IBAMAG.COM ISSUE 2.01
E T A R S T N E AG
s A G M Peers provide keen insight on what’s most important and why
ENVIRONMENTAL INCREASED VISIBILITY MEANS INCREASED OPPORTUNITY
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THE ACA X-FACTOR HOW IT WILL IMPACT WORKERS’ COMP – AND YOUR BUSINESS
PROFIT IN NONPROFITS THEY MAY NOT KNOW IT, BUT THEY NEED YOUR HELP
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EDITOR’S LETTER / 2.01
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Few things are more important to the business success of an independent insurance agent than the partnerships they forge with Managing General Agents. Finding MGAs with experienced, creative and responsive underwriters you can really count on can solve a lot of problems, save a lot of time and make a lot of money. Are you getting the most out of your MGA relationships? If not, perhaps you don’t know what you’re missing. Insurance Business America, which I joined in February after spending the past several years editing insurance industry publications, wanted to know what agents say are the most important core competencies they seek in an MGA. We also asked them to rate how their own MGAs are performing in those same core competencies. While the survey results appear in this month’s cover story starting on page 10, what I found particularly interesting in reading through literally hundreds of open-ended comments from survey respondents was how many agents seem dissatisfied with their MGAs. One of the biggest pet peeves? A failure to do a decent job of simply keeping in touch. Why wouldn’t you regularly touch base with your clients? How can they help your business if they don’t know your business? I realize many MGAs do a great job of communicating with their agents. I’m sure some agents are sick of hearing from them. But it sure beats the alternative. I like MGAs who keep you in the loop as far as what’s happening with carriers they approach. Or proactively inform agents about new products, or anything significant on the regulatory front. Of course they need to have knowledgeable underwriters and be quick and responsive when it comes to quotes, binders and claims, but is your MGA doing the other things to make your partnership live up to its potential? If not, it may be time to shop around.
Client: LIBERTY Job Name: LIU_121596_REVENVIR_P4A L: 7 x 10 T: 7.875 x 10.75 B: 8.5 x 11.125 Fonts: Arial Reg/Arial Narrow Reg
GETTING THE MOST FROM YOUR MGA
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CONTENTS / 2.1
FEATURE Changes coming to Workers’ Comp Uncertainty surrounding TRIPRA and the ACA are raising concerns – and rates. Agents staying on top of these developments can play a key role in helping clients manage their WC costs
COVER STORY Agents speak out about MGAs underwriting responsiveness, claims responsiveness and reputation among top priorities of agents when it comes to Managing General Agencies
FEATURE Environmentally conscious As events have led to increased public awareness of environmental liabilities, the demand for coverage – as well as environmental insurance’s profile – has risen dramatically
DAILY INVESTIGATIONS NOW ONLINE: Flood insurance Obamacare workers’ comp
4 | Editor’s Letter Getting the most from your MGA
NEWS / ROUND-UP 8 | AAMGA meets with Lloyd’s; Ideal LTCI prospects; Costliest natural disasters and more Recent happenings and developments that impact producers
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FEATURES 26| The world’s biggest risks New WEF report says potential of fiscal crises in key economies presents the highest risk while pollution and technology accidents and abuse are other areas of concern
FEATURE Sports & Recreation: A bigger place to play As the family “staycation” grows in popularity, an emerging market of entertainment centers and multi-activity facilities represents a golden opportunity
38| Trouble at Sea A surge in overseas trade, twinned with overcapacity in the ocean marine market, makes the world’s oldest insurance space increasingly difficult for clients to navigate
BUSINESS STRATEGY 42 | Succession planning There are some essential points to bear in mind to ensure that you maximize the value of your business and achieve a successful exit, explains Craig West 48 | Client relationships: How to drive sales While you may have all the skills, experience, knowledge and expertise in the world, if you can’t get your relationship marketing strategy right, you’re never going to see exponential growth in your business. Nikki Heald explains
FEATURE Nonprofits need your help With unique and often unknown exposures, many organizations need a broker’s help to make sure they’ve got it all covered
FEATURE Content marketing here to stay Content marketing might be the latest marketing buzzword but what does it mean and more importantly, can it add value to your advice business? One thing for certain is that for the foreseeable future, content marketing is here to stay. Peter Bowman explains all
55 | Favorite things Dennis Rabon, Dovetail Insurance 56 | The Last Word How will the ACA affect Workers’ Compensation?
50 | Why branding strategies fail Far too often a company’s shiny new branding strategy fails to live up to hopes and expectations. Jean-Luc Ambrosi explains the common reasons for failure, and what companies can do to get their branding strategy right
COLUMNS 54 | Ethics Can you teach ethics to insurance agents?
