Insurance Business America 7.09

IBAMAG.COM ISSUE 7.09 | $12.95

Jeremy Barnett

Tokio Marine HCC Paul King Christiaan Durdaller

Robert Bauer

INSURETrust

Marsh

Linda Hamilton

Proven Data

USI Insurance Services

EMERGING RISKS & INNOVATION Five insurance leaders discuss the up-and-coming exposures that should be on every producer’s radar INSIDE A MEGA-MERGER

Behind the scenes of the AXA XL tie-up with executive Kelly Lyles

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WHOLESALE E&S MARKET REPORT

IBA examines the state of the wholesale, specialty and surplus lines market

THE KEYS TO REVENUE GROWTH

What the world’s biggest brokerages are doing to drive impressive results

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ISSUE 7.09

CONNECT WITH US Got a story or suggestion, or just want to find out some more information? twitter.com/InsuranceBizUS

CONTENTS

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UPFRONT 04 Editorial

Why you shouldn’t view insurtech as the enemy

EMERGING RISKS & INNOVATION

06 Statistics

Key data that should be on your radar this month

08 Head to head UPFRONT

NEWS ANALYSIS

What’s behind the impressive secondquarter results from the world’s four largest insurance brokerages?

The case for – and against – standardizing cyber policy language

12 Intelligence

This month’s big movers, shakers and new products

14 Workers’ comp update

How data-driven processes are helping reduce the cost of workplace injuries

16 Technology update SPECIAL REPORT

EMERGING RISKS & INNOVATION ROUNDTABLE

IBA sat down with five insurance leaders who are at the forefront of evolving risks to get their thoughts on everything from ransomware to the sharing economy PEOPLE

INDUSTRY ICON

Helping to oversee one of the biggest insurance mergers in history is no easy task, but AXA XL executive Kelly Lyles has risen to the challenge

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2

FEATURES

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COMMUNITY SPIRIT

Utah-based Heiner’s Insurance Center has thrived for more than 70 years by emphasizing its roots in the local community

WHOLESALE E&S MARKET REPORT 2019

Could telematics be the key to overcoming charges of discrimination in auto insurance underwriting?

18 Opinion

A company’s reputation must be supported by more than just marketing

PEOPLE 54 Career path

Hugh Burgess has long realized the importance of leveraging data

56 Other life

How a personal tragedy inspired insurtech exec and life coach Bryan Falchuk to shift his perspective

44 FEATURES

WHOLESALE E&S MARKET REPORT

IBA takes the pulse of the wholesale, specialty and surplus lines market to find out where the opportunities lie for brokers

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Focused on solutions.

We are.

Inspiration to reach higher and create solutions unrivaled in the marketplace.

Industry leader with 35 years in the E&S business. nationwide.com/weare

E&S/Specialty A.M. Best rating of A+ (Superior), FSC XV Fortune 100 company

Nationwide and the Nationwide N and Eagle are service marks of Nationwide Mutual Insurance Company. Š2019 Nationwide

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UPFRONT

EDITORIAL

Modernization is for you, too

I

nsurtech is no longer a fantasy or a vision of the future – it’s very much the here and now. For proof, look no further than Willis Towers Watson’s latest Quarterly Insurtech Briefing, which reported 69 insurtech deals with a total value of $1.41 billion during the second quarter of the year – the fourth quarter in a row in which funding has topped the $1.2 billion mark.

“Technology as a strategic vertical is now commonplace in nearly every single insurer and reinsurer across the globe,” Dr. Andrew Johnston, Willis Re’s global head of insurtech, said in the report. He added that while Willis Towers Watson believes in the value created by some insurtechs, it will maintain its position of “realistic pragmatism,” suggesting that tech firms in the space still have plenty to prove. But what approach should the smaller insurance broker take?

“Technology as a strategic vertical is now commonplace in nearly every single insurer and reinsurer across the globe” There is good reason for brokers of all size to re-evaluate the insurtech landscape. Many are stuck with legacy systems that are slow and inefficient, making access to data difficult and leaving them without solutions for today’s clients, who want to get the information they need when they need it. Yet many brokers continue to dismiss insurtech, seeing it as more of a threat than an opportunity.

In fact, the majority of insurtechs have a different narrative – focusing not on disrupting or displacing the broker, but on enabling them to do business better. The possibilities for collaboration are seemingly endless, from using data to improve sales campaigns, to streamlining processes in order to cut costs, to boosting customer satisfaction by providing 24/7 access to information, to finding problems more efficiently via data-driven KPIs. The insurance industry is moving forward. Customer expectations are changing, rules and regulations are getting tougher, and the sector is now awash with increased competition. Embracing technological solutions will soon no longer be a differentiator, but an expectation. So don’t view insurtech as the enemy to your brokerage – treat it as the next evolution of your business.

The team at Insurance Business America

www.ibamag.com MAY 2017 EDITORIAL

Managing Editor Paul Lucas Editor Bethan Moorcraft Journalists Alicja Grzadkowska, Lauren Ingram, Nicola Middlemiss, Ksenia Stepanova News Writers Lyle Adriano, Terry Gangcuangco, Roxanne Libatique, Gabriel Olano Staff Writers Tom Goodwin, Libby MacDonald, Ryan Rose, Joe Rosengarten, Ryan Smith Copy Editor Clare Alexander

CONTRIBUTORS Nir Kossovsky

ART & PRODUCTION Designer Joenel Salvador Production Manager Alicia Chin Production Coordinator Kim Kandravy Traffic Manager Ella Dayandante

SALES & MARKETING Vice President, US Market Cathy Masek Vice President, Sales John Mackenzie Media Sales Managers Chris Anderson, Desiree McCue Global Head of Communications Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley President Tim Duce Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil Editorial Inquiries paul.lucas@keymedia.com Subscription Inquiries subscriptions@keymedia.com Advertising Inquiries cathy.masek@keymedia.com, chris.anderson@keymedia.com, desiree.mccue@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, London, Toronto, Sydney, Auckland, Manila, Singapore, Seoul

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UPFRONT

STATISTICS FORENSICS AND LEGAL EXPENSES LEAD CYBER COSTS

2 CALIFORNIA 5,950 thefts

51%

1 TEXAS 6,151 thefts

Average proportion of cyber claim costs devoted to IT forensics

TOP 10 STATES FOR ATV THEFT

105%

Increase in IT forensics costs since 2017

PEAK SEASON FOR ATV THEFT According to the National Insurance Crime Bureau, theft is a considerable risk for ATV owners – more than 20,000 ATVs are stolen each year, due in large part to the vehicles’ smaller size and lack of factory-installed anti-theft features. Owners should be especially vigilant during the summer months: One in five of all ATV thefts from 2016 to 2018 occurred during July and August.

FALSE SENSE OF SECURITY

30%

Just over 70% of upper-tier executives at the largest companies in the world expect their insurer to cover the lion’s share of the losses incurred if they suffer a cyber attack, according to a recent survey by FM Global.

Average proportion of cyber claim costs devoted to breach coach/legal expenses

26%

72%

EXECUTIVES WHO EXPECT THEIR CYBER INSURER TO COVER MOST RELATED LOSSES

45%

EXECUTIVES WHO EXPECT THEIR CYBER INSURER TO COVER ALL RELATED LOSSES

Increase in breach coach/ legal expense costs since 2017 Source: NAS Insurance 2019 Cyber Claims Digest Source: FM Global, July 2019

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M&A DEAL VALUES UP AGAIN

9 OHIO 2,258 thefts

PwC’s latest briefing on financial services M&As revealed that the total value of mergers and acquisitions in insurance rose from $100 million to $2.9 billion between the first and second quarters of 2019. While significant, it’s still well below the $8.1 billion peak reached late last year.

7 NORTH CAROLINA 2,310 thefts

8 TENNESSEE

$9bn

6 SOUTH CAROLINA

2,293 thefts

2,345 thefts $3bn

$2bn

4 GEORGIA 2,688 thefts

$1bn

3 FLORIDA 3,994 thefts $500m

5 LOUISIANA 2,442 thefts

10 ALABAMA

$0

2,233 thefts

Q2 2018

WHAT’S NOT COVERED

PERCENTAGE OF EXECUTIVES WHO BELIEVE THIS IS A LIKELY EFFECT OF A CYBER ATTACK

Q4 2018

Q1 2019

Q2 2019

Source: Financial Services Deals Insights Q2 2019, PwC

Source: National Insurance Crime Bureau, July 2019

Many of the consequences the executives surveyed by FM Global expect to have to deal with after a cyber attack aren’t covered by cyber policies, which only address the revenue a business loses during the period of disruption.

Q3 2018

BROKERS DRIVE INSURANCE M&A Deals involving insurance brokers made up more than 93% of mergers and acquisitions in the insurance industry during the second quarter of the year, according to PwC.

50%

Brokers 93% P&C 5.4% Life and retirement 1.6%

40% 30% 20% 10% 0%

46%

40%

Degradation of Increased the company’s scrutiny from brand/reputation the investment community

38%

35%

24%

24%

Decline in revenue/ earnings

Introduction of regulatory compliance problems

Decline in market share

Decline in share price Source: FM Global, July 2019

SHARE OF INSURANCE M&AS

BY SUB-SECTOR

Source: Financial Services Deals Insights Q2 2019, PwC

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UPFRONT

HEAD TO HEAD

Do cyber insurers need to use standard terminology?

Within cyber policies, differing terms for the same exposure can cause coverage confusion. Is it time for some standardization?

Mark Schulz

Bob Parisi

John Farley

Vice president and cyber liability product manager Victor O. Schinnerer & Company

US cyber product leader Marsh

Managing director, cyber liability practice Gallagher

“No. The current cyber landscape is still evolving. As cyber coverage stabilizes, so will consistency with the terminology. The range of broker understanding of cyber policy language runs the gamut, which is clearly an issue for those who feel less comfortable talking cyber with their clients.

Where there is a knowledge gap, however, there is also an opportunity to educate and demystify. I see great potential to win business for those insurers that can make their cyber policies comprehensive yet easier to understand in order to support brokers as cyber subjectmatter experts.”

“An agreed lexicon for frequently used terms – not forced, but encouraged – might dispel some misconceptions about cyber insurance and in theory make policies easier to compare.

But the problem isn’t so much the vocabulary of cyber insurance as it is the grammar. Even if we forced all insurers to adopt standard terminology, insurers would still find a way to differentiate how they offered the coverage, as every cyber insurance underwriter believes they have the one true way to underwrite cyber risk. Efforts might be better focused on aligning the format of cyber policies with more traditional P&C policies.”

“Clarity is in everyone’s best interests. On the surface, it seems mandating standard terminology would be a good idea. Many cyber carriers define terms in vastly different ways. So, as an insured moves from one carrier to another, policies may contain the same terms but have wildly different definitions, making it difficult to navigate the market and affecting the scope of coverage.

Unintended consequences could include more constricted coverage with no room for negotiation. Other complications occur as new exposures arise. Imposing standard terminology may limit the flexibility of carriers to evolve along with the threat.”

