll have been on the decline for the last couple of years. But at the same time, costs as a share of payroll have been on the rise. So the workers’ comp industry is under a lot of pressure from both sides.

Office bullying may be driving up comp costs

Workplace mistreatment and bullying contribute to annual employer losses of more than $4 billion, including in workers’ comp and disability insurance, a new study suggests. According to the National Institute of Occupational Safety and Health, bullying accounted for 5.5% of sickness absenteeism in 2010. That translates to higher workers’ comp costs in an environment already wary of additional risk. All told, office bullying was associated with a 42% increase in the number of missed workdays and resulting comp claims.

California State Fund to distribute $37 million

California’s State Fund is distributing $37 million in dividend payments to eligible policyholders on behalf of policies incepted in January 2014. The State Fund’s board of directors mandated that eligible parties receive approximately 2.6% of their estimated annual premium. “State Fund is a notfor-profit organization. This dividend represents State Fund’s commitment to serving California’s businesses and providing value to our policyholders,” said president and CEO Vern Steiner.

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UPFRONT

TECHNOLOGY UPDATE NEWS BRIEFS Insurance could be ‘Uber’-ized, warns Lloyd’s Chief

Technology and big data analysis trends that have disrupted the transportation trade also threaten the insurance industry, according to Lloyd’s of London CEO Inga Beale. Data-rich companies like supermarkets and social media networks could branch out into other mainstream retail and wholesale policies, and new competition could arrive in a matter of one to two years. “We need to focus on covering the complex, bespoke and innovative risks that no one else can,” said Beale, “because the less complex risks are going to become commoditized pretty fast.”

Insurer partners with brokers on tech tool Guarantee Gold has partnered with brokers to develop a mobile app that alerts users to inclement weather and offers tailored suggestions to protect property. National VP Marilyn Horrick describes a situation where a client with a second home “can get the notification and contact a service provider to say, ‘Can you clear the snow off of our roof?

I just received notice that it’s necessary to safely clear snow from roofs to prevent them from collapsing or bearing any snow load damage.’” It also features claims reporting and management tools.

Independent brokerages are underutilizing technology

According to a new study conducted

by Velocify, not only do “relatively few agencies” enjoy the full benefits that technology has to offer, but most tools remain underutilized by the industry as a whole. In particular, the study found that larger agencies were 93% more likely to adopt technology than organizations

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with 10 or fewer employees, and directto-consumer trumped independents by 26%. “A lot of agencies leave it up to the agent to follow up with leads, but in many cases, they fall through the cracks or get lost in the system,” said director of research Jorge Jeffery.

Insurance impact of driverless cars seriously downplayed

Senior insurance executives in the US are skeptical about the potential transformation that self-driving cars will trigger on the auto insurance industry, according to a KPMG survey.

It found that 84% of executives don’t expect autonomous vehicles to have a significant impact on their businesses until 2025, while 42% expect a significant impact in six to 10 years. The views run contrary to KPMG’s own stance. “No one has a crystal ball that can predict the future, but we are convinced that a period of unprecedented change has begun,” said Jerry Albright, principal in KPMG’s actuarial and insurance risk practice.

FEMA flood data missing for 750,000 homes Insurance agents working with the owners of more than 750,000 highrisk homes may have trouble finding accurately priced flood policies thanks to missing, outdated and inaccurate data from the National Flood Insurance Program. According to the National Research Council, due to outdated technology, FEMA has accurate elevation data on just 240,000 properties that enjoy subsidized insurance rates – just one-quarter of the homes under its purview. Moreover, at-risk homes – low-lying older buildings near high-frequency flood plains – comprise most of those with missing information.

Are your clients lying to you?

A new survey finds most drivers choose not to disclose their ridesharing activity Nearly eight in 10 drivers affiliated with ridesharing companies like Uber or Lyft choose not to disclose their activities to their insurance agent or carrier, according to a new poll from Forbes.

Popular blogger Harry Campbell – known as The Rideshare Guy – asked readers whether they have a current rideshare policy, whether they plan to get one and whether they disclose their ridesharing involvement with agents and insurers. For insurance professionals working with these individuals, the results are disturbing.

Only 8% of drivers who took the poll said they have a ridesharing-specific policy, and nearly 20% said they don’t plan on getting one. The additional cost appears to be the biggest reason why drivers remain uninsured, as well as the fear of being dropped as a client.

And while the vast majority of respondents – almost 70% – said they plan to purchase a policy in the future, a disturbing 84% said they haven’t told their insurer or their agent/broker about their ridesharing activities.

“Based off these results, it looks like many drivers are still flying under the radar when it comes to rideshare insurance,” Campbell said.

Agents don’t appear to be at fault for this deception, however. According to an informal survey of comments on the article, independent agents say they commonly ask

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auto insurance clients whether they are involved with Uber or other ridesharing companies. The proliferation of ridesharing products and endorsements – as well as the threat of a potential errors and omissions suit – has made agents particularly keen to close any gaps between personal and commercial policies.

Yet Campbell believes many insurance companies have failed to make such products available at large. Many policies or endorsements are still unavailable in several states and localities.

“The biggest risk they face is getting dropped by their personal insurer” “I think as more carriers in big rideshare states like California start to add rideshare insurance options, we will slowly start to see more and more drivers switch,” Campbell said. “Many drivers don’t want to go through the hassle of switching carriers, and the biggest risk they face is getting dropped by their personal insurer.”

Other drivers may not even be aware they are exposed to uncovered risks. Josh Waldrum of Austin, Texas-based The Zebra – a digital auto insurance agency and comparison site – found that 92% of rideshare drivers had not told their insurers they were driving for ridesharing companies, and another 72% were not familiar with the coverage they were provided by Uber and Lyft.

Legislation is pending in at least 35 states concerning the insurance challenges faced by ridesharing companies and their drivers.

RIDESHARE INSURANCE OPTIONS Several companies now offer policies or endorsements designed specifically to cover rideshare drivers: Metromile USAA Geico

Allstate

Progressive

Erie

Q&A

John M. Ray Director, risk consulting KPMG US

Drones in insurance How significant was the FAA’s decision earlier this year to start granting exemptions allowing insurance companies to use unmanned aerial vehicles [UAVs] for commercial purposes?

John Ray: This could very much move forward the way insurance companies service claims, service clients, handle underwriting – but all, of course, [subject to the] caveats around the limitations of the FAA approvals.

Scott P. Weinstein Principal, national property and casualty actuarial services lead KPMG US

Scott Weinstein: This is one of the first truly new ideas that has come along in the claims handling space in quite some time. But I think we should all recognize that this is very much in its infancy.

What benefits do you see UAVs delivering to insurers, brokers and their clients?

JR: I think you have a way to provide some better responsiveness … in catastrophic situations and determining what areas are truly damaged, [in order] to deploy your resources. It’s going to be interesting to see how carriers are able to use this going forward.

I think from the personal lines, you could see some interesting developments. An accident occurs, and [this could allow carriers to] be able to immediately get some facts around the loss and what actually happened at the scene versus post-accident or post-loss discussions.

There’s a constant issue that insurance companies are facing with the population of staff that they’re able to get in. The millennials are not as interested in insurance. This actually opens up a whole new level of human resources they can bring in – people who are a little more tech-savvy, former pilots.

SW: In the CAT response and being able to marshal resources, this could be a critical tool … [facilitating] the ability to have a more rapid sense of the level of damage to assign resources properly and know how to better satisfy customers.

How long do you think it will be before use of UAVs by insurance companies becomes commonplace in the US? JR: I don’t know how many years off we are. It’ll be really interesting to see what happens when that first storm strikes, and AIG, State Farm and USAA are able to get out there and start snapping some of those pictures and using some of these things. There’s a lot of hurdles to jump over and … I think we’re several years away from this being in massive usage. It could be still a year or two away before we even see the first sustainable usage by these three carriers.

SW: Even when you do see this, it’s not going to be an overnight adoption. I think you’ll see this in regions with certain types of losses, evaluating the effectiveness … it’s a slow rollout.

John Ray and Scott Weinstein have presented their own opinions, which are not intended in any way to represent the views of KPMG.

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PEOPLE

INDUSTRY ICON

EXPANDING HORIZONS Peter Eastwood, global president and CEO of Berkshire Hathaway Specialty Insurance, discusses the insurance giant’s progress to date on what he describes as a ‘decades-long journey’ THE NAME Berkshire Hathaway has long been synonymous with success in global business. It’s a name inextricably linked with investor and business magnate Warren Buffett, who, at 84, continues to serve as the holding company’s chairman, CEO and president.