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NEWS / ROUND-UP
TALK STANDARDS WITH LLOYD’S OF LONDON
PROFILING THE IDEAL BOOMER
The Old Library at Lloyd’s of London was the backdrop for AAMGA’s meetings with the Big 3 from Lloyd’s in February, consisting of the Corporation of Lloyd’s, the London & International Insurance Broker’s Association and Lloyd’s Market Association. The AAMGA contingent included, from left, Matthew Letson, president elect of AAMGA; RC Chaffin, immediate past president; Bernie Heinze, executive director; and Frank Mastowski, president of AAMGA. This was the first time the organization has met with the Big 3 at once. The discussions were centered around efficient operational audits, reforming the Audit Scope Review, overlapping regulatory and claims requirements; and AAMGA members’use of Lloyd’s as a primary market. “We’re trying to make sure they understand how the distribution channel works in the States,” Heinze told Insurance Business America. Images courtesy of AAMGA.
As America’s more than 77 million baby boomers deal with retirement issues, part of their planning should include considering a long-term care policy, says Tom Riekse, Jr., managing principal at LTCI Partners in Lake Forest, Ill. “People become aware of the need in their forties, because at that point they normally have adult parents who are experiencing long-term care issues,” Riekse says. “They think about it for a while, and then generally buy in their mid-fifties. It’s not like life insurance, where there is some level of urgency, such as marriage or purchasing a house,” he says. “With long-term care, there’s not that one triggering life event.” Given current demographics, Riekse says he expects demand for long-term care coverage to increase in the near future. Riekse warns that long-term care is still primarily “a product for the affluent” and producers should be careful whom they target. “Be realistic in terms of who you market to or who you approach with the product.”
Riekse: Good prospects for LTCI • Can afford annual premiums of $2,500-$5,000 per couple • “Planners” in their 40s or 50s who have some savings
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2013 DISASTERS: BY THE NUMBERS • Global natural disasters in 2013 combined to cause economic losses of US$192bn, 4% below the 10-year average of $200bn. • The losses were generated by 296 separate events, compared to an average of 259. The disasters caused insured losses of $45bn, 22% below the 10-year average of $58bn and the lowest total since 2009.
NATURAL DISASTERS GO
EASY ON U.S. IN 2013 In 2013, about 84% of economic losses from serious catastrophe events happened outside the US, well above the 2003–12 average of 65%, according to the 2013 Annual Global Climate and Catastrophe Report, released in January by Impact Forecasting. The report details the number of natural disasters in the previous year and estimates their total costs by economic loss and insured loss. “2013 was an active year for serious catastrophe events but one in which the industry dodged a bullet of a single dominating insured event,” said Aon Benfield Analytics CEO Stephen Mildenhall. Despite 84% of the economic losses occurring
• The most expensive event in the US in 2013 was an EF5 tornado that hit Moore, Okla., in May, causing about $3.8bn in economic losses. • Flooding represented 35% of all global economic losses during the year, the highest percentage of aggregate losses since 2010. • The most deadly event of 2013 was super typhoon Haiyan, which left nearly 8,000 people dead or missing in the Philippines. • The May/June 2013 floods in Central Europe were the costliest single event of the year, causing an estimated US$5.3bn in insured losses and approximately $22bn in economic losses. Most of the flood losses were sustained in Germany.
outside the US, the country still accounted for 45% of all insured losses globally, because of greater substantial insurance penetration.
GROWTH IN CONSTRUCTION SECTOR COULD BOOST P/C PROFITS Producers deeply invested in the property/casualty market would do well to target potential clients in the construction industry, particularly those operating in the private, residential space. That’s the message from Insurance Information Institute president Robert Hartwig’s presentation in early February at the Association of General Contractors Surety Bond and Construction Risk Management Conference. Hartwig said the construction sector was “critical to the economy [and] the P/C insurance industry,” and pointed out that while private construction activity was still well below levels prior to the financial crisis, it was moving at a positive, upward clip.