SAME CONCEPT, DIFFERENT NAMES The relatively new and constantly evolving field of cyber insurance has been plagued by varied wordings – what one company terms ‘silent cyber risk,’ for example, another might call ‘non-affirmative cyber risk.’ “A carrier might have a standardized form, but then they’re probably adding layers and layers of added enhancements to it to provide broadness of coverage and avoid ambiguity,” explains Ruby Rai, manager of cyber and professional liability at AIG. “Maybe there will be a future where markets can come together and a more standardized form could be achieved.” Greg Markell, president and CEO of Ridge Canada Cyber Solutions, agrees that “what we need to get at is a common set of terminology, such that if I gave three lawyers the insurance wording, I don’t have three diverging interpretations of that insurance wording.”

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UPFRONT

NEWS ANALYSIS

Brokerage growth spurt The Big Four brokerages all performed well in the second quarter of 2019. IBA takes a closer look to find out what’s driving the rosy results

IT WAS a bright and temperate summer for the Big Four insurance brokerages. In the flurry of second-quarter financial results, all four of the largest brokerages in the world – Marsh & McLennan Companies, Aon, Gallagher and Willis Towers Watson – delivered positive results, suggesting that times are good in the brokerage world.

The quarter included two major acquisitions: Marsh finalized its $5.6 billion purchase of JLT in April, and Willis Towers Watson completed its $1.2 billion purchase of TRANZACT, a direct-to-consumer healthcare firm that links individuals to US insurance carriers. Meanwhile, Gallagher snapped up 13

ance space,” explains Martha Butler, senior director of North American insurance at Fitch Ratings. “As they continue to invest in risk management and consulting services, their revenues keep increasing.”

Marsh & McLennan Companies [MMC] is the largest of the four organizations, generating annual revenue of nearly $17 billion. It’s also the only organization to score a negative A- outlook from Fitch Ratings. This is largely due to the JLT acquisition and the financial leverage it required, explains Douglas Pawlowski, senior director of North American insurance at Fitch.

However, Pawlowski notes that MMC’s Q2

“As [the big brokers] continue to invest in risk management and consulting services, their revenues keep increasing” Martha Butler, Fitch Ratings smaller brokerages, representing $195 million of annualized revenue.

Aside from M&As, Q2 saw all four brokerage giants continue to reinvest in their businesses to drive organic growth through additional risk management and consulting services. “The big brokers’ revenues are not solely dependent upon pricing in the insur-

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results “looked pretty good” and its revenue growth “was right in line with their expectations between 3% and 5%.” MMC president and CEO Dan Glaser said he was pleased that the brokerage was able to generate “solid growth in underlying revenue and adjusted EPS while welcoming 10,000 new colleagues” via the JLT merger.

Despite that impressive start, Pawlowski says it’s “way too early to call [the Marsh/ JLT merger] a success,” adding that “our rating sensitivities depend on how quickly and successfully they can de-lever. I found it interesting how they’re expected to have diluted earnings this first year and break even next year, so we won’t see any actual growth in earnings from this transaction until 2021.”

Aon, the second largest brokerage in the world by revenue, recorded “strong organic revenue growth” of 6% for the second quarter, which Butler attributes to the group’s divestitures and subsequent restructuring. “Everything they’re doing in terms of restructuring their business is going to make them more profitable in terms of growth moving forward,” she says.

Butler’s stance mirrors Aon CEO Greg Case’s comment in the company’s Q2 earnings release: “The steps we are taking to lead

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THE BIG FOUR’S SECONDQUARTER RESULTS TOTAL REVENUE, Q2 2019 $5bn

$4bn

$3bn

$2bn

$1bn

$0

Aon United in response to increasing client demand, combined with significant investment in content and capability, is not only amplifying our ability to serve clients, but also our ability to deliver improved operational

revenue of $2.05 billion. The company also achieved a double-digit increase (14.6%) in adjusted operating income growth, recording $299 million for the quarter.

Like Marsh, Willis Towers Watson

“It’s way too early to call [the Marsh/JLT merger] a success … Our rating sensitivities depend on how quickly and successfully they can de-lever” Douglas Pawlowski, Fitch Ratings and financial performance that we believe will unlock significant shareholder value creation over the long-term.”

Six percent seemed to be the magic number for the London-headquartered brokerage behemoths in the second quarter.

Willis Towers Watson also delivered organic revenue growth of 6% in Q2 for a total

completed a major acquisition in the quarter. At the time, CEO John Haley said, “This acquisition, coupled with our highly differentiated capabilities and disciplined management of the business, leaves us confident in our ability to continue to drive sustainable, profitable growth and deliver value for our clients and shareholders.”

$4.3 billion

$2.6 billion

$2.05 billion

$1.3 billion

Marsh & McLennan Companies

Aon

Willis Towers Watson

Gallagher

From Fitch’s perspective, WTW’s “margins look good, their EBITDA to interest expense is marking up, and their debt to EBITDA is going down,” Butler says. WTW currently has a rating of BBB (stable) from Fitch but will remain under scrutiny after taking on around $1.1 billion in new debt via the TRANZACT acquisition. However, WTW has announced plans to reduce its financial leverage.

While Fitch doesn’t provide a rating for Gallagher, it’s clear the fourth largest brokerage is “acquiring a lot, and their margins look good,” Butler says. In addition to completing 13 mergers in Q2, the company posted total revenue growth of 13%, organic revenue growth of 5.8% and a net earnings margin of 12.2% – results that Gallagher chairman, president and CEO J. Patrick Gallagher described as “outstanding.” The firm’s brokerage segment performed well, reporting net earnings of $138 million, up from $127.5 million the year prior.

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UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

Arch Capital Group

Barbican Group Holdings

The acquisition expands Arch’s connection to Lloyd’s and the London market

Gallagher

Gillis, Ellis & Baker and the Novick Group

New Orleans-based Gillis, Ellis & Baker is a commercial retail P&C broker, while the Novick Group targets nonprofit and association clients throughout the country

The Hilb Group

Handy Apple Valley

Located in Worcester, Massachusetts, Handy Apple Valley provides personal and commercial insurance products

Integrity Marketing Group

Senior Health Insurance Brokers

Senior Health is a Texas-based insurance marketing firm with operations throughout the Southwest

Plymouth Rock

Rider Insurance Company

Rider Insurance specializes in coverage for motorcycle enthusiasts

Risk Strategies

Reiff & Associates

Reiff & Associates offers customized risk management and insurance solutions for theater, television, film and media production

Markel adds new option for PEOs

Markel has introduced a new stand-alone employment practices liability policy designed specifically for professional employer organizations [PEOs]. The modular solution offers liability coverage for PEOs and their customers, with separate limits available for each. Coverage enhancements include third-party coverage, workplace violence, wage and hour defense, and immigration coverage. “The management liability space is growing more complex, and creating a policy specifically for PEOs is a need we heard directly from our customers and production partners,” said Markel’s Salvatore Pollaro.

Arch strengthens ties to Lloyd’s

Arch Capital Group has struck a deal to acquire Barbican Group Holdings and its related entities, including Barbican Managing Agency, Lloyd’s Syndicate 1955, Lloyd’s Syndicate 1856, Lloyd’s Special Purpose Arrangement 6132 and Castel Underwriting Agencies. The acquisition is expected to close in the third or fourth quarter; once finalized, it will allow Arch to expand its specialty lines and provide a material reinsurance offering through Lloyd’s for the first time.

“The acquisition of Barbican deepens Arch’s commitment to both Lloyd’s and the London market and provides our broker partners with a more comprehensive array of products and expertise,” said Hugh Sturgess, president and CEO of Arch Insurance International. “The Barbican team has built an innovative platform and valuable specialty businesses with excellent long-term prospects. We look forward to building an even more compelling combined value proposition in the near future.”

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CNA launches new cyber risk program

CNA has enhanced its suite of cyber liability insurance products and risk-control services with a new program designed to help companies take a holistic approach to cyber threats. Based on the National Institute of Standards and Technology and rooted in partnerships with cybersecurity professionals, the CNA CyberPrep program provides businesses assistance in identifying the strengths and weaknesses of their cybersecurity posture and mitigating the impact of cybersecurity breaches. In addition, if an incident does occur, CNA’s incidentresponse vendors will help manage the fallout.

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PEOPLE AXA XL expands ocean cargo coverage

AXA XL’s US marine business has partnered with digital MGU Vindati to offer ocean cargo insurance for small and medium-sized businesses through Vindati’s online platform, which is aimed primarily at insurance brokers. “With this partnership, we’re extending availability of our cargo coverage to a broader business base,” said Andrew D’Alessio, head of ocean cargo for AXA XL’s US marine insurance team. “Vindati’s online platform expands our distribution to Vindati’s relationships and gives our brokers easy access to instant, customizable quotes to address their clients’ cargo insurance needs.”

Chubb caters to professional services firms

Chubb has launched a new specialized coverage to address the risks faced by professional services firms. The new Pro ERM product combines miscellaneous professional liability, media liability, cyber liability and first-party cyber coverages with extensive loss mitigation and incident response services. “With Pro ERM, professional service firms now have access to a more fully integrated solution, enabling them to better mitigate, manage and insure their constantly evolving exposures in today’s technology-driven environment,” said Chubb SVP Christopher Calnon.

Berkshire Hathaway GUARD fights fires

Berkshire Hathaway GUARD Insurance Companies has announced a partnership with Auto-Out, a company that makes stovetop fire suppressors, to provide discounts to property owners who install the fire suppressors in all units of their apartments, condominiums or townhouses.

According to the National Fire Protection Association, a home fire occurs every 88 seconds, and cooking is the leading cause of home fires. According to GUARD, property owners using the Auto-Out system have reported improvements in claims records, resident relations and profitability.

NAME

LEAVING

JOINING

NEW POSITION

Juan C. Andrade

Chubb

Everest Re

CEO

Megan Flanagan

N/A

The Insurance Marketing & Communications Association

Executive director

Peter Foster

N/A

Willis Towers Watson

Chairman of global FINEX

Roger Francis

Aon

CFC Underwriting

Cyber claims director

Marcos Gunn

N/A

Chubb

Group senior vice president and regional president for Latin America

Megan McConnell

N/A

Hiscox USA

Chief underwriting officer

Juan Luis Ortega

N/A

Chubb

Group executive vice president and president of overseas general insurance

Robert J. Peters

N/A

Insurance Office of America

Senior vice president of insurance operations

Jennifer Waldner

N/A

AIG

Chief sustainability officer

B. Maurice Ward

Washington Partnership Council on Juvenile Justice

PEMCO Insurance

Diversity and inclusion manager

Paul White

N/A

Sedgwick

Deputy CEO

IMCA gets new executive director

The Insurance Marketing & Communications Association [IMCA] has named Megan Flanagan as its new executive director. She will be responsible for the association’s financial management, strategic planning, board and executive committee development, conference planning, and member and committee communications.

Flanagan succeeds Gloria Grove, who is retiring after six years at the head of IMCA. “We’re grateful to Gloria for her leadership over the past six years,” said IMCA board president Emily Hathcoat, “and we look forward to working with Megan on strengthening IMCA’s initiatives and continuing to provide topquality professional development, information, and connections for insurance marketing and communications professionals.”

AIG appoints sustainability leader

AIG has named Jennifer Waldner to the newly created position of chief sustainability officer. In addition to implementing AIG’s sustainability strategy, Waldner will be responsible for developing a reporting structure and leading a cross-functional team to drive global sustainability initiatives. Waldner has spent more than 20 years of her career focusing on corporate citizenship and sustainability, most recently as head of citizenship for AIG Life and Retirement.