According to its 2014 annual report, total revenue for Berkshire Hathaway and its subsidiaries last year was approximately $194.7 billion. Forbes magazine, in its most recent ranking of the world’s biggest public companies, put the Nebraska-based group at number five. While 60 subsidiaries involved in a variety of industries have contributed to these staggering results, 27% of Berkshire Hathaway’s net earnings are in the insurance space, where the group has been a player since 1940.

A rapidly growing arm of the Berkshire Hathaway family is Berkshire Hathaway Specialty Insurance [BHSI], a company launched in April 2013. Globally headquartered in Boston, Massachusetts, BHSI is principally focused on commercial lines and has grown exponentially within a very short time.

“We’ve gone from four people on the team to 585 people today,” says Peter Eastwood BHSI’s global president and CEO. “From a geographic standpoint, we initially launched the business in the United States, and we have since entered five other countries” – Canada, Singapore, Hong Kong, New Zealand and Australia.

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Eastwood’s career in insurance has spanned a quarter of a century; before he was presented with the opportunity to build BHSI, he oversaw AIG’s property and casualty insurance businesses across the Americas.

“I was fortunate to be introduced to the industry and to AIG in 1991 by a long-standing family friend who, at the time, was a broker at Marsh in New York,” he says. “When I graduated, in a fairly

have a finish line,” he says. “Everything that gets done in this organization has a long-term perspective around it. We’re here to build a long-term focused, diverse – both by product line and geography – principally commercial property and casualty insurance business.”

As for determining which markets BHSI will operate in, Eastwood says the criteria are twofold. First, the company looks for countries where it can write business that

“We haven’t thought about essentially timing the insurance cycle and launching the business in a highly opportunistic way, but building the business and positioning it for success over the long term” challenging economic environment, he was nice enough to introduce me to some people at AIG. I’ve enjoyed a lot of fun and have had the pleasure of being in the business now for 24 years.”

Long-term strategy Eastwood emphasises that BHSI’s strategy is very much long term. “In the world of Berkshire Hathaway, ‘long term’ I would describe as ‘forever.’ We effectively don’t

adds value to a country’s indigenous risks and exposures. Second, Eastwood cites the importance of catering to the needs of multinational customers.

“I would describe us as building an international company that has global capabilities … There are customers that have exposures that cross borders,” he says. “So where there’s a need for us to satisfy that multinational customer’s needs, and particularly where there’s a need for a locally

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PROFILE Name: Peter Eastwood Company: Berkshire Hathaway Specialty Insurance Title: Global president and CEO Years in the industry: 24 Fast fact: Before starting BHSI in 2013, Eastwood served as CEO and president of AIG Property Casualty in the Americas

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PEOPLE

INDUSTRY ICON admitted policy, we want to be in a place to have a network to do that.”

Eastwood says market conditions haven’t factored into the timing of BHSI’s launches into new international markets. “We think about this as a long-term play,” he says. “We haven’t thought about essentially timing the insurance cycle and launching the business in a highly opportunistic way, but rather building the business and positioning it for success over the long term.”

He says BHSI has some key characteristics that position it for success in the international markets in which it has a presence. “We’ve got a very large and very strong risk-taking balance sheet – in fact, the largest balance sheet in the insurance

solution-oriented and we put real pace behind delivering a solution back to the broker and ultimately to that broker’s client, that combination … is a winning formula.”

Eastwood also stresses that accuracy is essential to BHSI’s execution of its vision, which involves “making sure that everything that we deliver is what it is we promised we would deliver, and making sure there’s a high degree of accuracy with it.”

Times ahead Casting his mind forward, Eastwood identifies profitability and profitable growth as the greatest challenge for the global insurance industry now and in the foreseeable future.

“We’ve got a very large and very strong risktaking balance sheet – in fact, the largest balance sheet in the insurance industry globally” industry globally. It’s got wonderful financial strength ratings; we’ve got a brand that represents some very positive things … and we’re part of a larger organization – Berkshire Hathaway – that really knows and values the insurance business.”

Eastwood emphasises that BHSI wants to be a solution-oriented organization. “Our underwriters go into the marketplace every day, thinking about the opportunities that our broker partners are presenting to us, with the objective of finding a solution and finding a way to say ‘yes,’ and not thinking about approaching the business from a rigidly defined risk appetite standpoint where, effectively, a box has been built and we [don’t] step outside of the box.”

He also stresses the importance of his global BHSI team being able to move swiftly. “I want to make sure that the decision-making … is done at a rapid pace, and that involves us hiring very talented people and then empowering them locally in their engagement with both brokers and customers to be able to make decisions,” he says. “My belief is that if we take the very large balance sheet that we have, if we’re

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“We’ve got an external environment where the supply-demand equation really isn’t in favor of the seller,” he says. “We’ve got high levels of competition in the business, and so those that are best at underwriting and at executing on their strategy are the ones that will win.”

The current market conditions are making this prospect even more challenging, he adds. “You’ve obviously got a somewhat long-standing low-interest-rate environment as well, and so companies’ ability to get meaningful investment returns [is] muted.”

However, he still sees an opportunity for BHSI to stand out from its competitors.

“One of the most important things for us – and, I think, for the success of our business – is to have simplicity as an overarching guiding principle … keeping things as simple as we can, in terms of the way decisions are made, in terms of the way that reporting relationships exist in the organization, in terms of policy forms [and] in terms of the way that claims are handled,” he says. “If we keep simplicity in mind at all times, I think in a complex world, we’ve got a chance to differentiate ourselves.”

BHSI AT A GLANCE

SPECIALTY COVERAGE BHSI provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowner’s insurance to customers worldwide

GROWING GLOBALLY BHSI has underwriting and service teams worldwide in the US, Canada, Singapore, Hong Kong, Australia and New Zealand

STRENGTH IN NUMBERS BHSI has gone from having four team members to 585 team members across the world within two years

HIGHLY RATED BHSI’s coverages are underwritten on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s

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UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email iba@keymedia.com

Too important not to try Gun liability insurance has its supporters and rivals, but, as Peter Kochenburger suggests, the issue of gun violence is too important to ignore MASS MURDERS and gun violence understandably ignite a firestorm of attention from the media, legislators and the public, along with a search for solutions. One recurring proposal – using insurance to reduce gun violence – appears so fraught with obstacles that it seems unworkable, but the stakes are too high to rule it out.

After the December 2012 shootings at Sandy Hook Elementary School in Newtown, Conn., legislation was filed in at least seven states to mandate liability insurance for gun owners.

None passed. Similar legislation was introduced in Congress this past May with House Resolution 2546. There may be new initiatives in response to the most recent mass shooting at Emanuel African Methodist Episcopal Church in Charleston, S.C. The motivation behind these efforts should be familiar: to enlist liability insurance and insurers to help combat gun violence.

Proponents argue that when engaged, the insurance industry will have the financial incentive to research and improve firearm safety; to utilize risk-based pricing in assessing, accepting (or rejecting) and pricing risk for individual gun owners; to create private market incentives for safe storage and use; and to compensate gun violence victims.

In other words, supporters believe that insurers can play a powerful role in reducing gun violence, just as they have successfully contributed to the design and use of safer cars, homes and other products they insure.

Representative Carolyn Maloney of New York, the primary sponsor of House Resolution 2546, made this reasoning explicit in her intro-

ductory remarks before Congress, referencing the “power of insurance markets” to determine and allocate risks and to encourage responsible gun ownership through lower premiums, “just as with car insurance.”

This bill likely will go nowhere and, as with earlier efforts, will be subject to both criticism

firearm injuries or deaths caused by a policyholder, even if the shooting was intentional.

This is not a radical – or even new – proposition.

Insurance has long covered certain illegal acts when required by law, or when market demand and sufficient underwriting certainty exist to develop a profitable insurance product. For example, drunk driving is a serious criminal offense, yet it is rarely – if ever – excluded in personal auto policies, because public policy places victim compensation over the alleged moral hazard of insuring an illegal act.

While requiring coverage for all shootings will not address suicides, underwriting liability insurance would create incentives reducing the risk, such as mandating gun safes or fingerprint recognition, making it hard for a family member to access a gun without permission.

The second problem? Shooters who don’t have insurance. Those most likely to shoot and injure others are unlikely to carry homeowner’s or renter’s insurance – the products most likely

“Gun violence is too pervasive, and the potential to reduce deaths and injuries from firearms too important, to blithely dismiss these efforts” and ridicule. Yet gun violence is too pervasive, and the potential to reduce deaths and injuries from firearms too important, to blithely dismiss these efforts.