In fact, the value of new private construction reached $659.4bn last year, with residential construction growing 16.6% from November 2012 to November 2013. Lodging, commercial and transportation also grew impressively, with 32.7%, 20.7% and 18.3% increases, respectively. That positive growth is reflected in demand for appropriate insurance policies, a report from Marsh found. Demand increased for builders risk insurance in 2013, and renewal rates for the sector were 2.9% higher in 2013’s third quarter. Pricing for residential construction insurance lines also increased between 3% and 7% last year. MARCH/APRIL 2014 | 9
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COVER STORY / MGA SURVEY
MGAs AGENTS SPEAK OUT ABOUT
Agents say their top priorities when it comes to MGAs are underwriting responsiveness, claims responsiveness and reputation
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Fast underwriting turnaround and a high level of responsiveness are what agents look for in a Managing General Agency relationship, according to a new survey conducted by Insurance Business America. Hundreds of agents participated in the survey, which asked them to rate the importance of key aspects they look for in an MGA, including pricing, automation, underwriting turnaround, reputation, marketing support, claim responsiveness and range of carriers. The survey, conducted via an online questionnaire in January and February, also asked agents to rate the performance of their own MGAs and provided an opportunity to give specific details as to how they think their MGAs could improve their service and offerings. Respondents weren’t shy about letting us know what they really think. While a few commenters praised their MGAs or expressed satisfaction with their MGA relationships, most survey respondents took the opportunity to let us know where they feel MGAs are coming up short. Several recurring themes emerged in analyzing the open-ended responses. For one, agents made it known that they crave strong relationships with underwriters. They also want faster underwriting and more responsiveness, as many expressed frustration with MGAs that are slow to provide quotes or endorsements. They want them to be more proactive, provide access to more carriers, and have specialized knowledge. More automation was another frequent theme, and judging by the responses we received, MGAs really need to kick it into a higher gear when it comes to technology. Several comments complained that their MGA’s technology doesn’t mesh with their technology, particularly when it comes to agency management systems. While underwriting responsiveness/turnaround times and claim responsiveness/turnaround times were the two most important things agents look for in an MGA, agents think their own MGAs are performing better in other areas. Agents rated their own MGAs better in terms of their reputation (7.32 out of 9), premium pricing (6.90), and range of carriers offered (6.86) than they did for underwriting responsiveness/turnaround times (6.71) and claim responsiveness/turnaround times (6.63). “Marketing support” ranked as the least important in both surveys. Agents rated their MGAs a 5.99 in this category, while saying marketing support was 6.82 out of 9 in terms of overall importance. “Auto-
mation,” while mentioned as an area of concern by many commenters, was listed as the sixth most important (7.23) and also ranked sixth out of seven categories (6.29) when agents rated their MGAs. Clearly, agent priorities when it comes to MGAs center on underwriting, claims and responsiveness.
8.36 OUT OF 9
UNDERWRITING RELATIONSHIP IS KEY According to the survey, the most important component of an MGA’s role for agents is underwriting responsiveness and turnaround times. Sixty-two per cent of participants rated this as a 9 on a scale of 1-9, indicating how important agents feel about this function. Another 25% rated it an 8, meaning nearly nine out of 10 respondents rated it an 8 or higher. Many agents expressed the sentiment that it is crucial to have an underwriter you can talk to, that knows the products and markets he or she represents, and equally crucial that they get back to you with a quote or confirmation of binding in a timely fashion. If you have a relationship with an underwriter who is responsive, creative and experienced, you’ve hit a home run, and should do everything you can to maintain that advantage.
Importance rating agents place on underwriting responsiveness and turnaround time from MGAs. Agents in our survey rated it as the single most important quality to look for in an MGA, one half-point higher than claims responsiveness and turnaround time, which ranked second.
ON A SCALE OF 1-9, HOW IMPORTANT ARE THE FOLLOWING ASPECTS OF WHAT AN MGA OFFERS? Underwriting responsiveness/ turnaround times
Claim responsiveness/ turnaround times
Range of carriers offered
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COVER STORY / MGA SURVEY
“Anyone can run quotes, but it’s the problemsolving abilities and creative thinking of the MGA staff who keep me returning”
Cabell Vildibill, a commercial insurance broker with George H. Odiorne Insurance Agency, Inc., Brandon, Fla., says that being domiciled in Florida, he has no shortage of MGAs to choose from. He says that first and foremost, he focuses on the underwriting skills in his MGA relationships, and looks for three primary criteria. “We want an underwriter to be creative, competitive and expedient,” Vildibill says. “And try to think outside the box – that can give you an edge when you are trying to come up with a better solution.” One of Vildibill’s clients is a chain of steakhouses, known for having peanut shells all over the floor. “When you first talk to MGAs, we can’t get any markets because there are peanut shells on the floor. But there are no claims. They won’t think beyond the slipping factor of the peanuts,” Vildibill says. “There’s no negligence – it’s open and obvious, and everyone can see them when they walk in the door, but we don’t have any markets because there are peanuts on the ground. What’s the real exposure? It’s hard to find good, creative MGAs that can think outside the box.” Vildibill also says while his company is generally
ON A SCALE OF 1-9, HOW WOULD YOU RATE YOUR MGAS IN THE FOLLOWING AREAS?