“The creation of a chief sustainability officer position reflects AIG’s ongoing commitment to sustainability as an insurer, investor, employer and corporate citizen, along with our efforts to take a thoughtful, coordinated approach across our global footprint,” said Thomas B. Leonardi, executive vice president of AIG and vice chair of AIG Life Holdings.

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UPFRONT

WORKERS’ COMP UPDATE NEWS BRIEFS Starr makes Defense Base Act insurance available online

Starr Wright USA, a division of Starr Insurance Companies, has launched an online distribution channel for Starr’s Defense Base Act insurance coverage, making it easier for smaller contractors to purchase the product.

The coverage includes statutory federal workers’ compensation insurance and employers’ liability insurance for contractors working abroad. “We’ve simplified the application process for all full- or part-time federal contractors,” said Starr Wright USA vice president Darrell Weber, noting that an application can be completed in about five minutes.

Jimcor Agency launches temporary staffing programs

Jimcor Agency has announced several new limited distribution programs for the temporary staffing sector. Available nationally, the programs will initially focus on workers’ compensation coverage, with additional coverage lines and products to follow. “We are excited to be a new entrant in this growth market segment,” said Kristen Skender, Jimcor’s director of corporate development. “Our opportunity to expand into specialty staffing placements is well-timed ... Many specialty staffing firms are expanding to support new job growth and market expansion.”

Congress pushes for heat-related workplace standards

More than 350 workers across the US have died from heat-related illness over the past 10 years, according to the Bureau of Labor Statistics.

Furthermore, tens of thousands have suffered heat-related illnesses that have caused them to miss at least

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one day of work. To address this issue, Democratic Representatives Judy Chu of California and Raúl Grijalva of Arizona have introduced legislation that would require OSHA to create heat-related workplace standards. At present, heatrelated stress is regulated at a federal level only by the general standard that requires employers to create safe working conditions.

Pain doctor speaks out against Oklahoma workers’ comp

A pain management doctor in Oklahoma has criticized the state’s workers’ compensation law, saying it “handcuffs” doctors into prescribing pain medication.

Testifying in a recent trial for opioid manufacturer Johnson & Johnson, Dr. Terrell Phillips, president of the Oklahoma Pain Society, said the state’s workers’ comp law only allows doctors to be reimbursed for “reasonable and necessary” treatment, which excludes diagnostic tests, surgery, injections, counseling and physical therapy. Phillips added that other forms of insurance also limit the options physicians have for treating patients with chronic pain.

Waitress wins slip-and-fall claim against employer

A Michigan jury has awarded waitress Dalal Daher $235,000 for a broken elbow she suffered when she slipped and fell on tiled floor that had just been mopped at the Al Saha Restaurant in Dearborn. According to a statement from Daher’s lawyer, her injury required surgery that included the insertion of a plate and several screws, and she also developed post-traumatic arthritis in the elbow. Daher sued the restaurant for failing to maintain workers’ compensation insurance. In addition, her attorney said the restaurant’s owners “broke their promise to pay all of Daher’s medical bills.”

Cutting workplace injury costs Technological advances can help reduce the financial burden of workplace injuries According to the US Bureau of Labor Statistics, workplace injuries cost the US economy at least $1 billion per week. But new technology – in particular, new solutions that use data to handle workplace claims – is helping to reduce the costs of workplace injuries. One firm to see success in this space is Conduent, a technology solutions provider with nearly 60% market share in the US workers’ compensation market.

By helping insurers and employers implement technological solutions to mitigate risk and handle claims, Conduent has been able to keep average payments for clients within 1% year over year. This is largely due to its flagship medical bill review product, StrataCare, which integrates with claims systems, PPO and specialty networks, utilization review systems, and e-billing technology to help workers’ compensation payers and self-administered employers process bills in-house.

“Our StrataCare platform is focused on the medical spend in workers’ compensation,” explains Brent MacLean, general manager of medical claims management at Conduent.

“We have folks who are trained and specialized in medical billing, adjudication, fee schedule and coding – and their role in working with the StrataCare platform is to maximize our customers’ savings.

“Although medical costs continually go up by 5% or 6% every year,” he continues, “what our customers have been paying is relatively

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flat in terms of medical costs. That shows the strength of the platform and the millions of rules it has in place to catch egregious billing, reimburse what’s appropriate for those injuries and drive probably the most aggressive savings in the market. I think we saved our customers, across the board, about $16 billion

For example, a worker might have a left arm injury. When the StrataCare system takes that bill in, it can match the ICD-9 code and the causal relationship to the injury so the person doing the medical bill review can see that the worker injured their left arm and everything looks good. Conversely, the system

“The more we’re able to integrate with a customer and capture more data upfront … the more we can leverage automation to drive those [claim] decisions” in medical costs in 2018.”

Data is the fuel for such dramatic savings.

As MacLean puts it: “The more we’re able to integrate with a customer and capture more data upfront … the more we can leverage automation to drive those [claim] decisions.”

can flag bills that might need a specialist or a claim adjuster to review, especially if the data doesn’t match up.

“I think data is the biggest opportunity and challenge for our customers,” MacLean says.

“We have a very intensive level of integration,

meaning we can help them make the best decisions, and we can help their claim staff do more with less. Instead of seeing everything, we help our clients see the things they need to see, and then we let automation handle the easy decisions – the claims we know match on body part, we know are compensable and we know the client should pay after they go through the medical bill review platform.”

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UPFRONT

TECHNOLOGY UPDATE

Driving discrimination out of auto insurance Auto insurers are under pressure to use fair data to calculate rates. Could telematics be the solution?

telematics, telematics, telematics.

“There’s a lot of discussion going on right now with regulators around what data is fair for insurance companies to be rating on and what is discriminatory,” says Gina Minick, insurance product director at Arity. “But there’s an interesting dynamic occurring where this regulatory pressure is counterbalanced with emerging trends around telematics and predictive analytics. If regulation along

“If we dial one variable down, another has an opportunity to shine”

The auto insurance industry could soon be in for a shake-up. In July, Democratic Representatives Bonnie Watson Coleman and Rashida Tlaib introduced the PAID Act, which would bar auto insurers from using non-driving factors like ZIP code, gender, education, occupation, employment, credit score and marital status to determine car insurance rates and eligibility.

“Income proxies like where you work or whether you have a college degree don’t weed out bad drivers – they just create a two-tier

NEWS BRIEFS

system where those who make less get charged higher rates,” Coleman explained. “Working families deserve better than a system that is fundamentally unfair.”

If the PAID Act were signed into law, it would put an end to the use of data inputs that have guided auto insurance rate modeling in the past. So what data should insurance providers be using to calculate auto rates?

Since spinning off from Allstate in 2016, mobility data and analytics provider Arity has been shouting the answer from the rooftops:

Lloyd’s picks new startups for accelerator

Lloyd’s has picked a new batch of 11 insurtechs to join the third cohort of its Lloyd’s Lab innovation accelerator, including two American startups: Boston-based ClimaCell and Los Angeles-based Praedicat.

ClimaCell is a ‘microweather’ technology company that uses the Internet of Things to collect millions of weather observations, allowing it to forecast weather that others cannot. Praedicat, meanwhile, uses technology to read, curate and quantify data to identify emerging risks for both humans and the environment.

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the lines of the PAID Act passes, we’ll see some of the traditional variables go away as proxies of risk, and we’ll see telematics and driving behavior data emerge more primarily to help insurance companies achieve their goals of giving drivers fair-priced insurance to get on the roads.”

ZIP code is one variable that has long been used in auto insurance rate equation. This has led to drivers in places like downtown Detroit having to pay average premiums of almost $2,700, according to Rep. Tlaib.

“I would assume if we moved away from a rating code that didn’t allow ZIP code, for example, that would actually allow more predictive power to emerge in terms of how people drive,” Minick says. “If we dial one variable down, another has an opportunity to shine and be leveraged in a more robust way.”

Insurtech investment remains buoyant

Investment in insurtech companies remained high for the second quarter of 2019. According to Willis Towers Watson’s latest Quarterly InsurTech Briefing, the quarter saw 69 insurtech deals with a total value of $1.41 billion. This marks the fourth consecutive quarter where total new funding commitments exceeded $1.2 billion. WTW also found that the value of investments in P&C-focused firms spiked by 283% year-over-year, and the number of strategic investments by insurers and reinsurers hit a record high.

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Q&A

Ilya Bodner Founder and CEO

Getting bold in commercial insurance

BOLD PENGUIN

Years in the industry 16 Fast fact In July, Bold Penguin inked a new partnership with Nationwide that will give the insurer’s commercial P&C agents access to Bold Penguin’s digital portal

What does Bold Penguin bring to the marketplace?

Bold Penguin is a technology company that enables and enhances the human touch in commercial insurance. We’re focused heavily on agents and trying to upgrade the user experience. Commercial insurance is predominantly bought and sold through the independent agent channel. Those agents often have a tough time technologically integrating and working with insurance companies, and insurance companies have a hard time deploying new technologies to make it easier to be dealt with. Bold Penguin is the middle layer connecting the two sides.

We’re focused on the quote-to-bind part of the insurance cycle. When agents shop around for a risk or a quote, they often run into a number of different processes. Every insurance company has their own way of taking in a submission or asking the underwriting questions. We try to streamline as many of those workflows as we can so brokers can save [the time of] following different processes. For the carriers, we’re helping them smooth out how they capture the necessary information to move the sales process forward. In many ways, we’re a pretty basic ‘blocking and tackling’ type business. We like to joke about fighting pen and paper every day. Anything we can do to smooth out the process, we are doing.

Tell us about your partnership with Nationwide.

Nationwide, like many other insurance companies, has

GloveBox links up with Safeco Insurance

GloveBox, the developer of a mobile app that allows consumers to access insurance documents on their phones, has formed a partnership with Safeco Insurance to give its customers mobile access to their documents. The two companies will also exchange proprietary information in a bid to enhance the customer experience. “The ability to work with such a highly touted carrier on this next stage of our evolution will ensure we are maximizing ease and clarity for the consumer,” said GloveBox CEO Ryan Mathisen.

a need to offer modern technology to its ever-growing independent agency channel. It has strong excess & surplus lines capabilities and several niche products that make it a key small commercial insurance writer, and our technology will enable Nationwide to roll out an easier-to-use platform for quoting and binding, which will complement its strengths in these areas.

Will E&S carriers be able to use your platform, too?

If you want to take on the challenge of smoothing out commercial insurance, you simply cannot set aside E&S. Being able to find a happy path for everyone that starts with the quoting experience requires a solution that incorporates E&S. We’ve been working on our E&S initiative for about a year, and we’re very excited to launch something in collaboration with Nationwide.

What’s your message to technology naysayers?

I deal with technology naysayers every day. At first I tried to fight it, but now I’ve learned to embrace it, and I try to break it down. It’s hard to bring technology into play, especially when it comes to excess & surplus lines, but once you break it down, it quickly becomes clear that the hardest complexity exists in workflows.

At Bold Penguin, we’ve taken the approach of starting small with things that should be automated through a process. We’re taking everything in bite sizes; it’s a game of inches more than anything.