There are two major problems. The first is the nature of gun violence. In 2013, almost 98% of firearm deaths were from suicide (63.8%) or homicide (33.9%), and only 1.5% were classified as accidental, according to the Centers for Disease Control and Prevention.

Liability insurance is rarely triggered by a suicide, and only occasionally by a homicide, which means that the vast majority of firearm deaths may not be covered. To leverage insurers’ ability to reduce and mitigate loss, they must have a financial risk at stake. This can be addressed, though doing so will likely make insurers unhappy.

The states and the federal government have the legal authority to require insurers to cover

to contain firearm coverage – and even more unlikely to care that it would be against the law to own a gun without liability insurance. This is a major issue, but estimates of its scope may be based more on guesswork and assumptions than on hard data.

We do not have enough information to reject or to champion insurance as a tool to significantly reduce gun violence. However, its potential benefits, and the power of the private sector in addressing similar issues, are considerable. We need more rational discussion and evaluation, rather than blind opposition or naïve support.

Peter Kochenburger is the executive director of the Insurance Law Center and associate clinical professor at UConn Law School, where he teaches courses in insurance law, regulation and liability insurance.

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FEATURES

COVER STORY: FIVE-STAR CARRIERS

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• Technology and automation • Range of products • Reputation and financial security • Competitive rates • Quick quotes • Education and training • Underwriting expertise • Marketing support • Claims processing • Commitment to the broker distribution channel

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LAST MONTH, Insurance Business America reported on what producers expected from their carrier partners. We surveyed producers and asked them to prioritize several different aspects of carrier performance, ranking each aspect on a scale of 1-10, with 1 being completely unimportant and 10 being vital.

Producers clearly knew what they wanted from their carriers. They were most concerned about competitive rates, but carriers’ claims processing efficiency and reputation were close behind. Also important to producers were things like rapid quotes, underwriting and a healthy range of products.

But which carriers stand above the rest?

We asked producers to rate their carriers’ performance in each of 10 categories:

2015 RS IE

Which carriers do producers think are doing a top-notch job?

Insurance Business America found out

IVE STAR CA F RR S ES

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WHAT ASPECT OF CARRIER PERFORMANCE MATTERS MOST TO PRODUCERS? What factors are most important to producers when selecting a carrier? The producers we polled were most concerned about competitive rates, closely followed by claims processing and carrier reputation

AVERAGE CARRIER RATING On the whole, carriers did well fulfilling producers’ expectations in terms of reputation and claims processing. But when it comes to producers’ top priority – competitive rates – they fell way short

8.48

Competitive rates

9.17

Reputation and financial stability

Claims processing

9.16

Claims processing

7.98

Reputation and financial stability

9.13

Underwriting expertise

7.74

Commitment to the broker distribution channel

8.82

Technology and automation

7.68

Range of products

8.79

Commitment to the broker distribution channel

7.64

Quick quotes

8.62

Range of products

7.56

Underwriting expertise

8.60

Quick quotes

7.50

Technology and automation

8.58

Competitive rates

7.18

Marketing support

7.06

Marketing support Education and training

7.92

We combed through hundreds of responses to find out not only how producers feel their carriers are performing overall, but also which carriers are a cut above the rest. These five-star carriers received consistently excellent marks from producers in at least one category, and many appeared in multiple categories.

Only those with the highest marks were named five-star carriers; although we received hundreds of responses, fewer than 25 carriers earned five-star ratings.

So how did carriers fare overall? Pretty well, as it turns out; the average carrier rating for most categories was at least 7.5 out of 10, and half of the categories boasted more than 10 five-star carriers. There were some areas for concern, however: Three categories had relatively few five-star carriers, and there was one important category – commitment to the broker distribution channel – in which no carrier achieved five-star status. Here’s how the numbers shook out.

6.92

Education and training

7.43

CHANGING PRIORITIES FOR PRODUCERS Last year, producers also rated competitive rates, claims processing and carrier reputation as their top three concerns – although claims processing took the number one spot in 2014 10

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Competitive Claims Reputation Commitment Range of Quick Underwriting Technology Marketing Education rates processing and to the broker products quotes expertise and auto- support and financial distribution mation training stability channel 2014

2015

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FEATURES

COVER STORY: FIVE-STAR CARRIERS

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TECHNOLOGY AND AUTOMATION

FIVE-STAR CARRIERS

FIVE-STAR CARRIERS

Arch Insurance Chubb Group of Insurance Companies CNA Farmers Insurance Grange Insurance Nationwide Progressive Markel Insurance PURE Insurance Travelers PRODUCER FEEDBACK

“They are at least 10 years behind the industry”

While producers didn’t cite technology and automation as the most vital aspect of their relationships with carriers, they still felt it was important, rating it at 8.58 out of a possible 10. Overall, carriers did fairly well in the category.

Eleven carriers were awarded five-star status, and the average carrier rating in the category was 7.68 out of 10.

That said, many producers cited issues with their carriers’ technology. “They are at least 10 years behind the industry,” one producer complained of his carrier.

“Great with some things and really bad with others,” said another.

One major point of contention when it came to tech­nology was what producers felt was the uneven reliability of comparative rate and quote tools.

“Quotes are not accurate,” wrote one producer. “[We] still need to access each carrier’s website to confirm rates.”

“I wish quotes were firmer, rather than just ballpark estimates,” wrote another.

Another producer complained that the technology offered by his carrier didn’t save any time. “Three pages of paperwork for simple changes is extremely timeconsuming,” he wrote. “There needs to be an easier and quicker way to make simple changes to online employee and employer requests.”

Popular with producers were online ‘quick quote’ tools, as well as live-chat capabilities that could connect them directly to underwriters.

Importance to producers

Average carrier rating

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RANGE OF PRODUCTS

8.58 7.68

ACE Group American Modern Insurance Group The Cincinnati Insurance Companies Erie Insurance Group Farmers Insurance Grange Insurance The Hanover Insurance Group Ironshore Scottsdale Insurance Company Travelers The range of products offered by carriers ranked near the middle of the pack in terms of importance to producers – survey respondents rated its importance at 8.79 out of 10.

Carriers fared fairly well in the category, averaging a rating of 7.56 out of 10. The category also had a relatively high number of five-star carriers; 10 companies got top marks.

Still, many producers said they wanted to see a greater variety of products from their carriers.

“They offer little professional liability coverage – especially dentists’ professional liability,” wrote one.

Another despaired that while his carrier offered a wide range of products, the coverage “actually written is something else.”

“A larger provider network in Northern California is vital if I am to continue growing my business,” wrote a third.

PRODUCER FEEDBACK

“A larger provider network in Northern California is vital if I am to continue growing my business” Importance to producers

Average carrier rating

8.79 7.56

Insura to pol (a Mis liabilit or pro

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SUPPORT

STA BILITY

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ACCIDENT & HEALTH ALTERNATIVE MARKETS E&S CASUALTY CONSTRUCTION CONTRACT BINDING OPERATIONS DESIGN & ENVIRONMENTAL

HEALTHCARE LENDER PRODUCTS NATIONAL ACCOUNTS CASUALTY

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INSUR AN

EXECUTIVE ASSURANCE

PROFESSIONAL LIABILITY PROGRAMS

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PROPERTY SURETY TRAVEL

THE STRENGTH OF ARCH www.archinsurance.com

®

A.M. Best: “A+” Standard & Poor’s: “A+”

Insurance coverage is underwritten by one or more member companies of Arch Insurance Group in North America, which consists of (1) Arch Insurance Company (a Missouri corporation, NAIC # 11150) with admitted assets of $3.32 billion, total liabilities of $2.53 billion and surplus to policyholders of $782.8 million, (2) Arch Specialty Insurance Company (a Missouri corporation, NAIC #21199) with admitted assets of $468.8 million, total liabilities of $174.1 million and surplus to policyholders of $294.7 million, (3) Arch Excess & Surplus Insurance Company (a Missouri corporation, NAIC # 10946) with admitted assets of $63.5 million, total liabilities of $2.4 million and surplus to policyholders of $61.1 million and (4) Arch Indemnity Insurance Company (a Missouri corporation, NAIC# 30830) with admitted assets of $36.2 million, total liabilities of $12.3 million and surplus to policyholders of $23.9 million. All figures are as shown in each entity’s respective Quarterly Statement for the quarter ended March 31, 2015. Executive offices are located at One Liberty Plaza, New York, NY 10006. Not all insurance coverages or products are available in all jurisdictions. Coverage is subject to actual policy language. This information is intended for use by licensed insurance producers. © Arch Insurance Group 2015