Range of carriers offered
Underwriting responsiveness/ turnaround times
Claim responsiveness/ turnaround times
loyal to its BGAs, it is perhaps more loyal to underwriters. “We’re loyal unless our underwriters move. We even follow them around if they move.” More than any other topic, survey respondents focused on the importance of working with highly competent underwriters. Virginia O’Connor, an agent with Haddock & Associates in Coeur d’Alene, Idaho, wants underwriters that can offer more than a simple quote or one solution to meet a client’s needs. “Case design is important to me. I like to work with an MGA who has staff where I can present a client’s needs and be offered a variety of solutions in the form of products. Anyone can run quotes, but it’s the problem-solving abilities and creative thinking of the MGA staff who keep me returning,” O’Connor says. “In addition, frequent updates on a current case’s progression to and through the underwriting process are vital to getting cases placed and keeping the client’s interest.”
CLAIMS RESPONSIVENESS While underwriting responsiveness and turnaround times was rated as most important in the survey, claim responsiveness and turnaround times (7.84 out of 9) edged out MGA reputation (7.76) and range of carriers offered (7.62) as the next most important things agents look for in an MGA. Perhaps no other trait can set an MGA apart from its competition better than how – and how quickly – it handles a claim. Beyond that, agents said some MGAs drop the ball by failing to send them claim acknowledgements and claim closing notices. Finally, many agents lamented that they rarely see a rep from their MGA, and there is generally little attempt to understand an agent’s type of business, goals and aspirations. This sentiment was summed up nicely in a survey comment from an agent: “How can you help someone be successful and in turn increase your own success if you never determine what your client wants? Producers are an MGA’s client, though you’d never know it.”
AUTOMATION NOT HACKING IT Automation
While the topic of “automation” ranked higher than only “marketing support” when survey respondents cumulatively ranked the importance of, and how their MGAs rate, in the area, the subject did receive plenty of attention from commenters. Based on their experiences with other industries, today’s consumers expect a high level of automation capabilities when dealing with insurance needs.
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COVER STORY / MGA SURVEY
AGENTS TO MGAs: 12 WAYS YOU CAN DO BETTER
The following dozen comments are from agents who completed our MGA survey, providing some insight on key areas of concern and how MGAs can be better partners to agents:
“Developing their website to allow us to see what is needed for an upcoming renewal and to view and print policies and endorsements.”
“By having a better variety of carriers for all markets, not just a variety for one targeted market. Also, better communication via e-mail with regard to changes and revisions, non-renewals and lapses in coverage.”
“With social media and 24-hour access to websites, clients are available to us 24 hours a day. We need MGAs to provide online application processing at the very least.” “Marketing support and, especially, claims… Being the best at this portion is what makes agencies stand apart.”
“Most of the time I just want to know what is going on with my case and I don’t feel like I should have to ask. It should be at my ﬁngertips at all times. Technology is always improving and unless someone steps in to show me what’s new, I will continue to use what I have. So continuing education as to the improvements they bring to the table would be great.”
“Turnaround time and responsiveness. If you don’t have a ‘connection or rapport’ with an underwriter, it seems like turnaround is slow.”
“Clear appetite guidelines and working with agents on service. I am working with two MGAs now and both of them have no follow-up. I submit for a quote and I follow up. I submit an endorsement and I follow up. If I did business like that I would be out of business.”
Many agents say they feel the industry hasn’t kept up with other industries when it comes to automation. Judging by the comments of our survey respondents, the biggest problem is that far too many MGAs lack the ability to interface with agency systems. Many agents said they find it frustrating to submit data that winds up on printed material but not in a database. All too often, agents and MGAs are not on the same page, as it were, when it comes to synchronized technology.
THE TREND TOWARD SPECIALIZATION Most agents have noticed that MGAs are increasingly specializing in certain niches in an effort to differentiate themselves from competitors. “It is the No. 1, major movement that we’re seeing in the wholesale marketplace,” says Bernie G. Heinze, executive director of the American Association of Managing General Agents (AAMGA). “Seven or
“Education and legislative updates would be helpful as well as sales ideas and approaches.”
“Need to provide better support in compliance, ancillary products, and a good way to help us manage our clients. Perhaps an agent portal that oﬀers a composite bill if client has multiple carriers.”