The Hanover uses drones and AI to improve claims

The Hanover Insurance Group has partnered with data analytics company Loveland Innovations to use Loveland’s drone and machine learning tools to improve claim data quality and speed up service times. “The team at The Hanover puts a great deal of emphasis on the role technology can play in improving the insurance solutions they provide to their agent partners and customers,” said Jim Loveland, founder and CEO of Loveland Innovations. “We’re glad to be a part of how they’re redefining their claims process.”

Verisk launches Sequel product suite in the US

Verisk has brought its Sequel product suite to the US. The suite, which serves the Lloyd’s, London and global specialty markets, includes web-based analytical engine Sequel Impact; workflow management tool Sequel Claims; and pricing, underwriting and distribution platform Sequel Rulebook. “We are pleased to bring the Sequel product suite to the US to further enable our specialty market clients to achieve profitable growth and optimize their business strategies,” said Sequel CEO Ian Summers.

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UPFRONT

OPINION

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

Beyond branding Image is important – but reputational risks can’t be addressed by the marketing department alone, writes Nir Kossovsky HAVE YOU heard this story before? A company sources product in a country with well-known lax workplace safety rules, no minimum wage and no prohibition against child labor. The company’s in-country supply chain partner gives assurances of ethical management, consistent with the company’s values. The company’s risk management apparatus, mindful that any incident could damage the company’s reputation and lead to consumer boycotts, concludes that the potential uproar is a marketing problem. The company launches a major corporate social responsibility campaign, spending millions building schools in developing countries and publicizing its commitment to education.

What could possibly go wrong with this practice in today’s ‘woke’ society? For starters, when the death of a child in a workplace accident while working an 18-hour shift generates a massive public reaction, is the company’s reputation going to be protected by the fact that it’s built some schools? Or, in an era of rampant charges of greenwashing, social responsibility posturing and virtue signaling, is the damage going to be even worse because the company raised expectations of ethical behavior without addressing the underlying issues?

Finally, if that same company disclosed a year ago in its SEC filings that it was aware of material risks to its reputation due to these issues and appointed a board committee to address it, who do you think will be in the crosshairs when the stock takes a dive? Directors and other members of corporate leadership.

Between June 2018 and June 2019, 25 complaints alleging at least partial board-level

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responsibility in connection with corporate reputational damage were filed or amended in federal court, according to industry publication Agenda. How many were filed the year before? Six. Ninety percent of S&P 500 companies cite reputation as a material risk in their public filings, but most put the responsibility of reputational risk management into the hands of their marketing departments.

Marketing is not risk management.

Marketers can develop and promote an aspi-

holders have had their expectations raised unrealistically and can harness the resulting anger. Board members and corporate leadership pay the price as the personal targets of these litigations and proxy fights.

That’s why reputational risk should be placed under the same umbrella as other types of enterprise-wide risk – under risk managers who have access to every aspect of corporate operations and the internal clout to bring together resources from disparate departments within the company.

Marketing and communications need to be part of the picture. When crises hit, coverage in the media fuels the fire. But that is a byproduct of the crisis, not its cause. The company under attack for sourcing products from factories that engage in abusive child labor practices faces a crisis not because of the media coverage, but because of the business decisions and governance – or lack thereof – that caused the media to cover the story in the first place.

Risk managers understand this phenomenon and know the value of credible, objective, disinterested third parties who can vet corporate claims and validate their authenticity. They

“Marketers can develop and promote an aspirational image of a brand, but they have little impact on the operations and governance practices that define it” rational image of a brand, but they have little impact on the operations and governance practices that define it. Companies such as Goldman Sachs and Boeing, each of which invested upwards of $1.5 billion on various social initiatives, have discovered the hard way that such investments are poor substitutes for real risk management.

Reputational risk, in its crudest form, is the peril of economic harm from angry, disappointed stakeholders. Marketers, in their zeal to satisfy one objective, may inadvertently undermine another. Credibility requires authenticity, and aspirational marketing can actually undermine credibility. Activist investors and plaintiffs’ lawyers can tell when stake-

are already familiar with the types of insurance products that do just that and their historical importance as a tool that bolsters corporate reputations and stakeholder confidence.

When a crisis hits, stakeholders want to know that the company mitigated the risk.

Insurance products, undergirded by solid underwriting, send that message for reputational risk as they have for other types of risk throughout history.

Dr. Nir Kossovsky is CEO of Steel City Re, which analyzes the reputational strength and resilience of companies and provides them with tools to mitigate financial losses when reputational crises occur.

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PEOPLE

INDUSTRY ICON

AHEAD OF THE PACK As AXA XL continues to merge divisions across the globe, insurance veteran Kelly Lyles is leading her teams to success

IN MORE THAN three decades in the insurance industry, Kelly Lyles has seen her fair share of market-moving activity.

Currently the London-based chief executive of client and country management for AXA XL, Lyles was there for XL Group’s acquisition of Catlin Group back in 2015, as well as for French insurance giant AXA’s blockbuster acquisition of XL last year.

Lyles’ responsibility of overseeing client relationships and country operations in Asia, Europe and the Americas is no easy feat; doing so as part of the leadership team charged with creating the number-one P&C commercial lines platform in the world is another challenge altogether. But her years of insurance expertise have prepared Lyles for this monumental task.

“I started at AIG in 1985 when I joined their graduate program right out of university,” she says. “I had a really good training basis at AIG. They put you through all the different functions, [and] you spend a little time in each. I started as an underwriter, and then I moved to London in 1990, again as an underwriter, to write UK D&O.” At the time, AIG didn’t have many underwriters working on the D&O line in that market, which made the task of crafting policies that much more interesting.

“It was really exciting to move here at

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a time when UK D&O was just taking off,” Lyles says, recalling how the team was creating a need for the product while also developing a theory of liability. “It was fun to be at the front end of a nascent market and on the cutting edge of creating something new. I often look at that as one of the most creative and rewarding times in my career.”

Climbing the ladder Even though Lyles admits she knew little about insurance before she entered the

couldn’t exist without insurance to take away the volatility.”

From D&O, Lyles made her way to running financial lines and then commercial lines. After a four-year stint in Paris with AIG, she joined XL, drawn by the caliber of the company’s leaders.

“At the time, I just fell in love with leadership at XL, which was growing quite a bit, and I thought that [CEO] Mike McGavick and [president and COO] Greg Hendrick packed a punch in terms of their leadership,”

“One of the neat things we did is we decided to invest in a client management function.

We didn’t have one ‘AXA XL way’ of handling clients, so that’s one of the things we’re building for next year” industry, she says it ended up being the perfect match for her skill set.

“I wanted to do something that was a mixture of analytical skills and your own sales skills and personality,” she says, although she quickly learned about the value of insurance.

“It never occurred to me that businesses

Lyles says. “I thought that was the type of innovative, nimble company that I wanted to [be a part of ], so I joined them in September of 2014.”

Today, in managing AXA XL’s insurance presence around the world, Lyles leads teams in units such as strategic client and broker

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PROFILE Name: Kelly Lyles Title: Chief executive, client and country management Company: AXA XL Based in: London Years in the industry: 34 Industry accolades: Lyles was recently named Insurance Woman of the Year by the Insurance Industry Charitable Foundation and Association of Professional Insurance Women

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PEOPLE

INDUSTRY ICON

management, global programs, captives, and portfolio solutions. She is also an award winner, recently walking away with the Insurance Industry Charitable Foundation and Association of Professional Insurance Women’s 2019 Insurance Woman of the Year Award.

Merging of the minds The process to combine AXA Corporate Solutions, AXA Art, AXA Matrix and XL Catlin is still ongoing. Much like AXA XL’s focus on innovative solutions, this move has required an out-of-the-box approach to problem-solving.

“We’re still very much in integration,” Lyles explains. Since October 2018, about

so I think the first thing is, bravo to all of our colleagues who navigated a challenging time.

Now we can start implementing.”

As part of this merger of teams, particularly for those that Lyles oversees, all country leaders will be putting operations in their countries together and will now be charged with determining a single process for how to deal with captives and global programs and introduce new functions.

“One of the neat things we did is we decided to invest in a client management function,” Lyles says. “We didn’t have one ‘AXA XL way’ of handling clients, so that’s one of the things we’re building for next year.”

Ultimately, AXA’s purchase of XL was

“So far, we’ve been really successful, and that’s without really being able to do very much ...

That bodes well for the future when we’re able to roll up our sleeves and start working with the legal entities” a month after AXA’s acquisition of XL was finalized, the company’s executives have been consulting with AXA XL’s works council, which represents the interest of workers and is affiliated with a trade union. The executive team has had to outline to the council what the company’s target operating model will look like, where the overlaps were and whether there would be redundancies. That consultation process only wrapped up earlier this summer, giving AXA XL the go-ahead to kick off its global integration.

“We’re just coming out of it now, which means we can start to name [leaders] in countries, but we had to navigate the challenges of integrating different teams and systems while operating as separate companies,” Lyles says. “At times that’s been tough,

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predicated on revenue synergies – the company recognized the fact that as AXA XL, it can do even more for its global clients.

“There’s the ability now for XL Catlin to offer an AXA motor product to clients, or to provide them climate or parametric products, or to offer clients employee benefits – all of the things that AXA has that XL Catlin didn’t have, as well as some of the specialty products that XL Catlin has that AXA didn’t have,” Lyles explains. “We’re very involved in that cross-sell initiative and how we just write more business. So far, we’ve been really successful, and that’s without really being able to do very much because of the consultation period. That bodes well for the future for when we’re able to roll up our sleeves and start working with the legal entities.”

THE PATH TO AXA XL

1817 The Ancienne Mutuelle group, which would later become AXA, is founded in France

1985 AXA adopts its current name

1986 EXEL Limited, the precursor to XL, is founded in the Cayman Islands

2010 XL changes its name to XL Group

2015 XL Group acquires Catlin Group and becomes XL Catlin

2018 AXA acquires XL Catlin and renames the company AXA XL

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30/08/2019 3:59:03 AM

SPECIAL REPORT

ROUNDTABLE

Robert Bauer

Marsh Christiaan Durdaller

INSURETrust

EMERGING RISKS & INNOVATION ROUNDTABLE 24 24

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Linda Hamilton

Proven Data Jeremy Barnett

Tokio Marine HCC

Paul King

USI Insurance Services

Five insurance leaders came together at IBA’s recent Emerging Risks & Innovation Summit to discuss how the industry can best approach a host of evolving threats and opportunities EVERY YEAR, there seems to be one overarching factor or challenge that impacts the way the insurance industry approaches new and emerging risks. But in 2019, the changes are coming from every angle. Technology is evolving at a rapid rate, and those who fail to adapt to this digital era face the real risk of being left behind. From job automation to fintech, technology is forcing organizations in all sectors to rethink their approach in order to compete. And with new technology comes a whole new frontier of risk. Insurance has to get

a handle on new developments quickly – so is the industry doing enough to protect its business clients?

To find out, IBA invited five leading insurance industry figures to join a roundtable at the recent Emerging Risks & Innovation Summit in New York.

The panel discussed a wide range of timely topics, from how they’re staying on top of innovation and disruption from new business models to how they’re forging partnerships with cyber vendors to best serve and protect their clients.