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FEATURES

COVER STORY: FIVE-STAR CARRIERS REPUTATION AND FINANCIAL STABILITY

COMPETITIVE RATES

FIVE-STAR CARRIERS

FIVE-STAR CARRIERS

PRODUCER FEEDBACK

“Their reputation is that they are a bully with great control in the market”

ACE Group American Modern Insurance Group Arch Insurance Chubb Group of Insurance Companies Erie Insurance Group Grange Insurance Progressive PURE Insurance

ACE Group Allied AmTrust Financial Arch Insurance Chubb Group of Insurance Companies The Cincinnati Insurance Companies CNA Erie Insurance Group Farmers Insurance Grange Insurance The Hanover Insurance Group The Hartford Ironshore Markel Insurance Nationwide Progressive Philadelphia Travelers Westfield Insurance Company Reputation and financial stability was rated the third most important category among producers, coming in at an average of 9.13 out of a possible 10. It’s also the area where carriers performed best; on average, carriers received an overall average of 8.48 out of 10 in this category, and more carriers earned five-star status here than in any other category.

One reason reputation is so important to producers is that a good carrier reputation drives business to their door.

“Liberty Mutual ownership helps with my name recognition,” one survey respondent noted.

“A great brand name,” wrote another. “The best in the industry,” said a third.

Not all producers were happy with the way their carriers were seen by the public, however.

“Their reputation is that they are a bully with great control in the market, but they are financially sound,” wrote one respondent.

Importance to producers

Average carrier rating

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9.13 8.48

Unsurprisingly, producers were more concerned about competitive rates than any other category, rating the importance of good rates at 9.17 out of a possible 10. More than half of the producers surveyed ranked competitive rates at a full 10 – in other words, they considered it vital for carriers to provide good rates. Not a single survey respondent rated competitive rates as unimportant.

Unfortunately, producers rated carriers worse when it came to rates than in almost any other category. Carriers averaged just 7.18 out of 10, and only eight carriers received five-star ratings in the category, compared to 13 last year.

“Rate increases have priced [my carrier] out of competitiveness,” one producer wrote. “I no longer send new business quotes to them.”

“Rates are all over the board with no consistency,” said another.

Other producers complained that major carriers had basically cornered the market in their area, resulting in rates that were subject to rise with no rhyme or reason.

“Very little competition allows them to control rates without outside pressure,” said one producer. “Quit with the huge rate increases year to year,” demanded another.

“Show some stability.”

Others blamed the system by which carriers arrived at their rates. “Insurance scoring has created inflated rates for some clients,” said one survey respondent. “It’s my personal opinion that the merits of the insured should impact the rate, not their credit score.”

“Multivariant rating makes it difficult to know where [carriers] are competitive,” another wrote. “Even they don’t know for sure.”

9.17

Importance to producers

Average carrier rating

7.18

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QUICK QUOTES

EDUCATION AND TRAINING

FIVE-STAR CARRIERS

FIVE-STAR CARRIERS

ACE Group American Modern Insurance Group Chubb Group of Insurance Companies Erie Insurance Group Farmers Insurance Grange Insurance The Hartford Progressive PURE Insurance

ACE Group Chubb Group of Insurance Companies Farmers Insurance Grange Insurance The Hanover Insurance Group

While getting quick quotes wasn’t as vital to producers as things like competitive rates and claims processing, they still felt it was important, rating it at 8.62 out of 10.

Carriers did fairly well on average in this category, bringing in an aggregate score of 7.50. That’s only a slight drop-off from last year’s average; however, only nine carriers achieved five-star status in the category, compared to 12 last year.

“There is still too much redundancy for commercial products,” one producer wrote. “[My carrier] does not have an efficient quote-app-bind process for all products.”

“If you can’t do it on the system yourself, it isn’t quick,” another said. Yet another said his carrier always provided quick quotes “except when a verification item comes up” – in which case the process slowed to a crawl.

Importance to producers

Average carrier rating

8.62 7.50

Education and training offered by carriers was both the least important consideration for producers and the weakest category for carriers. Producers rated the importance of education and training at 7.43 out of 10.

Carriers, meanwhile, saw their lowest score in the category at an average of just 6.92. That’s still a significant improvement from last year’s average, however, and five carriers achieved five-star ratings in the category, compared to four carriers last year.

Many producers commented on the lack of training opportunities – or the expense. “Incredible training, but you have to pay for most of their webinars and classes,” wrote one.

Another said his carrier’s training was good – if he was able to access it. “When calling for online questions, if I am able to talk to a person, they do a great job walking me through the issue I’m dealing with. Some of the time I end up leaving a message and waiting for a call back.”

Importance to producers

Average carrier rating

PRODUCER FEEDBACK

“Incredible training, but you have to pay for most of their webinars and classes”

7.43 6.92

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FEATURES

COVER STORY: FIVE-STAR CARRIERS

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UNDERWRITING EXPERTISE

MARKETING SUPPORT

FIVE-STAR CARRIERS

FIVE-STAR CARRIERS

ACE Group Chubb Group of Insurance Companies The Cincinnati Insurance Companies Grange Insurance The Hanover Insurance Group Nationwide Carriers performed pretty well on average when it came to underwriting expertise, averaging a rating of 7.74. It’s a good thing, too, since producers understandably feel that quality underwriting is pretty important, rating it at 8.60 out of 10.

It’s not all good news in this category, however.

While carriers as a whole improved their average when it came to underwriting, fewer seem to be hitting the peaks of excellence; just six carriers were awarded five-star ratings in the category this year, as opposed to 10 last year. And many producers had some pointed criticisms when it came to their carriers’ underwriting practices.

“They used to have the best underwriters in the industry and would let them underwrite,” one producer said of his carrier. “Now they’re just paper-pushers with no authority.”

“Too much change-over,” another wrote. “Agents are constantly training new underwriters, and then they’re transferred.”

Others complained that while their carriers’ individual underwriters might be competent, they were crippled by the system itself.

“Let the underwriters do their job, instead of a computer that you cannot reason with,” one survey respondent wrote. “Empower the broker to place coverage with the carrier by setting reasonable and practical underwriting guidelines,” wrote another.

Importance to producers

Average carrier rating

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8.60 7.74

ACE Group Chubb Group of Insurance Companies Grange Insurance The Hanover Insurance Group The Hartford Markel Insurance Producers felt marketing support was important – 22% of them rated it as vital – but it simply wasn’t as much of a priority as other areas. Producers rated the importance of marketing support at an average of just 7.92 out of 10. Although marketing support came in toward the bottom of the list, its importance to producers still jumped significantly from last year.

However, carrier performance has taken a dive, according to producers; they averaged just 7.06, well below their performance last year.

Many producers rely on marketing support from third-party vendors, agency network systems or trade associations. Those resources, they said, were often more helpful and more readily available than the marketing resources provided by carriers. And some producers complained that their carriers frankly didn’t know what they were doing when it came to marketing.

“Most field reps are only checking off a box on their resume,” wrote one. “Others have no technical expertise – they only know how to sell life insurance.”

It’s not all bad news in this category, however; six carriers garnered five stars in marketing support, compared to just two last year.

PRODUCER FEEDBACK

“Most field reps are just checking off a box on their resume” Importance to producers

Average carrier rating

7.92 7.06

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IBAmeri

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FEATURES

COVER STORY: FIVE-STAR CARRIERS

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COMMITMENT TO THE BROKER DISTRIBUTION CHANNEL

CLAIMS PROCESSING

FIVE-STAR CARRIERS ACE Group Arch Insurance Chubb Group of Insurance Companies The Cincinnati Insurance Companies Erie Insurance Group Grange Insurance The Hanover Insurance Group The Hartford Westfield Insurance Company

PRODUCER FEEDBACK

“Their internal systems are either very poor, or their employees are incompetent”

Claims processing was almost as important to producers as competitive rates; they gave the category an average of 9.16 out of 10. In fact, 64% of survey respondents rated claims processing at a 10 -- more than any other category. Fortunately, carriers scored very well in this category; producers awarded their carriers an average rating of 7.98. That’s the secondhighest average rating carriers received in the survey.

Producers tended to be quite enthusiastic about the claims processing capabilities of their carriers.