“Marketing co-op, automation improvements (getting renewals, loss runs and endorsements out sooner), and lower fees or better commissions!”
“Having more direct-billed options. Keeping in touch with us as to what their appetite of business is, what they have recently written and what they do well on.”
“Conﬁrmation of binding. I’d expect to receive conﬁrmation and a binder within 24 hours. One particular MGA takes a minimum of 72 hours to send conﬁrmation.”
eight years ago there were many general agents. It is very difficult today to remain a generalist,” Heinze says. Consumers and agents alike are demanding MGAs and other wholesale professionals have areas of specialization and particular expertise that they can market well and place business. Heinze adds that MGAs must also provide professional development opportunities for their agents so they can better sell and market niche coverage. “In order to compete, you really do need to carve out a niche,” Heinze says, speaking about MGAs. “That’s what a lot of our boutique agencies are focusing on.” This is something many of our survey respondents expressed an interest in as well. Working with MGAs that have specialized knowledge and a high degree of technical expertise is one major area where an MGA can really add value for an agent and the agent’s client.
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General Session & Opening Keynote
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Conference Finale & Closing Keynote
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20/02/2014 4:44:15 AMAM 2/6/14 11:56
FEATURE / ENVIRONMENTAL
As events have led to increased public awareness of environmental liabilities, the demand for coverage – as well as environmental insurance’s profile – has risen dramatically by Caitlin Bronson The standard refrain on environmental insurance is that companies only purchase it when it’s required or when their liabilities are so obvious, it would be nigh suicidal to pass up coverage. As a result, several producers write off the insurance offering as a niche product without a lot of personal payoff. Thanks to an escalating public focus on environmental risk, however, the attraction of corresponding coverage is turning formerly hesitant window-shoppers into actual policyholders. The producers with enough know-how to place these products in front of the right clients are guaranteed to profit, industry leaders say.
INCREASED VISIBILITY As president of the environmental wholesale insurance broker Beacon Hill, Bill Pritchard has followed environmental trends for the past 23 years. During that time he’s seen plenty of change, but the increase in environmental awareness in recent years has surprised even his veteran eyes. “I think the visibility [of environmental insurance] has just exploded. The general public has become much more aware of their liabilities in the past five years, much less in the past 10,” Pritchard said. “We’ve had such a heightened demand for this coverage as businesses become more aware of their exposures – you can’t turn on a television without seeing a crystal clear example of why.” Pritchard said that at the beginning of his tenure 16 | MARCH/APRIL 2014
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with Charlottesville, Va.-based Beacon Hill, this wasn’t the case. He struggled to get clients to appreciate the importance of environmental insurance, but now the product’s profile is “significantly higher.” “And it has nowhere to go but up,” Pritchard said. The heightened visibility means Beacon Hill’s client base has diversified. Where once it mainly saw broker partners representing conventional environmental clients like landfills or water treatment plants, Pritchard is now servicing brokers with books of business that include shopping centers, dry cleaners and contractors. Stacy Brown, president and managing partner of Freberg Environmental Insurance in Denver, characterized his own shift in client base as market entry by nontraditional businesses and contractors. “I think there’s always been a traditional base of facilities that look for environmental insurance – those with very obvious environmental exposures,” Brown said. “But I think in the past few years, there’s been a slight shift where other types of facilities are now considering environmental insurance.”
OVERCOMING MISCONCEPTIONS Recognizing environmental exposure is not enough for an employer to source risk with a specialized policy, however. Many misconceptions about environmental insurance still exist – particularly where liability coverage is concerned. Despite the frequency and visibility of litigation surrounding the notorious pollution exclusion, many employers continue to believe their commercial general liability policy offers protection in the event of an environmental incident. Brown attributed much of this confusion to the fact that some GL policies do offer pollution coverage, provided the incident is “sudden and accidental.” The verbiage lures insureds into a false sense of security regarding their potential liabilities, while in truth, that level of coverage won’t cut it in many situations. “That’s different from the coverage we provide, and from what most other environmental insurance specialists provide,” he said. “We provide coverage for gradual pollution events, so there’s not a time element trigger that would limit coverage in the event of a release and a discovery some time at a much later date.”