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SPECIAL REPORT

ROUNDTABLE ROUNDTABLE PARTICIPANTS

Robert Bauer Practice leader, US sharing economy and mobility practice Marsh

Paul King SVP and national technical director of executive and professional solutions USI Insurance Services

Christiaan Durdaller Executive vice president INSURETrust

Jeremy Barnett Senior vice president of marketing and business development Tokio Marine HCC cyber and professional lines group Linda Hamilton Cybersecurity client operations manager and OFAC compliance officer Proven Data

MODERATOR Alicja Grzadkowska News editor Insurance Business America

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INNOVATION IN 2019 Alicja Grzadkowska: Insurance is a notoriously slow-to-change industry.

What has your organization done to stay at the forefront of innovation?

Robert Bauer: Marsh is all in on innovation.

We’re all in from a digital standpoint, and it really starts with our customers. Our clients call us and challenge us with new risks, like car sharing, which is new because you’re actually sharing the unit – putting your car on a platform and allowing someone to rent it peer-to-peer. OEMs are putting cars on platforms; dealers are putting cars on platforms; scooters are also coming – that’s mobility today. But now we are seeing new risks like boat sharing, RV sharing and farm sharing, the trigger of which could be how the previous tenant treated the soil. So we are being forced to understand insurance policies in a completely different way.

In order to stay apace with our clients and those yet to be clients, we have to keep up. So it’s not only digital; it’s being SEAL-like in how we deal with those risks and putting a strike team of experts around it so that we can figure out the risk, decide what the right structure is, figure out who the right markets are, whether a third party comes into play and what the price looks like.

Linda Hamilton: As a vendor, it is very similar. At Proven Data, we are having more people come to us for ransomware assistance – they need help. We are constantly seeing hackers change how they’re attacking, whether it’s the attack vector that’s changing or they’re doing more damage when they’re in the system. We are seeing that we need to stay ahead of that. As soon as we start to see a case that indicates a change in behavior, we need to jump on that in terms of how we’re responding.

We have started an analytics platform that’s in the works right now in order to try and track that risk and stay on top of risks both for the client and for insurance.

AG: How has your organization stayed at the forefront of cyber innovation?

Paul King: On the ransomware front, there is obviously knowledge of the threat and knowledge that something has to be done and that it can’t be what’s been done previously.

There has to be a drill down into where those next-level solutions are. Is that stopping the attack initially? We have solutions for that and training, actual software, and, in some cases – depending on the attack hardware solutions – we can now offer our clients the referral relationships to address those issues without insurance itself coming into play. If the insurance policy is triggered, then what does the response look like, and how effective is it going to be? Right now, we are working on drilling down into vertical issues that we address where those tools are taken to the next level.

If there is a bodily injury component within a particular class of business and it is something we can address now, what is the next iteration – where does the next bodily injury risk come from? Obviously, on a construction site, it is pretty obvious. If a cyber incident happens on the control structures, things can fail. What if a subcontractor caused that? How do we specifically address that risk and align it with the contracts and service-level agreements? Those are the things we are trying to marry up.

Jeremy Barnett: At the Tokio Marine HCC cyber and professional lines group [formerly NAS Insurance], we are purposebuilt to be innovative as a specialty insurer.

Our whole reason for being is to be able to address emerging and new risks. Looking at that through cyber, we’ve been in the business a long time but constantly evolving it, and I think that manifests in two different ways. The first is distribution. As a cyber underwriter, we found a means of attaching cyber coverage to other traditional coverages – we call it our reinsurance model. Where other carriers offer to thousands of their insureds, we attach a small cyber limit to ensure there’s cyber coverage going out to small businesses through other mechanisms rather than straight distribution through the brokerage market.

Also, on all of our products, we don’t just provide innovation in coverage; we provide innovation in services. The whole idea of being able to create preventative services and risk

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30/08/2019 5:52:37 AM

SPECIAL REPORT

ROUNDTABLE management services and work with emerging service providers on breach response or incident response, it is constantly evolving. On all sides of our business, innovation is inherent in our DNA. Christiaan Durdaller: We have been around since 1997 and have seen a lot of different sides to the business. We started as an underwriting company on behalf of AIG in 1997 – pretty unsuccessfully, frankly. The product was built for a company called S1 out of Atlanta, which focused on online banking technology, and there were very few adopters of cyber in the late ’90s and early 2000s. Post9/11, there was a $40 billion extraction from the insurance industry, and we got capital reallocated, paper pulled, and we moved on to what we are today, which is to be a specialty broker for the product.

A big part of what we’ve done over the course of the past 22 years is building analytics around what policyholders carry. Buyers in all segments are dying for data to understand what their peers are buying and how they are losing: What different forms of protection have folks lost at different points of time?

Over the course of the past six or seven

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years as a specialty broker, we have had a lot of success, but it came out of a lot of years of very little success. What we’ve learned from that process is that, through the failures, we have built mass data sets of analytics that can really benefit buyers in a market where I think knowledge is key. It is very much a misunderstood market. We read and hear about claims

right now, and we are seeing a lot more regulation on things like Bitcoin and making sure your vendors who are using it are not paying terrorists without doing any vetting or running that through software to look for connections to sanctioned wallets. That is a really important piece we are seeing up and coming, and we are going to see more and

“We’re all in from a digital standpoint, and it really starts with our customers. Our clients call us and challenge us with new risks” Robert Bauer, Marsh every single day where people say, “Is cyber even worth the paper it is written on?” because the New York Times or some other publication is putting something out about a policy that was not meant to cover a certain type of loss.

LH: Being innovative in following regulations or trying to predict where we see regulations going and what we are doing to ensure our insureds and clients are following regulations – that is very important. OFAC is huge

more Bitcoin wallets being sanctioned.

JB: Are you guys owning and managing Bitcoin wallets to pay on ransomware?

LH: We do. We hold Bitcoin in our wallet to help facilitate a payment if that is needed.

However, before we make any payment, we have a program that we follow. A lot of steps have to be followed to ensure we are doing everything we can to see where these IPs are coming from. In some instances we are able

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SPECIAL REPORT

ROUNDTABLE EMERGING CYBER RISKS Negative search engine optimization, cryptojacking and new dominant strains of ransomware are just some of the cyber threats facing businesses today. As these emerging risks continue to evolve, cyber insurers are trying to keep up in providing effective expertise. As a result of the progression in cyber crime, cyber insurance is transforming to become more than just a policy, and its experts’ roles are likewise changing.

to tell, and in some we are not, but when it comes to the Bitcoin wallet to make a payment, we are running it through software to see the trail and where it goes. Is there a connection? You see what comes in and what goes out of that wallet.

The hard part is some wallets are brand-new, and you might not have any way to tell where it is going, but on any wallet that has prior transactions, we are running it though to see where it is going and coming from. Now, we might not know who that is, but we will know for sure if it is one of the sanctioned wallets. If it is, we will tell them absolutely not, we cannot make a payment on this.

ALWAYS ON THE MOVE AG: What disruptive new business models have been demanding the most specialized coverages?

RB: One statistic that keeps me up at night and excited is that if you look at all the rides, public and private, that happen in the US, according to the National Highway Traffic Safety Administration, 60% of those rides happen in five-mile distances or less. And that is the reason I think these micromobility solutions, whether it be bikes or scooters, are exciting. Just as you get comfortable as insurers with rideshare, then things like Uber Pool and Lyft Line start. And then comes micro-mobility – scooters and bikes.

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That is exciting, but there aren’t solutions today that are readily apparent for riders.

There was an article in the Journal of the American Medical Association recently about scooter injuries at a Santa Monica hospital.

Maybe that is a comparison to some of the things you guys are seeing on the cyber side in terms of number of breaches, the severity of breaches and what happens next.

JB: The area where we’re seeing the expansion of cyber coverage is into places we never would have expected. Looking back at healthcare, the idea of protecting patient data made sense, and there needed to be some sort of insurance should that information get released. It’s gotten to the point now where we’re providing cyber insurance for small farms because they have internet-connected sprinkler systems or greenhouses or storage facilities, and if any of those become corrupted, it could damage their product.

It’s not where people saw the evolution of cyber going, but suddenly we are writing these risks that need general liability, but the cyber component is so important because everything is run by software. Every business is a software business; I don’t care what you’re doing. And if you have software running in any part of your operation, you need some type of cyber protection. That’s where it gets very interesting when you think about underwriting the risk of innovation when someone is trying to come up with XYZ pharmaceutical or a new service. There is an underlying risk of technology because they are relying on a mobile app or internet connectivity or their email, and if that gets corrupted, it interrupts their business, and suddenly it’s a cyber claim.

PK: There is an interesting intersection going on right now … you are trying to underwrite something that we would think is an attack of some kind – someone looking to extort money or to enrich themselves through malfeasance. What is interesting is something I first read about a couple of weeks ago: blockchain stuffing. It manipulates the laws – the things put in place by GDPR and CCPA – that say clearly that you have to have ready access to my information, and that information has to be readily accessed so it can be destroyed if I choose to not want it in your

possession any longer.

The blockchain is the antithesis of being able to do that – once it goes into the chain, it is impossible to extract data … without extremely costly measures or going into a brand-new chain. We’re now seeing attack vectors exploiting the new laws to cause a loss to others or an inability to use a certain technology. This is an insidious type of usage of technology, but that’s where we’re moving.

LH: Hackers are not stupid. They go after hospitals because they know there is protected health information involved, that there are regulations in place that require them to have that data. If a hospital is hit with ransomware and all of the files are now encrypted, the hospital needs that data back.

They need to know how to treat patients, but they are also required by law to always have that data at any point in time. If their backups are hit and they have no other means to provide that data, they are going to have to make that payment in order to get the data; otherwise, they are looking at so many potential lawsuits. That is huge.

But we are also seeing anything that is internet-based facing a huge risk. In a winery, you have your thermostat – if that gets hit, you have a huge issue. You could ruin years’ worth of work in the blink of an eye. We are seeing a major branching out of what’s affected and how that is affecting companies and hitting cyber.

AG: Have you also noticed that branching out in terms of the sectors or the kinds of companies that cyber risk can now impact?

‘

CD: Definitely. In terms of innovation, cryptocurrency is something that overlaps in different types of coverage. Telemedicine is certainly another segment where we are seeing an overlap in types of cover. We have so many different lines of coverage still picking up cyber at some capacity that we are running into issues where multiple brokers will be working on an account, and things are missed because different people are seeing different sides of the equation.

There is a notable one that was in the New York Times recently labeled as a cyber loss, but

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SPECIAL REPORT

ROUNDTABLE

when you look at it, rumor has it that the client in that case was offered cyber year after year but refused to buy and tried to rely on property coverage. Innovation is needed, not necessarily just for cryptos or rideshare or telemedicine, but also in terms of understanding what the entire insurance package covers for any specific risk.

BEST PRACTICES AG: In what ways have new and emerging risks impacted the work you do and your best practices?

RB: We talk a lot about – and act on – the culture that is necessary to hire for and maintain. If you were creating an organization that has been around for 100+ years and wants to be around for another 100 years, what is the heartbeat and culture that needs to be created?

Who are we attracting? What types of mindsets? Because if there is one thing we can all agree on, it’s that the world keeps getting more complex, and nothing we had on the shelf

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O

“We are seeing a lot more regulation on things like Bitcoin and making sure your vendors who are using it are not paying terrorists without doing any vetting” Linda Hamilton, Proven Data yesterday is going to be perfect for a fit for the risks we are going to see tomorrow.