“Still the gold standard,” wrote one producer about the claims service at five-star carrier Cincinnati Insurance Companies.

But not everyone was as enthused about their carrier’s claims processing. Many producers were frustrated by slow processing and difficulty getting questions answered. Indeed, though carriers did well overall in the category, only nine managed to hit five-star status.

“Their internal systems are either very poor, or their employees are incompetent,” wrote one producer about his carrier’s claims pr ocessing. “The third option is that failing to pay commissions and customer claims is a company policy to increase their bottom line. They need to fix their problems in this area!

They are the only option on the federal exchange in our market area for the most popular hospital, so we’re forced to use them.”

Importance to producers

Average carrier rating

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9.16 7.98

And now we come to a thorny issue: carriers’ commitment to the broker distribution channel.

Producers felt strongly that this was important, rating it at 8.82 out of 10. In fact, more than half the producers surveyed rated this category at a full 10, meaning they considered it absolutely vital, and a further 18.87% rated it at a 9. Only one respondent felt it wasn’t important at all.

And carriers did rather well on the whole in this category, garnering an average score of 7.64. Yet not a single carrier achieved five-star status in this category.

Last year saw 10 five-star carriers when it came to commitment to brokers.

So what happened? According to producers, many carriers just aren’t making brokers feel that they’re a priority.

Tales of poor customer service and the steady erosion of commission and profit sharing abounded. In some cases, producers even complained of carriers failing to pay commissions they were owed. “[My carrier] does not like you having other carrier relationships,” wrote one survey respondent. “They would rather you pass on business than place with another company.”

“My carrier is very much lacking in the area of service,” said another. “The reps are more interested in taking your tax ID information than hearing the issue. Most often we as brokers are educating the service reps on policy and performance.”

So what’s the answer? Producers say it’s pretty simple.

“Get to know the agents you are placing business for,” recommended one. “Be more committed to the independent agent,” another producer advised. “Stop reducing CM and profit sharing, and assist agents in recruiting and training.”

Yet another survey respondent summed up his position succinctly: “Commitment to support the independent agency system, and to pay and treat agents fairly and with high regard.”

8.82

Importance to producers

Average carrier rating

7.64

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FEATURES

ENVIRONMENTAL INSURANCE

GOING MAINSTREAM No longer a specialty coverage, environmental insurance is becoming ever more necessary to cover exclusions in general liability policies – and it’s likely cheaper than your clients think MOLD. EBOLA. Toxic vapors. Fracking.

It sounds like the setting of a scary movie, but it’s actually just a glimpse into the murky waters the environmental insurance industry plies on a daily basis.

With 40 or so carriers vying to cover pollution exposures in the US and a robust market capacity of more than $600 million, the environmental insurance sector is a surprisingly stable and competitive marketplace marked by both overcapacity and growing demand, where agents and carriers alike have to fight to hold on to their best clients.

Environmental insurance got its start covering superfund-sized site pollution risks and asbestos abatement and containment in the 1970s. It has evolved since then to become less of a specialty coverage and more of a necessary purchase for day-to-day operational risks for all manner of contractors and consultants – both environmental and non-environmental – running the gamut from window installers to hazardous waste cleanup contractors.

The environmental contractors and consultants industry segment is where many carriers and wholesalers still find their meat and potatoes. But the real gravy in the sector over the past several years has shifted to Main Street businesses that are realizing they have environmental exposures – and that coverage for these exposures is actually within their reach.

“It really helps for agents to understand that pollution coverage on a monoline

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basis is affordable now,” says Bill Pritchard, president and CEO of Beacon Hill Associates, a national wholesale broker and industry expert specializing exclusively in commercial environmental insurance solutions. “A lot of agents still are stuck in a mindset … that pollution coverage is expensive. It currently is very easy and affordable to get quality coverage. Most agents don’t realize this is something they can sell.”

Pollutant protection The environmental insurance business is largely driven by the pollution exclusion in the standard general liability policy.

That exclusion applies to anything that could meet the definition of a pollutant, be it solid, liquid, gaseous, or a thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste.

What qualifies as a pollutant frequently gets hashed out in the courts, where some game-changing cases have been decided over the past year.

One recent case in Wisconsin, for example, involved bacteria contamination in drinking

water wells stemming from a dairy farm’s practice of spreading manure on a field.

The Wisconsin Supreme Court ruled that it should be an excluded cause of loss under the common pollution exclusion used in liability insurance policies.

On the same day, the court also ruled that nitrates in groundwater (also stemming from spreading manure on a field) should be an excluded cause of loss.

In commentary published by the International Risk Management Institute, David J. Dybdahl, president of the American Risk

“I think ... Main Street businesses that recognize they have an environmental exposure are creating a marketplace for environmental carriers” Stacy Brown, Freberg Environmental

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“A lot of people thought maybe they didn’t have coverage, and now they know they really don’t have coverage,” says Garick Zillgitt, senior vice president of environmental at Rockhill Insurance Group in Kansas City.

“Case law varies from state to state, but the bottom line is, if there is an incident that causes bodily injury or property damage and the proximate cause is tied to a pollutant, then the agent really needs to think about buying special coverage.”

According to Pritchard, the recent court rulings are really nothing new; pollution exclusions have always been held up very broadly in the courts, reinforcing the fact that agents “really need to pay attention to

ENVIRONMENTAL INSURANCE MARKET CONDITIONS The typical rate change at renewal for average/ good risk profiles:

5% decrease to 5% increase Contractor’s pollution liability (CPL)

Visit Beacon Hill’s website for claim scenarios, exposure summaries, educational podcasts, and other environmental insurance resources.

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5% decrease to 10% increase Fixed-site pollution coverage Source: March US Insurance Market Report 2015

the environmental exposure their clients have. The expectation that you were going to have pollution coverage under a GL policy or standard policy should always have been tempered anyway.”

The biggest shift Pritchard has seen in the environmental insurance marketplace over

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ENVIRONMENTAL INSURANCE “A lot of agents still are stuck in a mindset … that pollution coverage is expensive. It currently is very easy and affordable to get quality coverage” Bill Pritchard, Beacon Hill Associates

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the last couple of years is that “pretty much anybody can buy pollution coverage now.

What started out as a specialized product for a specialized industry has grown into a product addressing the pollution exposure that every business has.”

Thus, he says, “it doesn’t make a lot of sense to depend on what might be limited coverage in your GL form, depending on the interpretation of a particular state court, when in fact you could go out and buy a policy that gets you broad coverage for the pollution exposure and then not have to worry about how the courts interpret the exclusion on your GL policy.”

Multi-state exposures are another big lesson coming out of the courts. Not only do agents need to know what’s going on in their own jurisdictions, but they also need to know what’s going on in the jurisdiction where the insured is doing work, because it’s likely that’s where the policy will be interpreted.

“If the insured is a Louisiana contractor doing oil and gas roustabout work in North Dakota,” Pritchard says, “he’s got to worry about the interpretation of that law in North Dakota, not Louisiana.”

Hard-won lessons Although the dramatic decline of production in the oil and gas industry over the past year has sent ripples throughout the insurance marketplace, that doesn’t mean companies are throwing their environmental coverage out the window to save money.

“Some of these guys have been in business for 15 or 20 years, and they don’t want to lose their retroactive date,” explains Stacy Brown, president of Denver-based Freberg Environmental, which specializes in developing, marketing and underwriting environ-

mental insurance programs. “They are savvy enough to understand the importance of keeping that coverage intact.”

Another coverage issue that’s come to the forefront over the past year grew out of the Ebola scare. During the height of the epidemic, as fear of Ebola infections spread to developed economies, US and British insurance companies began specifically excluding the Ebola virus from their standard policies as an organic pathogen.

As word got out that the virus could be specifically excluded, it sent a lot of people scrambling to find out whether they had coverage, Zillgitt says.

The exclusion impacted not only hospitals, event organizers and other businesses vulnerable to local disruptions, but also the contractors going in to clean and sterilize a potentially contaminated apartment.

The upshot? Relevant insurance policies need to be reviewed to see how they would respond to specific loss scenarios, Zillgitt says. “Certain contractor’s pollution liability policies extend coverage to virus and organic pathogen coverage – often contained within

ENVIRONMENTAL INSURANCE CLAIM FREQUENCY Claim frequency and severity continue to rise by double digits year-overyear for insurers. Although losses from dry cleaner contaminants and underground storage tanks are most prevalent, carriers are seeing losses on all types of risks, from Legionella in hospitality/real estate to ammonia releases in industries using cold storage.