“Any kind of facility that handles materials that could be harmful should have a policy that provides gradual pollution coverage as well as sudden and accidental” Stacy Brown, Freberg Environmental Insurance “In my view, any kind of facility that handles materials that could be harmful should have a policy that provides gradual pollution coverage as well as sudden and accidental,” he added. But what does all that coverage cost? That’s another misconception many businesses have about environmental insurance. “I think a lot of people believe that environmental insurance is very, very expensive,” Brown said. “I would say that coverage is commensurate with the amount of risk a facility has. Coverage can be quite inexpensive and particular. A million dollars of coverage can be very, very affordable and provide a significant amount of protection.” Even independent agents suffer from some false notions in this arena. Pritchard pointed out that brokers are often hesitant to get into the space, believing environmental insurance to be dense, technical and complicated. That’s very far from the truth, he said. “I don’t think it’s that complicated – no more complicated than any other coverage they have to deal with,” Pritchard said. “Personally, I think cyber insurance looks confusing, but that’s because I’ve been doing [environmental] for 23 years.” Getting clients, as well as themselves, over these humps is vital if producers want to start a conversation about environmental liabilities. Only then can they move corresponding coverage off the backburner – where it so often sits – to a real tool in a company’s risk management strategy.
THE LIABILITIES OF A FIXED FACILITY Already, independent agent Bill Howard has begun pushing environmental insurance as part of a regular set of recommendations he provides clients. “Five or 10 years ago, that maybe wasn’t the case, but now it’s something we make sure to cover,” said Howard, who works as vice president of Alexandria,
STATES WITH THE MOST CONSTRUCTION COMPANIES »California: » 72,173 »Florida: » 51,142 »New » York: 43,409 »Texas: » 37,200 »Illinois: » 30,236 »Pennsylvania: » 28,505 »North » Carolina: 25,457 »New » Jersey: 23,142 Source: U.S. Dept. of Labor, 2012
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FEATURE / ENVIRONMENTAL
WHEN THE RAIN COMES POURING DOWN… When extreme weather events threaten the country, there are serious environmental liabilities and high monetary consequences for clients without proper insurance coverage. “There are many, many cases where weatherrelated events can cause pollution events,” says Stacy Brown of Freberg Environmental Insurance. “Last summer in Colorado, we had major floods and there were numerous circumstances where above-ground storage tanks that contained fuels or other contaminants were actually moved off their foundations. Some of the tanks actually floated away.” Floods can also result in mold growth, as was seen in the aftermath of Hurricanes Katrina and Irene, Brown added. Low temperatures and extreme cold can also result in environmental exposures. Freberg has experienced some of those instances firsthand in the country’s recent cold snap. “We’ve had circumstances where we insure facilities and they’ve had pieces of equipment break in the cold, resulting in the release of a pollutant or other hazardous materials,” Brown said. Owners of these facilities are liable for any environmental contamination or pollution caused by the spill or release, and as such, a solid EIL or CPL policy is invaluable. Offering these policies isn’t just a matter of protecting clients and earning a larger commission, either. Brown pointed out that an agent’s own error and omissions exposure could come into play if proper coverage wasn’t offered. “If [agents] are not offering that coverage, they have a potential for an E&O claim should their insured have a pollution release some time in the future,” he noted.
and which to merely educate is an important skill. Brown believes some employers are more ripe for the picking than others, and thus worth pursuing more doggedly. Firms with fixed facilities, for example, would benefit greatly from an environmental impairment liability (EIL) policy. “Any kind of fixed facility, especially those in a growth mode, are actively managing more and more materials that may give rise to a pollution claim,” he said. “A number of years ago we had an incident where there was a spill of molasses. You wouldn’t think that molasses would be an environmental pollutant, but if it’s spilled in an uncontrolled way, it can create a pollution condition.” EIL is designed to cover just such occurrences. Where once the policy was highly expensive and limited in its protection, the Society of Environmental Insurance Professionals notes that as risks have evolved, so has EIL. Standard EIL coverage now addresses both on and off-site cleanup, bodily injury and property damage liability, legal defense costs, business interruption, diminution of value and contracted liability coverage. EIL is also more affordable, the group said. Brown noted that given the number of fixed facilities in the U.S., “the premium universe is almost unlimited” for EIL sales. Producers can start tapping into that vast potential by going through their existing books of business and identifying clients who might benefit from EIL coverage. Agencies can also make use of the Environmental Protection Agency (EPA)’s website, which lists all facilities within a certain zip code that have taken out environmental permits, whether hazardous waste permits, air permits, or Clean Water Act permits. “From that, you can determine whether or not those facilities are actively managing or are under one of the major environmental regulations,” Brown said. “Those facilities are clearly candidates for environmental coverage.”