We have to keep reinventing how we treat our customers, how we hire for that and who we are as an organization. So really, at its core, it’s the growth mindset type individuals that we all are after. That sounds like a squishy answer, but it’s the part on the agenda that sometimes get skipped. But … if you are really trying to build for the future, I don’t think we can ignore it.

PK: It’s a morphing threat, and it’s tough, but there are three ways to do it. When you come from the more regimented systems at some companies, you see a difference in operational structures, but you also see things

that are true across organizations. Number one, you have to have those experts who want to understand threats today and what they mean for tomorrow. That leads to part two, which is how you distribute that knowledge internally, because how many people we can see in a week or a month, even reaching out through electronic channels, it is still a limited number. If you can’t distribute that knowledge and that differentiating understanding throughout the organization, you are already behind because there are people already doing that.

The third piece would be that we have got to a do a better job in the tools that we negotiate with our carrier partners, the tools that

A

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RT BINDING

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SPECIAL REPORT

ROUNDTABLE “With [cyber] coverage becoming easier and easier to obtain, there is less of a push to make it a full risk management solution ... Until [a cyber attack] happens, for so many business owners, it is a tough line to conceptualize” Christiaan Durdaller, INSURETrust we work on that are based on real claims, that are trying to address real issues. We have put these things together, and we can’t force you to sign up and sign your employees up and to do the trackable and scorable testing. Larger companies that understand the risk are going to do that, but it is the middle-market space that is really taking it on the chin in many cases. The take-up rate is absolutely abysmal.

For pre-breach tools, it is sub 10%, and that is all clients from all carriers. Those three things sound relatively simple, but it takes a lot of time and a lot of investment and willpower to

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get that done.

CD: With coverage becoming easier and easier to obtain, there is a less of a push to make it a full risk management solution. Now you are getting quotes for $100 million companies based on the name, website and revenues. It’s just the nature of this market.

There are so many folks in the market, and unfortunately you can educate until you’re blue in the face, but until [a cyber attack] happens, for so many business owners, it is a tough line to conceptualize.

LH: Clients are not able conceptualize the

risk until after the fact – they are not seeing how important it is to even have cyber coverage. I can’t tell you how many people I say to, “Go take a look at your policy – you might have an endorsement; you might have some sort of reinsurance. Go check with your broker or agent; you need to double-check.”

I am always telling people that because when they have a ransomware incident, so many coverages are hit – they are going to have to have cyber extortion, data recovery, income loss, notification. There are so many hit on one incident, and it isn’t until it happens to them that they realize they need to go out and get comprehensive coverage and not cut corners.

JB: The biggest thing we’re doing is embracing the notion of using data to support underwriting efforts. In a competitive marketplace, turnaround on submission is essential to try to win the business, but if it requires underwriting time to do an evaluation and do the research, it slows down the process.

Somebody may come in and underwrite it a little recklessly, but they may get the business.

A lot of us are trying to figure out how we

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PERSONAL LINES

30/08/2019 5:53:10 AM

SPECIAL REPORT

ROUNDTABLE

CYBER COVERAGE TIPS Cyber liability forms often don’t contemplate connected devices, so insurance professionals with commercial insureds using the Internet of Things need to make sure they’re addressing their clients’ IoT-related risks. More broadly, companies should purchase cyber terrorism and business interruption coverage to protect against potentially larger cyber incidents in the future as technology use accelerates. To further mitigate risk, businesses should implement employee training to help employees understand the vulnerabilities if they connect their IoT devices to the company’s network, as well as stay aware of the third-party vendors they’re bringing inside their doors.

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“If there is one thing we can all agree on, it’s that the world keeps getting more complex, and nothing we had on the shelf yesterday is going to be perfect for a fit for the risks we are going to see tomorrow” Robert Bauer, Marsh can use third-party data to help us automate some of the underwriting processes where we can correlate things like a D&B rating or individual credit rating or information from Lexus Nexus that gives us good information and helps us turn around a quote a lot more quickly with more intelligence and is more relevant to a risk factor than some of the gut-check underwriting stuff we do today.

That is going to be a major shift – not just in cyber, but in everything we do. We are seeing it happen in personal lines first because there is massive data and history, but also across professional lines. I think we will see a lot more automation in underwriting.

AG: What partnerships with thirdparty vendors are significant to

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SPECIAL REPORT

ROUNDTABLE

supporting your clients, and how can brokers best serve their commercial clients with new and emerging risks?

RB: Partnerships are really important. In an autonomous ecosystem or mobility future, where I may be going from using a bike or scooter to a bus and then to a car that someone else owns, first you need a partner with those systems and to figure out who holds what risk at what time. Think about how the systems need to be put together.

We also need to think, on a parallel basis, about how the risks are shifting and therefore what are the coverages that need to be structured around those risks, and then how does the price need to follow? I am all in on partnerships – we just have to pick our partners and stay with them over the long term, and that’s where I think we are testing each other right now.

LH: We call it our partner program when we work with other companies. When you have partnerships, you are not just looking at

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“Having referral partners is really powerful.

We’re not going to have the expertise in-house to do everything ... It means we can offer solutions and not just ideas for solutions” Paul King, USI Insurance Services reducing your cost, but you are also looking to partner with someone who is vetted, someone you want to stand with and send your insureds to because you know they’ll be taken care of.

That relationship is essential – knowing that the agent, the insurance carrier, the client, IT and the breach coach are all going to work with whatever company you are working with.

That partnership does so much for decreasing additional losses because if you know who to send them to and you know how they’re going to handle it, then you’re already reducing downtime, and that’s essential to

getting a company back up and running as quickly as possible. That’s when they will be happy with their coverage – it makes a huge difference.

PK: Having referral partners is also really powerful. We’re not going to have the expertise in-house to do everything. We take a deep dive every 18 months into the major areas of concern that we know the majority of our clients are facing. What do they want? We know we have pre-imposed services, and we know they’re good. But moving beyond that, because this is a very dynamic risk type, what

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“The thing about innovation and emerging risks is that there are partners today that weren’t around six months ago – and a year from now, there will be something new” Jeremy Barnett, Tokio Marine HCC do we need to show and who do we need to align with to provide a discounted rate or special services? Who do we line up with and why to help us address issues? It means we can offer solutions and not just ideas for solutions.

CD: We deal with things in-house as much as we can, and we partner where we can’t. We have built a vast database of analytics internally, but utilizing some of the insurtech players externally and partnering with them … has been extraordinary beneficial to getting the vast majority of the market to understand what they are buying and why they are purchasing the limits they are.

The other aspect for us has been building our INSURETrust preferred panel providers for the clients who opted out of buying coverage.

We do run into, unfortunately, a fair amount of people – whether it is small or unsophisticated buyers or large multinational companies or public universities; we see it in all segments – who haven’t bought coverage who experience a

40

loss and have no idea what to do. They remember we had the conversation about coverage, and they want access to someone who knows what they’re doing. Analytics, for us, is a part of that.

JB: It’s always evolving. In our space, the thing about innovation and emerging risks is that there are partners today that weren’t around six months ago – and a year from now, there will be something new, and we have to keep up to speed with who knows what and who is trustworthy and who services clients well. In any part of the value chain in insurance services, we have to stay on our game.

CD: It’s a daily balance of innovation versus experience because you have folks who have something very different and materially impactful to a buyer, but it is a tough balance because it is changing. You do have to innovate – you cannot stay where you were yesterday.

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FEATURES

BROKERAGE INSIGHT

Community spirit Heiner’s Insurance Center VP Christopher J. Heiner tells IBA about the importance of supporting local causes as an independent agency

IBA: What’s the history of Heiner’s Insurance Center?

Christopher J. Heiner: Heiner’s Insur-

agency’s Cruisin’ for a Cause classic car show?

CJH: At Heiner’s Insurance, our company

ance Center has been in business in Ogden, Utah, since 1948. My great-grandfather was working for a finance company that did auto and home loans. He decided it made sense to offer insurance as well, so he got his license and later started Heiner’s Insurance.

I’m the fourth generation to work at the agency. My grandfather still owns the agency, and my dad and I are vice presidents. Over time, we’ve grown into one of the biggest independent insurance agencies in Ogden.

slogan is “We pay for ashes and crashes.” A dream that my grandfather always had was to own an antique fire truck. We eventually bought one – a 1938 semi fire truck – which we restored, and then we started putting it in parades and classic car shows.

When I was at these car shows, I saw some booths for captive agencies like Allstate and State Farm, and I started thinking, we have a lot of markets that will write these classic antique autos on better forms than some of the captive agents, or at least with a better rate, so why can’t we do something like this?

Rather than getting a booth in a car show, we decided to host one ourselves and also find a way to give back to the local community at the same time.

IBA: What’s the secret to your success as an independent agency?

CJH: We like to pride ourselves on our services and our relationships. We believe we work with the best carriers out there. We have a lot of markets that other agencies in Ogden do not have, and I think we probably have more carriers than most other agencies in the area do. If one of our customers is unhappy with their carrier, we can usually find them another carrier that we write with to keep them happy. So our success stems from the services that we provide.

We’ve just held our fourth annual Cruisin’ for a Cause car show. We had almost 70 cars there, and we raised close to $1,500 in total donations for the Family Counseling Service of Northern Utah. It was a very successful event. Year after year, we are ecstatic to see the community come together at a car show that benefits a great cause.

We love seeing the look on the faces of people of all ages when they see a car they recognize. It’s like catching a glimpse of a celebrity. We think it’s a wonderful way to give back to the Ogden community, especially since they’ve been so kind to us and have supported us for over 70 years.

IBA: Why do you think it’s important for independent agencies to be a pillar of the local community?

CJH: Competition in insurance is fierce right

CRUISIN’ FOR A CAUSE As part of its fourth annual Cruisin’ for a Cause event, Heiner’s Insurance Center donated proceeds to the Family Counseling Service of Northern Utah, a nonprofit dedicated to improving the quality of life for residents of Northern Utah by providing affordable mental health counseling to individuals, couples and families, regardless of income.

“Heiner’s Insurance Center has had a very long relationship with Family Counseling Service,” Christopher Heiner says. “In a time when mental health issues seem to be increasing in severity, especially in schools, we feel this is a worthy cause to support.”

IBA: What’s the story behind your

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Left to right: Vice president Christopher J. Heiner, president Calvin J. Heiner and vice president J. Shawn Heiner

HEINER’S INSURANCE CENTER’S BOOK OF BUSINESS

33%

Personal lines Commercial lines Life and health

40%

27%

now. The captive agents and direct players have a lot of marketing power behind them, which is difficult to compete against. We may not be going for a national audience, or even a state-wide audience, but we can still let the community know that we’re here, we’re part of this community, we’re willing to write their business, and we’re supporting local causes.

“We may not be going for a national audience, or even a statewide audience, but we can still let the community know that we’re here, we’re part of this community, we’re willing to write their business, and we’re supporting local causes” Photo by Crystal Leaf Photography

IBA: How is Heiner’s Insurance adapting for the future amidst such fierce competition?