Source: Wells Fargo 2015 Insurance Market Outlook

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FEATURES

ENVIRONMENTAL INSURANCE the mold coverage grant – while others do not.” And when it comes to risks that may have Ebola-like loss scenarios, “purchasing coverage that extends to organic pathogens and viruses is likely worth the premium,” he says.

TOP 5 STATES FOR ASBESTOS DEATHS According to data from The Mesothelioma Center, the following five states are home to the most asbestos-connected deaths – and also present more asbestos exposure risks

1

3

2

California

Florida

New York

4

5

Pennsylvania

Texas Source: March US Insurance Market Report 2015

to the environment, leading to increased demand for coverage within the sector.

“What we see in the market right now is a very competitive marketplace for pricing of products – we are seeing very broad coverage, and really competitive rates on accounts,” he says. “I think renewals are more competitive this year than they were last year. There’s just a lot of people who want to write this business.”

But perhaps the biggest news of the year is the $28.3 billion acquisition of Chubb by ACE. The news highlights an industry-wide trend toward consolidation, but it’s particularly significant for the environmental sector, Pritchard says, since both ACE and Chubb have meaningful environmental divisions.

Ultimately, however, he predicts that an uptick in consolidation probably won’t help much with the problem of excess capacity.

“There’s just too much capacity, too much money in the market and too many people trying to write policies,” he says. “It’s a trend in the right direction, frankly, but I think we’ve got a long way to go before it’ll have an impact on making the market less competitive.”

“Given the well-functioning network of specialist carriers and brokers operating in the environmental space, solutions do exist to eliminate virtually all coverage gaps” Garick Zillgitt, Rockhill Insurance Group Industry trends

Areas of growth

At the halfway point of 2015, Pritchard sees several significant trends that could affect the environmental and energy spaces for the balance of this year and into the next.

Continuing excess capacity tops his list, followed by increased regulatory pressure from the feds to make environmental compliance an easily accessed part of the public record, as well as an increase in public awareness of the ability to insure damage

While there is fierce competition for preferred risks in the environmental contracting and consulting arena, industry experts agree that there is also plenty of opportunity within the sector for those who know where to look.

“I think in particular, Main Street businesses that recognize they have an environmental exposure are creating a marketplace for environmental carriers,”

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Brown says. “Any kind of facility – printing operations, hardware stores, quick lube facilities – has clear and somewhat obvious environmental exposures, but in the past those companies weren’t willing to purchase coverage, perhaps because minimum premiums were higher than they were willing to spend.”

Now, premiums and limits have come down, and environmental coverage for those types of facilities has become much more affordable. And with so much competition in the marketplace, some carriers have recognized there is an underserved demand in this area.

“If coverage is affordable, they will absolutely buy the coverage,” Brown says.

“That’s where we see business growing. And frankly, there’s more of those Main Street businesses than all of the other facilities being covered right now – probably on a huge, huge scale. For those companies that can write that business efficiently, there is a great opportunity for people to write Main Street business.”

Pritchard agrees, saying that while Beacon Hill still writes a lot of insurance for true environmental contractors, consultants and facilities, it’s probably writing as much business now for non-environmental risks that want to insure their pollution exposures.

“I think that’s the real opportunity for agents,” he says. “There is not an agent out there who couldn’t look at their book of business and see opportunities in multiple accounts to write a companion pollution product for that insured.”

To thrive in the environmental space and to meet the complex needs of their clients, brokers can add value by specializing and selling their expertise, Zillgitt adds.

“Environmental insurance is a mature specialty business,” he says. “We have all seen the horror stories related to coverage gaps and disputes related to pollution incidents when proper coverage was not in place. Given the well-functioning network of specialist carriers and brokers operating in the environmental space, solutions do exist to eliminate virtually all coverage gaps.”

F

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PRODUCERS Find out who made the inaugural list of the industry's best producers GLOBAL REACH LLOYD'S CHAIRMAN ON THE INSURANCE GIANT'S AMBITIOUS GROWTH PLAN

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FEATURES

AGENCY INSIGHT

Gregory & Appel Insurance Founded in 1884, Gregory & Appel Insurance is the oldest independently owned insurance agency in Indiana. Andrew Appel, a fifth-generation member of the agency, reflects on what makes it stand out IBA: How important do you think it is for an agency to have a commitment to specialization? Why does it matter?

AA: It’s important only in the sense that specialization is the direction in which the industry is evolving. The insurance buyer has become more sophisticated. They expect more out of their agent partner than just someone who is going to place a policy.

To be able to do that, the agent has to respond, along with the carrier, to provide more specific expertise around that client’s own industry and issues. If you don’t bother getting into the weeds, then you are going to leave some pretty significant exposures uncovered for the client.

Once you start understanding an industry, you start speaking their language.

You are much more likely to get referrals within the space if you really understand it.

One thing feeds off another. I think competition also is forcing a lot of people to go in that direction. It’s very hard to be all things to everybody.

IBA: How have you been able to build up your various specializations? How have you built this into your culture?

AA: As you hire new people, you allow them to follow their passions. We had a producer 20-plus years ago who liked skiing, and he said this was something he would like to

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pursue. Twenty years later, we have a very robust ski book. We are probably one of the larger writers of ski areas east of the Mississippi.

From 30,000 feet, our agency looks like a generalist, but if you look at all three of our primary business units, each producer has migrated toward specializing in one or a handful of niches or specialties.

Right now in the commercial department alone, we probably have 15 to 20 active, robust areas of specialization – everything from ski resorts to health care in all of its forms.

That’s the fun thing about our agency.

Our culture is very entrepreneurial. It really is built around hiring and developing people and supporting them around wherever their business passion may lead them.

IBA: What do you think makes you stand out as an agency?

AA: At the end of the day, I believe it comes

down to the people that we both recruit and retain. If you are willing to invest in them long-term, I think the rest of it follows – you become a market leader. It’s very hard to point to one specific resource, but I think that’s what really sets us apart.

IBA: What are you doing to attract and grow your talent?

AA: Most of our producers are owners. When they are out in the community, they are not just looking to recruit and retain clients; they are doing the same for potential co-owners.

It doesn’t necessarily have to be someone who is in insurance. If there is a really smart person who really knows their industry and is a good cultural fit with the agency, we all view it as our duty to at least start this conversation. Just like we are always looking to start client relationships, we are also looking to try to recruit into the agency.

HOW HAS YOUR AGENCY GIVEN BACK TO YOUR LOCAL COMMUNITY? We have a stated goal to give back 10% of our pretax profit on an annual basis. We have been very fortunate to be supported by our community for 131 years; we absolutely feel an obligation to return that support. We give back financially, and we give back with our time. We have a number of employees who give of their own time to serve on boards of local nonprofits. We have a matching program for our staff as well. We will match dollar for dollar up to a certain amount.

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FAST FACTS Top specializations Health care

Real estate

Education

Public entities

Social services/nonprofit

Primary business units Commercial lines

Personal lines

“That’s the fun thing about our agency. Our culture is very entrepreneurial” Everybody here buys into the idea of internally perpetuated stock. If you are successful, we are very much going to want you to be able to be an owner of this agency.

My family is and will remain the controlling shareholder, but we have had a very active internal marketplace for the stock.

We also have a partnership with a local

college that has an insurance risk management program. It’s frankly rewarding when you get these really bright third- and fourth-year college students who may know what insurance is, but it’s probably not really what they were looking to do when they graduate. They discover the industry and realize this is a great place to work.

Employee benefits

Year founded: 1884 Headquarters: Indianapolis, Indiana Number of producers: 35 Number of employees: 130 2014 premium volume: Approximately $420 million Number of clients in 2014: 6,000 Ownership model: Family- and employeeowned

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24/07/2015 12:46:17 AM

FEATURES

CONTRACTOR’S INSURANCE

COVERAGE FROM THE GROUND UP As the economy recovers and new threats emerge, the landscape of contractor’s insurance is changing IN SOME ways, contractors are the wild things of the labor force. In exchange for the safety net of a regular job, contractors have more control over their schedules and, to a large extent, set their own rules and rates.

While the term ‘independent contractor’ is used to describe freelance jobs in virtually every field there is, ‘contractor’ by itself generally refers to someone in

IT’S A WRAP Enter the world of contractor’s insurance, and you’re sure to come across contractor-controlled insurance programs and ownercontrolled insurance programs.