COVERING A CONTRACTOR Va.-based Clarke & Sampson. “Environmental is now in a category that includes employment practices, D&O and cyber – important risks that aren’t covered under general liability.” Nearly every commercial client carries some level of environmental risk, so knowing which clients to push
Another market especially untapped in terms of environmental coverage is the nation’s growing contractor workforce. The number of U.S. construction jobs hit a three-year high last summer, and the value of new private construction projects reached $659.4 billion, according to the Associated General Contractors of America.
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20/02/2014 3:41:26 AM
FEATURE / ENVIRONMENTAL
The surge has increased demand for traditional contractor policies such as builders risk insurance, but an opportunity to push environmental policies also exists. “Over the last year or so, there has been a sharp uptick in our business with non-environmental contractors. These are folks like roofers, siding contractors, excavators – they represent the fastest growing sector of our business right now,” said Pritchard. “They have all sorts of exposures for contaminants they may bring to a job site, which seem innocuous but could be in the wrong place and in the wrong quantity. They may also exacerbate existing conditions at the site by doing something like nicking a heating pipe, which could release thousands of gallons of heating oil.” The answer to those risks is a contractors pollution liability (CPL) policy. CPLs cover most damages inflicted on a job site, and can be written as an annual or project-specific policy with coverage limits typically reaching $1 million per project. Even smaller contracting firms have environmental exposures, and can benefit from some form of coverage. A renovator working in a home or office setting, for example, has the potential to disturb lead-based paint – something that may come into play if the EPA expands its current Lead Paint Renovation and Repair and Painting rule to regulate both public and commercial buildings. Such contractors can procure a policy with $250,000 to $500,000 limits, which more accurately reflect risk of this magnitude.
PROTECTING REAL ESTATE DEALS TOP 10 U.S. REAL ESTATE MARKETS IN 2014 »San » Francisco »Houston » »San » Jose »New » York City »Dallas/Fort » Worth »Seattle » »Austin » »Miami » »Boston » »Orange » County, CA Source: Urban Land Institute
In addition to halting construction activity, the 2008 financial crisis also dampened the market for real estate transactions. Activity is slowly returning to the industry, however. Deloitte has forecast “solid returns” for real estate investments in 2014, with sales of major properties rising 24% on a year-over-year basis last year. Sales of other, less valuable properties also experienced double-digit growth, resulting in a transaction total of $145 billion for the first half of 2013. Against the background of a recovering but still subdued real estate market, banks and financial institutions are putting ever greater insurance demands on property owners, developers, etc. – which is all great news for the producer’s business.
Terms of most real estate transactions now carry provisions requiring the property owner to either conduct a phase-one environmental assessment or take out a lender environmental liability insurance policy. Bill Howard has these real estate transaction provisions to thank for a large portion of his environmental sales. “Lenders seem to be more concerned with [environmental liability] than they have in the past – they want to know the history behind the property,” Howard said. “They don’t want to pick up a property only to find out there is an environmental issue and that the value has greatly diminished.” Lender environmental liability policies pay for any of that lost value, as well as costs associated with cleanup. It’s that latter provision that makes paying for an insurance policy preferable to arranging an environmental assessment. “In many circumstances, insurance is a better vehicle because if there is an environmental incident at the property, the company will step in and clean up that contamination,” advised Brown. “If someone had done an environmental assessment and missed a key contaminant, the only way to clean that up would be to go after the consultant and go through a lengthy legal process to have the consultant pay for those damages.”
SOURCING RISK AND BUILDING A LONGLASTING CLIENT BASE Given environmental’s success in recent years, a number of new entrants to the market have made the carrier selection process critical. Fortunately, there are a few simple ways to separate the sheep from the goats. Longevity, marketplace reputation, a breadth of product offerings and a solid AM Best rating are good places to start, as they eliminate many contenders. In-house claims management is another vital quality in a good carrier, says Pritchard, who currently works with 18 carriers in 48 states. “My claims experience with a carrier is one of the most compelling things I advise producers on,” he said. “These companies deal with hundreds and hundreds of policies, and to never have a claims problem – that’s what you want at the end of the day.” Working with a wholesale broker or MGA who specializes in the environmental space is also a good way to ensure the best results for a valued client.