CJH: I think being involved in the community is extremely important. We also have to educate our clients to let them know we’re not just trying to sell insurance on price or on coverage, but we’re trying to sell them a product that best fits their needs and their situation. The more the client understands that, the more willing they are to trust our judgment in those areas.

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FEATURES

WHOLESALE E&S MARKET REPORT

WHOLESALE E&S MARKET REPORT 2019 Amid a constantly shifting insurance landscape, the wholesale market continues to grow and shows no signs of slowing down. IBA’s Ryan Rose takes a look at what’s driving the growth and how brokers can capitalize on it EVEN AS natural catastrophes and political tensions increase, the US surplus lines market continues to perform well. According to the latest mid-year report by the Surplus Lines Stamping Office of Texas [SLTX], mid-year premium growth nationwide reached almost $18 billion – a 12.7% year-over-year increase.

In addition, 14 of the 15 E&S stamping/service offices across the US saw premium increases, while 13 recorded increases in policy filings. In addition, A.M. Best’s latest data on the sector reveals that 100% of E&S insurers maintained ‘secure’ ratings through mid-year 2019.

“The wholesale, specialty and surplus lines market remains very healthy through the first half of 2019, and we are anticipating record growth and continued financial strength and stability in A.M. Best’s 2019 report, to be published in September,” says Brady Kelley, executive director of the Wholesale & Specialty Insurance Association [WSIA]. “We have seen surplus lines premium grow from $34.8 billion in 2012 to what I am projecting will be $49–$50 billion in 2018 – 40% in six years is remarkable and a testament to the

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market’s value in insuring the nation’s most complex risks.”

“This has been a healthy and stable market for the last few years, and while the pace may have been incremental over the last decade, its escalation is now in motion,” adds SLTX CEO Norma Carabajal Essary.

While Essary highlights California, Florida,

between mid-2018 and mid-2019 at 24.6% and 21.1%, respectively, according to SLTX. North Carolina (18.9%), California (18.2%) and Idaho (15.7%) rounded out the top five in terms of premium growth.

Although the mid-year report from SLTX did include modest filing decreases, these can be attributed to timing/filing differences

“[Forty percent growth] in six years is remarkable and a testament to the market’s value in insuring the nation’s most complex risks” Brady Kelley, WSIA North Carolina and Texas as the standout markets in the wholesale E&S segment (“They all have robust state economies and have been extremely receptive to the expansion of E&S insurance,” she says), Minnesota and Arizona saw the highest premium increases

in some states, Essary points out. “The slight reductions are not significant enough to be of concern,” she says. “Overall, the mid-year report from our business partners and peers supports a number of different factors, which include robust state economies, consumer-

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2019 MID-YEAR WHOLESALE PREMIUMS BY STATE WASHINGTON $498 million 72,939 items

MINNESOTA $312 million 24,470 items

IDAHO $64 million 9,887 items

ILLINOIS $914 million 77,793 items

NEVADA $189 million 19,665 items OREGON $213 million 33,171 items

NEW YORK $2.29 billion 174,063 items PENNSYLVANIA $703 million 113,153 items

UTAH $154 million 20,070 items

NORTH CAROLINA $424 million

CALIFORNIA $4.30 billion 364,719 items

91,257 items ARIZONA $345 million 44,328 items TEXAS $3.48 billion 548,884 items

MISSISSIPPI $242 million 80,300 items

FLORIDA $3.8 billion 653,828 items

MID-YEAR PREMIUM BY REGION

West: $5.8 billion

South: $7.9 billion

Northeast: $3 billion

Midwest: $1.2 billion Source: Surplus Lines Stamping Office of Texas

driven need from buyers and risk managers, expanded capacity of the surplus lines market, and a major reason: rate increases.”

“In my opinion,” Kelley adds, “the overall growth in the market is driven by a strong economy, growing demand for solutions to complex risks and new product innovation – all trends that have been shaping the industry for several years.”

Moving forward, Kelley says leveraging technology and artificial intelligence will enable E&S providers to enhance efficiency and accuracy while also addressing the talent gap on the horizon. He believes the E&S market’s biggest opportunities lie in its ability

to continue to “promote and deliver on the value of wholesale distribution … as experts in customizing insurance solutions that best meet the unique needs of the insurance buyer.”

Essary likewise sees opportunity in technology. “Combined adverse losses from CAT events and the frequency of events, not to mention unpredictable climate concerns, political upheavals, and a long period of soft rating, have been challenges to the entire industry,” she says. “We have an industry that will be technology-disrupted. The real question here is where and what will be [carriers’] strategy to ensure they remain in the same pool. Carriers’ perspectives are

[also] changing their underwriting positions, which inevitably will affect pricing, deductibles and/or capacity.”

As surplus lines players prepare for the remainder of 2019, Kelley predicts that the “developments from another year of vigorous mergers and acquisitions will begin to resurface with changing names, faces and products; thus, brokers will continue to look and plan for a level of consistency that may require a different approach in finding new and creative solutions.” This is where collaboration between the retailer, buyer and wholesale broker will be crucial, he adds, to optimize placements and effectively manage rate increases.

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FEATURES

WHOLESALE E&S MARKET REPORT REGIONAL PERSPECTIVES

WEST

SOME THINGS WORK BETTER TOGETHER

Because the West has the highest number of stamping/service offices in the country, its performance is often a significant gauge for the E&S market nationwide. Of the Western states, California, Arizona and Idaho reported the largest premium growth between mid-2018 and mid-2019.

In California, the increases were partially due to several large-scale late policy filings, while Idaho saw a number of large property accounts previously recorded elsewhere being reported back to the state. In Arizona, however, the rise in premium was attributed to overall policy increases, including changes in construction, professional and general liability classes, according to Scott Wede, executive director of the Surplus Line Association of Arizona.

While many have flagged the West as a hardening market, Chris Bading, senior vice president at Brown & Riding, believes the present condition is more of a market correction due to specific product lines and classes of business are being scrutinized by carriers, rather than prompted by a catastrophic event or a contraction in the capital market. For example, in the E&S property space, Bading says the marketplace is “focused on rate adequacy in key areas such as catastrophe perils, wildfire exposures, frame builder’s risk, frame habitational, etc. Also, certain states are seeing greater increases, depending on their characteristics and historical pricing.”

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It’s impossible to think about the E&S market in the West without considering catastrophic exposures like wildfire, earthquake or landslide. While Bading says that “all of these areas are being impacted by the changing insurance landscape, wildfire-exposed risks in particular represent some of the more challenging placements for brokers, especially in the state of California. The industry is still evolving and looking for more accurate and detailed ways to model and rate wildfire-exposed accounts.”

Given the widespread wildfire losses in the region, Bading says carriers need to establish and refine their underwriting guidelines to better determine what risks they will take on.

“While wildfire exposures present their challenges, I see this as an opportunity for the E&S marketplace as more accounts make their way out of the admitted market,” he says. “The surplus lines market has historically been the innovator in the industry and has more flexibility when it comes to pricing risks. Our job as E&S brokers and carriers is to find a way to align ourselves with the needs in the market and develop the necessary tools and rating methodologies so insureds have a place to obtain critical insurance coverage not available in the standard market.”

As the market tightens and rates rise, the best way for brokers to navigate the challenges and provide the best possible service to clients is to remember that “insurance is based on relationships,” Bading says. “We must focus on understanding our clients’ needs and expectations and guide them through this rapidly changing environment. This is especially true since most insurance buyers have experienced

www.ibamag.com

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MID-YEAR PREMIUMS: 2018 VERSUS 2019 Mid-year premiums 2019

Mid-year premiums 2018

$345 million $291 million

AZ

$4.30 billion $3.45 billion $3.8 billion $3.32 billion

CA FL

Like working with a

$64 million $55 million

ID

Wholesale & Specialty

$914 million $821 million

IL

Insurance Association

$312 million $251 million $242 million $211 million

MN MS

member to find a custom solution to a nonstandard risk. WSIA

$424 million $357 million

NC

members will help you

$189 million $142 million

NV

craft cost-effective,

$2.29 billion $2.25 billion

NY

innovative solutions

$213 million $192 million

OR

for your specialty and

$703 million $640 million

PA

nonstandard risks. $3.48 billion $3.06 billion

TX

Combining the strength of the former AAMGA

$154 million $152 million

UT

and NAPSLO organiza-

$498 million $468 million

WA $0

$50m $100m $150m $200m $250m $300m $350m $400m $450m $500m

tions, WSIA members $1bn $2bn $3bn $4bn $5bn

are your source for

Source: US Surplus Lines Service Offices Mid-Year Assessment

expert solutions.

“While wildfire exposures present their challenges, I see this as an opportunity for the E&S marketplace as more accounts make their way out of the admitted market” Chris Bading, Brown & Riding steady rate decreases over the last decade.”

He stresses the need for brokers to have open and transparent conversations about what the E&S market is doing and how it relates to individual accounts. “Get out ahead as much as possible,” he advises, “especially on lines or accounts that you know are going to have some pain points with rates and terms.”

Moving forward, Bading anticipates an enhanced

need for specialization in the wholesale marketplace. As rates rise, terms become narrower and underwriting guidelines change, retail partners will need to know they are getting the best the marketplace can offer.

“The recent trends will only increase the need for specialized wholesale brokers as clients seek our technical expertise and guidance as the market continues to change,” he says.

www.ibamag.com

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find WSIA members at wsia.org find WSIA members at

44-53_Wholesale Report 2019-SUBBED.indd 47

wsia.org

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FEATURES

WHOLESALE E&S MARKET REPORT REGIONAL PERSPECTIVES

MIDWEST The Midwest’s two reporting states, Minnesota and Illinois, delivered mixed results at the midway point of 2019. Minnesota reported the largest gain of all 15 reporting states with a 24.6% premium increase, while Illinois saw an 11.3% increase.

The large jump in Minnesota was partially due to policies that were filed late, according to Nicholas Schroeder, executive director of the Surplus Lines Association of Minnesota.

“I believe we are likely up about 10% in 2019 over mid-year 2018 if we remove the few large transactions with 2018 effective dates,” he says.

It’s also important to remember that premium increases don’t tell the entire story, says Joel Cavaness, president of Illinois-based Risk Placement Services, who describes the surplus lines market in the Midwest as stable.

“Rate is only one component,” Cavaness says. “Deductibles and property value increases/decreases have a big impact. I am always careful about making sure we do a full analysis of a particular rate environment because premium is only one piece of a transaction. When we do our analysis, we go to pretty great lengths to look at the exposure, the pure rate and the impact of that rate due to changes.”

The Midwest is seeing modest rate increases across the board and larger hikes in certain pockets, including assisted living, commercial auto and trucking, and public D&O, where greater loss activity has adversely impacted accounts. “[We are] seeing high single-digit increases due to carriers restructuring and pulling back on limit,” Cavaness says. “People aren’t willing to put out large chunks of capacity like they were before. You have to use world players to put together larger, more complex placements.”

Cavaness attributes Minnesota’s considerable premium growth to increased activity in the fringe market over the last 12 months.

48

“[We are] seeing high single-digit increases due to carriers restructuring and pulling back on limit. People aren’t willing to put out large chunks of capacity like they were before” Joel Cavaness, Risk Placement Services “This is the market many exit first when they are renewing or taking another look at the types of businesses they are writing,” he explains. “[But] the fringe class of business

that tends to navigate in and out between the surplus lines market and the standard market is where we are seeing a fair amount of our growth activity.”