Often referred to as wrap-ups, OCIPs or CCIPs, each of these indicates a consolidated insurance program that typically provides workers’ compensation and general liability coverage to all enrolled contractors and subcontractors for operations occurring at a specific project site.

Think of it as the majority of the insurance for a large construction project wrapped up into one tidy package, says third party wrap-up administrator CR Solutions.

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construction. And there is no doubt about it – the US construction and contracting industry has entered a new phase of growth.

According to the US Census Bureau, there are 477,950 specia lt y trade contractors working in the construction industry, and annual business is valued at $722 billion.

Constr uc tion a nd contrac t work encompass some of the most diverse occupations – from masonry to marine construction – and with this diversity comes a number of risks.

The main products that serve the sector include general liability, workers’ compensation, auto, surety, builder’s risk, environmental liability and professional liability.

“Contractors typically procure these coverages on a practice basis to cover exposure and liability resulting from all of their operations, or they purchase the

coverages on a project-specific basis to meet contractual requirements necessary to perform work at a job site,” says William P. Hazelton, division president for ACE Construction & Environmental.

Loss exposures in the sector are dependent on the type of work contractors perform.

“For example, a plumbing contractor would have significantly different exposures from a street and road contractor,”

“They are asking more questions about how their day-to day operations could be impacted by cyber and privacy exposures” William P. Hazelton, ACE Construction and Environmental

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Hazelton says. “This is why selecting an insurance carrier who can tailor coverages and services such as loss control and risk assessment specific to the needs of individual contractors is important.”

Categories of contractors Contractors can be sorted into two primary categories – general contractors and subcontractors or specialty contractors.

A general contractor is in charge of the day-to-day operations of a construction project, dealing with client and vendor communication as well as managing any subcontractors needed.

Specialty contractors may work on subcontract from the general contractor, performing only part of the work covered by the general contract, or they may work directly for the owner. They generally work

at the job site, although they also may have their own shops.

He av y c on s t r uc t ion c ont r a c t or s represent another major industry group.

They are primarily engaged in heavy construction that doesn’t involve buildings, such as highways and streets, bridges, sewers, railroads, irrigation projects, flood control projects, and marine construction.

MAIN INSURANCE PRODUCTS FOR CONTRACTORS > > > >

Changing insurance appetites

>

As the construction industry has evolved over time, so has the appetite among contractors for emerging insurance products. Hazelton has recently observed increased demand for general liability-only wrap-up coverage for contractors engaged in project-specific work, as well as insurance for contractors engaged in P3 (public-private partnership) work for

> >

General liability Workers’ compensation Auto Surety Builder’s risk Environmental liability Professional liability

large infrastructure projects and other construction work in the health care and education arenas.

Contractors also are showing more

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FEATURES

CONTRACTOR’S INSURANCE TOP CATEGORIES OF SPECIALTY TRADE CONTRACTORS

BUILDING INDUSTRY Plumbing, heating and air conditioning Painting and paper hanging Electrical Masonry, stonework, tile setting and plastering Carpentry and flooring Roofing, siding and sheet metal Concrete Water well drilling Structural steel erection Glass and glazing Excavation Wrecking and demolition HEAVY CONSTRUCTION Grading for highways and airport runways Guardrail construction Installation of highway signs Trenching Underwater rock removal Asphalt and concrete construction of roads, highways, streets and public sidewalks Source: Occupational Safety & Health Administration

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interest in combined pollution-professional liability coverage, as well as coverage for privacy or cyber exposures.

“They are asking more questions about … how their day-to day operations could be impacted by these exposures,” Hazelton says.

Sparked by fear of litigation, increasing contractual limit demands pertaining to contractor’s pollution liability are driving additional demand in the sector, says Garick Zillgitt, senior vice president of environmental at Rockhill Insurance Group.

“Contracts are causing insureds to carry higher and higher limits – $10 million or $20 million is not unusual, and even higher limits are occasionally required,” he says. “General contractors and owners pay attention to what their peers are requiring in regard to CPL limits. We are seeing a trend in both the limits of insurance required, as well as specificity in the type of insurance required.”

Ultimately, Zillgitt says, project owners who require higher limits end up paying the price for them, because contractors generally build the additional insurance costs into their bids.

Challenges in the sector Working in the contractor’s insurance sector is a balancing act. “The main challenge is ensuring the continued delivery of meaningful insurance coverages for existing and new exposures such as privacy, while also providing value-added environmental, health and safety services to our clients that are meaningful, and helping them manage their risks and exposures more effectively,” Hazelton says.

This is often easier said than done, depending on the political climate and regulations in individual states. For example, obtaining contractor’s insurance for operations performed in New York City and New York state is problematic due to sections of the New York Labor Law, which can hold a building owner and general contractor fully responsible for an injured worker’s accident, even if their actions did not directly cause the accident.

While intended to provide added protections for injured workers, the laws are burdensome for project owners and general contractors. “Contracting clients continue to express considerable concern over

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securing insurance programs with suitable deductibles on general liability policies, as well as obtaining lead umbrella and excess insurance,” Hazelton says.

Texas, meanwhile, is at the opposite end of the spectrum. Unlike every other state, it does not even require employers to carry workers’ compensation insurance policies in most cases. This means insurance companies in the Lone Star State have to work extra hard to promote the value of the coverage to their clients, says Jeff Lentz, vice president of underwriting at Texas Mutual.

Workers’ comp for contractors Texas Mutual is the largest writer of workers’ comp insurance in Texas, serving roughly 40% of the market in every class of business imaginable – including contractors of all kinds and every premium size – as well as offering several safety groups for different

“Contracts are causing insureds to carry higher and higher limits – $10 million or $20 million is not unusual, and even higher limits are occasionally required” Garick Zillgitt, Rockhill Insurance Group types of contractors based on association endorsements.

“It’s a very large market, and we are very dedicated to contractors,” Lentz says.

Regardless of the safety protocols in place, construction and contracting businesses know that accidents happen all the time. Contractors face daily risks, ranging from operating dangerous industrial machinery to exposure to potentially

SPOTLIGHT ON RISK MANAGEMENT The construction industry is among the most dangerous industries in the country, underscoring the need for effective risk management partnerships between contractors and their insurance companies. Consider these statistics, compiled by Capterra Construction Management Blog: • One out of every 10 construction workers is injured every year • Over the course of a 45-year career, a construction worker has a 1 in 200 chance of dying • Falls are the greatest cause of fatal construction injuries • The most violated OSHA standard is fall protection • In 2012, Maine had less than 5 construction-related deaths; Texas had 105 • The construction industry is second in the US for fatal injuries in workers younger than 18 • Sixty percent of construction workplace injuries occur within the employee’s first year of employment • Between 2002 and 2012, 19.5% of all workplace deaths were from the construction industry Texas Mutual’s focus on safety starts with the leadership at the top of a client’s organization – making sure not only that they have put out a safety policy, but that it is widely known and is being enforced.

“We see both ends of the spectrum,” says VP of underwriting Jeff Lentz. “Some insureds are very dedicated to safety, and other folks need some assistance. We have a full staff of safety professionals out in the field and in our Safety Services Center to help in any way possible to get folks who need help with safety up to speed.”

hazardous materials to the toll of repetitive motion injuries.

Workers’ compensation insura nce helps offset these risks by providing coverage to protect construction and contracting business assets in the event of a costly lawsuit brought by an injured or ill employee or subcontractor, while providing lost wages and medical benefits to workers who are injured on the job.

Workers’ comp coverage may not be mandated by the state of Texas, but Lentz says it is still highly advisable for contractors to carry it. Indeed, contractors in many segments of the construction and energy industries don’t have a choice – project owners or general contractors frequently insist they carry it.

Those who are most prone to not purchasing the coverage are smaller contractors not affected by those requirements, such as residential contractors.

Lentz has observed that the appetite among all sorts of contractors for workers’ comp and other insurance coverages is growing now as construction business continues to recover after the economic downturn – particularly in Texas, where a lot of that growth is happening.

“The economy is definitely moving the contracting world in the right direction,” Lentz says. The main challenge, he says, is “making sure we are doing a good job differentiating what our clients’ needs are, and approaching them in a way that will help them as a company and help their employees.”

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PEOPLE

PRODUCER PROFILE

Home on the range Although Clark Lindley has forged a lifelong career in the insurance industry, he’s always been a farmer at heart

GROWING UP in Vermont, Clark Lindley started working on his neighbor’s dairy farm when he was just 11 years old. There was plenty of work to do, from picking stones in the fields to haying to helping out with twice-daily milking.

“Milk in the morning, milk at night – those were long days, but they felt great at the end of the day,” Lindley says. “It really gave me a foundation, a love of farming and working with the earth.”

Lindley also developed a formidable work ethic on the farm that has carried through to this day. “Cows need to be milked on a regular basis,” he says. “They don’t take weekends off.”

Neither does Lindley, who now spends his weekends mending fences, turning soil and chasing bison on his New Hampshirebased StoneField Bison Ranch. His weekdays, meanwhile, are consumed with running Agricultural Insurance Management Services [AIMS], an MGA wholesale operation he founded in 1999 that underwrites farm risks for four national carriers throughout the continental United States.

layman’s terms.

In 1982, Lindley became president of the operation, and in 1990, he became its sole owner. Along the way, he also launched C&L Insurance Agency, which focused on environmental issues and has since become part of Wilson Insurance Agency.

But Lindley’s real professional passion today lies in running AIMS. “I’m very proud of it and the people who work here,” he says. “It has turned into a terrific company. What really stands out with what we do here is that we simply love farming.”

AIMS is very much a niche program, focusing exclusively on coverage for farms – primarily equine, dairies, and estate and gentleman farms like Lindley’s own – but really “anything except farms with feathers,” he says. Lindley sees MGAs such as AIMS playing an increasingly important role as specialists who can advise independent agents looking to get into niche marketing.

The marginal economics of farming in New England have made for some interesting coverages along the way. In order to create other forms of income, farmers have delved into all sorts of side ventures – maple syrup, firewood, U-pick, orchards, and roadside fruit and vegetable stands.

“All these things create other risks that can be challenges, some of which we can take care of,” Lindley says. “That’s one of the reasons why this business is so fun – there is not a day that something new and interesting doesn’t come up.”

“AIMS has turned into a terrific company.

What really stands out with what we do here is that we simply love farming”

Tilling a niche Lindley got into the insurance business when he was fresh out of college. By his mid-20s, he had become an owner of Wilson Insurance Agency, an established retail agency in Melrose, Mass., focused on the P&C marketplace. He relished the daily challenges of creative problem-solving and explaining insurance products in

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CURIOUS COVERAGES Over the years, Clark Lindley has seen some intriguing coverages crop up in his farm insurance business, including: Semen and embryos from breeding stock Mushrooms grown in wet soil in buildings with no lights Christmas tree farms Digesters, often worth six or seven figures, that use manure from dairy cows and waste food from local restaurants and grocery stores to make methanol gas to power a farm operation Lindley loves the variety, and the challenge, of finding solutions for these kinds of risks. “I know people who scratch their heads,” he says, “but it’s something we totally love.”

A slice of heaven The same could be said for Lindley’s bison ranch, which he started almost two decades ago as a way to reconnect with his farming roots. He and his wife, Jan, cleared 25 acres of raw land in Warner, N.H., and started cultivating a ‘Gold Trophy’ herd of 30 or so bison purchased through auctions across the country, raising them both for their meat and as breeding stock.

“We are still doing it to this day,” Lindley says proudly. “Our little ranch is a slice of heaven for us.”

Much like working in the insurance industry, raising bison is full of challenges and surprises. Lindley recalls one memorable day, shortly after they had acquired their herd, when a territorial bull chased Jan across a corral. “The next thing I know, she’s crawling up a tree in a sundress.”

As Lindley momentarily distracted the bull by banging on a bucket, Jan made a run for it across the field, jumping over a gate just as the bull smashed into it behind her.

The experience gave Lindley a healthy respect for the nature of the animals he raises.

“In insurance, you want to control the unknown,” he says. “In bison ranching, you want to control the known.

These animals can kill you. I maintain that they are wild, and I always want them to be wild. I don’t believe that man should be trying to get them to the point where they are nothing more than a beef animal. That is not the intent of what we do.”

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PEOPLE

CAREER PATH

INDEPENDENT SPIRIT Despite working almost exclusively for corporate giants, David Egosi has a true entrepreneurial spirit 2012

WRITES HIS FAMILY HISTORY As much as he loved life in California, Egosi’s family pulled him back to Manhattan. There, his grandparents, Holocaust survivors, inspired him to write a book detailing their life experiences “My goal was to document their stories in a creative way before they passed so they wouldn’t be lost to future generations in my family. I look forward to being able to share it with my kids and their kids”

Hiscox was spreading across the United States and was looking for leaders to push the brand into the West Coast. Naturally, Egosi stepped up, taking on a two-year contract in San Francisco “It was interesting to see some different market dynamics compared to the East Coast, and I saw it as a great way to round out my experience and insight from a geographical perspective”

2010

MOVES TO SAN FRANCISCO

Although Egosi wasn’t looking to leave Lexington, he couldn’t pass up the opportunity when a former AIG colleague introduced him to a ‘new’ insurance company that was rapidly expanding

“It seemed like the ideal place for someone with an entrepreneurial mind to really thrive and build a business that they could help define”

2009

JOINS HISCOX

2007

MOVES TO LEXINGTON

2005

STARTS AT AIG Although Egosi never considered a job in insurance, he liked the idea of getting an inside look at different types of businesses, as an AIG representative explained to him at a job fair “My father built his own engineering company, and he always felt the experience of working for a large company and getting that infrastructure insight was a valuable step in any entrepreneur’s journey”

Egosi started College Fashions, a company selling discounted designer clothing at campus kiosks, during his junior year at the University of Delaware “Applying what I learned in the classroom to a real life entrepreneurial setting was really what I enjoyed most” 46

That entrepreneurial spirit led Egosi to Lexington Insurance Company, which, while still under the AIG umbrella, operated independently. Lexington wrote a lot of the businesses that AIG wouldn’t, affording Egosi the opportunity to deepen his experience in the professional liability space “We also had a lot of client meetings, and I enjoyed meeting with clients’ senior management teams and hearing them discuss their businesses in person”

2005 GETS PIVOTAL SUMMER JOB

2003

STARTS COLLEGE FASHIONS

After graduating from the Lerner College of Business and Economics, Egosi got a summer job working as a waiter at the prestigious Cittavuova restaurant in East Hampton, N.Y., where he served everyone from Jerry Seinfeld to Billy Joel “I learned a lot about selling, customer service and how to work quickly and efficiently”

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Insurance for businesses, families and individuals | acegroup.com/us

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PEOPLE

OTHER LIFE

TELL US ABOUT YOUR OTHER LIFE Email iba@keymedia.com

FIRED UP

AS A GRADUATE of the University of Houston, Brian Pool’s ‘Cougar Pride’ runs deep. The founder of Lonestar-Integra Insurance Services began tailgating as a student in 1997.

In 2003, he entered his first tailgate competition through a U of H Cougars fan club.

“We cooked for everybody, and we won [the competition] our first three years,” he says. “After that they did away with the competition because it wasn’t fair.”

Pool’s tailgate group, Team Swank, has since grown to more than 100 members. It’s also one of the largest

When he’s not behind a desk, Lonestar-Integra’s Brian Pool is likely manning a grill as part of his massive tailgating operation

3

Number of specialty vehicles Team Swank uses at tailgates

tailgates at U of H, spanning 14 parking spaces, and comprising a truck, an RV and a trailer with a built-in TV. “It’s really about the camaraderie and pulling everyone together for a common focus,” Pool says. “And there’s the social aspect – people you don’t see very often, they’ll come out to the tailgate.”

The Team Swank tailgate event that’s most likely to bring everyone out? Baconfest. “Everything we cook is either bacon, wrapped in bacon or includes bacon in one shape or form,” Pool says. “Even the cookies have bacon cooked in them!”

18

Number of years tailgating

14

Number of parking spaces Pool’s tailgate occupies

Team Swank Team Swank

Team Swank

The U of H “Cougar Paw” Brian’s wife, Lindsay

Team Swank Brian Pool Team Swank Brian’s Daughters, Taryn and Cameryn

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We built our company anticipating the

NEW NORMAL AND BEYOND.

In the new normal, there is no normal. Healthcare is experiencing transformative change and needs adaptive, innovative solutions now more than ever. That’s why we combine a broad product suite with access to experienced leadership to address the evolving needs of our clients. It’s no wonder our healthcare division has grown well over 500% since inception. www.ironshore.com

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service.

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©2015 Ironshore

23/07/2015 10:52:36 PM

Expect big things in workers’ compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide.

For information call (877) 234-4450 or visit auw.com/us. Š2015 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

Insurance plans protected U.S. Patent No. 7,908,157.

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