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Illinois saw a microscopic filing decrease of 0.22%, but that doesn’t concern Cavaness. “Over the course of the last three to four years, [there has been] significant growth in the state of Illinois,” he says. “A number of filings have been made, some impacted by late filings or rounding errors, but [this] shows [that the] state of Illinois is fairly stable.”

Going forward, the increasing changes in climate cycles will continue to present significant challenges to the region. Floods have been more intense and more frequent than normal and will be something that “the industry will have to continue to look at,” Cavaness says. In addition, “tornado activity in the Midwest is one of the biggest property exposures from a catastrophic point of view,” he says. “People are paying much more attention to this than before.”

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FEATURES

WHOLESALE E&S MARKET REPORT

REGIONAL PERSPECTIVES

SOUTH The South posted the largest share of total premium at the mid-year mark ($7.9 billion), driven by Florida ($3.8 billion) and Texas ($3.48 billion). In total, the Southern states experienced a 12.1% increase in total premiums – the largest increase among the four regions. Within the south, North Carolina saw the biggest premium gains, followed by Mississippi, Florida and Texas.

According to Geoff Allen, chief operating officer at the North Carolina Surplus Lines Association, “A noticeable amount of the North Carolina surplus lines premium growth is in the property coverage codes. This is primarily from rate increases and additional coverage being purchased as a result

50

of the two hurricanes that hit North Carolina in 2018. The remainder of the premium increase this year is due to economic growth in North Carolina.”

Peggy Dronet, executive director of the Mississippi Surplus Lines Association, attributes her state’s premium growth to its favorable economy, “especially in the lower five coastal counties, where over half of the increase was generated.”

The story was much the same in Florida, where strong market conditions contributed to both premium and filing increases. “We’re seeing a lot of coverages with double-digit increases over last year, higher than the 14% increase in premium,” says Sheila Pearson, controller at the Florida Surplus Lines Service Office.

Thomas Dillon, executive vice president and national casualty practice leader at AmWINS Group, credits the significant

growth throughout the region during the first half of 2019 not simply to rate increases, but to exposure base as well.

“The commercial and residential construction markets continue to be strong, leading to large growth in this segment,” he says.

“While carriers have reduced the amount of capacity they are willing to provide on single risks, we still have plenty of carriers to complete capacity placements. Habitational risk is another area of growth in the South.

This growth is due largely to rate increases and reduced available capacity in this space.

While capacity is limited, we are still finding solutions for our clients.”

The senior care market is another key sector in the E&S market in the South, as people continue to flock to retirement hubs like Florida. But senior care comes with its own set of unique and challenging risks.

“The need for rate is increasing, and

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capacity is becoming more limited in the senior care market,” says Amanda Fioretti, assistant vice president at AmWINS Program Underwriters. “More accounts are being marketed every year, and underwriters are exercising greater discipline.” She adds that it’s important for brokers and their clients to partner with knowledgeable underwriters and markets to find creative solutions.

In terms of E&S property, the South is somewhat disproportionately exposed to catastrophic weather. Active Atlantic hurricane seasons in recent years have left many carriers struggling to make an underwriting profit, which has led to rate increases and tightening terms and conditions. Some carriers are reducing their line sizes or, in the most extreme cases, are leaving pockets of the region where the CAT weather hazard is deemed too high.

“Extreme weather has had a major impact on the surplus lines premium growth in the Southeastern US, not only because of the rising property rates, but also because of the flow of opportunities

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“Extreme weather has had a major impact on surplus lines premium growth … not only because of the rising property rates, but also because of the flow of opportunities leaving the standard/admitted marketplace” Josh Ammons, AmWINS Brokerage of the Carolinas leaving the standard/admitted marketplace,” says Josh Ammons, executive vice president and property broker at AmWINS Brokerage of the Carolinas. “The significant amount of hurricane activity in 2017 and 2018 across the South has led to a steady stream of new submissions seeking difference-in-conditions policies to pair with an admitted carrier, deductible buyback requests, opportunities to present parametric products, or a chance to simply provide an all-risk property solution for insureds that may have previously been able to secure coverage in the standard market.”

Pretty much all CAT-exposed property and classes with high attritional loss experience present growth opportunities for E&S providers in the South. In addition, Adam Terry, executive vice president and Atlanta property practice leader at AmWINS Brokerage of Georgia, suggests that other “challenged classes of business” can provide opportunities, including frame multifamily, recyclers, woodworkers/sawmills, dealer’s open lot, coastal hospitality and stock throughput/cargo.

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FEATURES

WHOLESALE E&S MARKET REPORT REGIONAL PERSPECTIVES

NORTHEAST Between mid-2018 and mid-2019, the Northeast saw slightly less growth than in previous years. Premium in New York increased only slightly, from $2.25 billion to $2.29 billion, while Pennsylvania emerged at $703 billion, up 8.8% from mid-year 2018.

“Like most regions around the country, the E&S market in the Northeast is firming, and lots of business is pouring into the channel,” says Timothy Turner, chairman and CEO of RT Specialty. “There’s been about a 30% to 40% increase in business flowing into the non-admitted market space as standard markets choose not to renew greater percentages of their books. That’s happening in every region.”

Turner describes the firming that’s taking place as “niche-oriented,” driven by segments of business that have caused loss problems in the standard market.

“Every region is a little bit different, but in the Northeast, the habitational market is leading the way,” he says. “Anything in habitational property & casualty is difficult. There are big losses involved, which have resulted in a real firming of rates, attachment and terms.

That class of business includes big apartment schedules and anything that is Section 8 or HUD. All tough habitational risks are under tremendous pressure in the market – and in New York, those challenges are magnified in the five boroughs.”

Construction is another segment experiencing firming rates in the Northeast.

“Infrastructure projects – bridges, tunnels, dams, high rises and so on – are very firm in New York,” Turner says. “Of course, anything to do with residential construction in the five boroughs is extremely firm.” He adds that the always-tough transportation market is “exacerbated in the Northeast,” and the concentration of financial services firms in New York is leading to a hardening public D&O market in the region as well.

Navigating such a market can be chal-

52

lenging for brokers, but it’s a challenge Turner welcomes. “We anticipated and planned for a substantial increase in flow into the channel this year,” he says. “So we’re greeting it with open arms, and we’re handling it very efficiently. But it’s all about communication with our customers. It’s collaborative – it’s communicating on an advance basis and proactively educating our retail customer base on expectations so that they can communicate with the insureds.

“The E&S insurance companies have done a really good job in preparing for the change in the marketplace,” Turner adds. “Most E&S carriers have been building their underwriting staff to handle this increase in flow, and they’re doing a great job of handling the flow for us. In general, the E&S market has responded very favorably and has found ways to provide workable solutions for our retailers and the insureds.”

Turner expects the flow of business to increase exponentially into next year. “Based on the continued deterioration of the market, the loss forecasts and the loss ratio deterioration,” he says, “we expect the non-admitted marketplace to continue to grow and swell through 2019 and well into 2020.”

TOP 5 STATES FOR PREMIUM INCREASES, 2018-2019

24.6%

Minnesota

21.1%

Arizona North Carolina

18.9%

California

18.2% 15.7%

Idaho

0%

5%

10%

15%

20%

25%

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“Anything in habitational property & casualty is difficult ... All tough habitational risks are under tremendous pressure in the market – and in New York, those challenges are magnified in the five boroughs”

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PEOPLE

CAREER PATH

FROM GOOD TO GREAT Hugh Burgess has always found success by leveraging the power of data

A year prior to completing his math degree, Burgess attended a job fair that opened his eyes to a new career possibility. After hearing an actuary speak, he went to the library and looked up the field in an encyclopedia.

“I would show up to class, not study and still get the top mark [in math], but I still didn’t know what I’d do with that major.

I was pretty gung-ho when I learned about actuarial studies.”

1989

DISCOVERS ACTUARIAL STUDIES

2003 GETS HIS BIG BREAK Originally hired to be a marine actuary at William H. McGee, Burgess was eventually tapped to lead the claims department, tasked with managing 90 claims adjusters across the country.

“I knew I couldn’t speak with any credibility about how to adjust a marine claim, so instead I got the team to appreciate data.

I leveraged my skill set to make a good claims team into a great claims team” 2009 JOINS ALLIANZ Selected to run Allianz’s global marine division, Burgess jumped into his first opportunity to lead an international business.

“The first thing we did was start aggregating data – with so many different territories, different currencies and different languages, no one had thought to do that because it was just such a daunting task. But we could take advantage of being global to out-compete those doing it locally; data became a huge strategic advantage.”

2018 STARTS VINDATI Driven to use the strategies that have served him well throughout his career, Burgess created his own insurtech company that leverages data, technology, differentiation and a strong team dynamic.

“Vindati means ‘finding winning data’ – and it represents everything I’ve been successful in, everything I see as the future of insurance.”

54

1990 IS EXPOSED TO THE FRONT LINE Burgess’ first job in insurance overlapped with getting a master’s in statistics and studying for his actuarial exams.

“It was great; finally I was leveraging the math I was so good at. I was exposed to the front line of the business at Fireman’s Fund. It felt great to be part of a team that won clients and beat the competition. It put me on a trajectory to do a whole lot more than being an actuary.”

2006 TAKES AN OPPORTUNITY The chance to run an entire region lured Burgess to relocate from New York to California, but another golden opportunity was enough to bring him back.

“We vacationed near New York to see family, and there was an opening; I ended up working in the NYC office and not returning to California – instead, I assumed the CUO role. It turned into another opportunity I couldn’t pass up.”

2011 RISES TO CEO The success of the marine business gave rise to Burgess’ promotion to CEO of the Americas for Allianz.

“It was another great opportunity to create a team dynamic. If you have data, you can become aligned very quickly; it’s a means to manage a very difficult structure. Data is always objective. However, the new era of expense management and outsourcing was not aligned with what had always made me successful.”

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PEOPLE

OTHER LIFE

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

As part of his journey, Falchuk lost 100 pou nds a nd ra n a marathon, despite being sick at the time. “I had some kind of bug a nd almost had to drop out,” he says. “It was a great test of my mind.”

1,100

Size of the largest audience Falchuk has addressed

11,830

Number of followers Falchuk has on Twitter

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Number of podcasts or radio shows Falchuk has been a guest on

CHANGING LIVES After transforming his own life, insurtech executive Bryan Falchuk began helping others who are “going through the motions of life instead of living” THE DARKEST time of Bryan Falchuk’s life led the Boston-based insurtech leader to his greatest personal transformation – and with it, his second career. In 2011, when Falchuk’s wife was thought to be on her deathbed and his son was just 2 years old, facing down possible single parenthood changed his perspective.

56

“Feeling like I was failing [my son] was the kick in the pants I needed,” says Falchuk, who today serves as head of growth for Hi Marley. “That woke me up. I looked within myself and found that passion to change, and I found a way to help others with this same learning.”

His wife pulled through, and Falchuk’s

altered perspective resulted in motivational speaking engagements, a book (Do A Day) and, perhaps most satisfying, the ability to help others as a life coach.

“I don’t change people’s lives; people change their own lives,” he says. “That’s tremendously rewarding for me. The first person I coached is now coaching others.”

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