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“We have a very specific broker that we go to,” said [environmental insurance] and I think I need it, but Howard. “As an agent, I know enough about pollution I’m not too sure I want to pay for it right now,” he liability coverage that I could take it to someone like lamented. To combat this trend, Brown says it is imperative Zurich or Ace and come up with proposals, but what you really need is somebody who’s got their thumb that an agent sit down with a consumer and go over on the pulse of the day-to-day business in order to do any changes in the amount of raw materials they are handling, any new safety procedures recently a proper job.” “I think most main street agents need to go to implemented, and any updated spill plans or permits. “The agent should collect those bits of information somebody like that,” he said. However, while sourcing risk and arranging for and provide them to an underwriter,” he urged. coverage may go smoothly the first time around, a “Then the underwriter can better assess their risk recent Marsh report suggests that renewing coverage and potentially get better pricing for that account.” Once a client has relied on environmental is not so easy. Both renewals and limits for policies like pollution legal liability have experienced a five- insurance to protect against an incident, Pritchard year drop of more than 25%, the broker said, despite said, agents are sure to have policy renewals for the foreseeable future. the increased demand for coverage. “All you have to do is have one claim, and you’re It’s something Howard has experienced in his sold for life on the value of it,” he said, “and I think dealings with contractor and real estate clients. that will only continue to grow.” “Generally say, ‘Yes,Hill:Layout I understand March April they IBA Ad_Beacon 1 2/12/2014 1:55 PM Page 1
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20/02/2014 3:42:00 AM
FEATURE / WORKERS’ COMPENSATION
CHANGES COMING TO
WORKERS’ COMP Uncertainty surrounding TRIPRA and the ACA are raising concerns – and rates. Agents staying on top of these developments can play a key role in helping clients manage their workers’ comp costs
Rates and premiums are increasing in the workers’ compensation market, while a large potential impact from both the Affordable Care Act (ACA) and the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) looms on the horizon. While the ACA has a lot of potential to influence the workers’ comp market over the long term, the uncertainty surrounding TRIPRA is making a more immediate impact. A January 21 briefing from Marsh, “Pending TRIPRA expiration impacts workers’ compensation industry,” says employers with high concentrations of employees in large cities are experiencing significant pressure on their workers’ compensation programs as the future of TRIPRA remains in limbo. It is set to expire at the end of this year without congressional action to extend it. Issues
TOP 3 WORKERS’ COMP QUESTIONABLE CLAIMS 1. Claimant fraud 2. Prior injury/not related to work 3. Malingering (suffered legitimate injury but continues to feign symptoms) QCs are claims that NICB member insurance companies refer for investigation based on one or more indicators of possible fraud. Source: National Insurance Crime Bureau
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7 WAYS BROKERS CAN HELP EMPLOYERS CONTROL WORKERS’ COMP COSTS range from price increases to the possibility that insurers will not renew coverage. Some insurers have already limited their underwriting of workers’ compensation for these types of companies, according to the Marsh report. Because insurers cannot exclude terrorismrelated losses and employers are required to buy it, the options available to buyers have been reduced and rate increases have accelerated. How can agents help? By starting the renewal process early and providing insurers with a differentiated view of the insured’s terrorism risk profile. The Marsh report says providing underwriters with the highest quality of employeeaccumulation data to run in their catastrophe models can ensure carriers have an accurate view of the risk. To date, there has been little legislative action regarding TRIPRA, leaving its extension in limbo.
RATES ON THE RISE As the US unemployment rate shows modest declines and wages are slowly increasing, it’s no surprise that workers’ compensation premiums are continuing to show growth. A quick look back at the past eight years tells us that the workers’ comp market suffered through a 27% decline in premium from 2006 to 2010 before rebounding with growth in the past three years, including a 10% increase in 2012 to more than $39bn, according to an annual study by the National Council on Compensation Insurance (NCCI). As of February, figures for 2013 have not yet been released. Wells Fargo took a look at what to expect through 2014 in the workers’ comp market in its 2014 Insurance Market Outlook, released January 30. In addition to concurring with the Marsh report regarding TRIPRA, the report forecasts continued rate increases for the first three quarters of this year, along with continued reduction in the combined loss ratio, resulting from higher prices seen over the past three years. The report includes several other predictions, such as continued movement away from guaranteed cost program structures into higher deductible program structures, either because they are a more appealing alternative or a necessity. One final prediction in the report says the continued use of predictive modeling analysis to improve risk selection, proper retention levels and
Business owners are ﬁnding themselves paying more for workers’ compensation in 2014 as insurers are increasing rates in most states. While businesses in a few states might see some slight decreases, most business owners will be writing bigger checks for workers’ comp this year, even if their business hasn’t grown substantially. Part of the issue is that experience modiﬁers, the adjustment of annual workers’ comp premium based on previous loss experience, has changed in most states. In the 36 states where the National Council on Compensation Insurance (NCCI) is the rating bureau that determines the rules for workers’ comp and calculates the experience mods, a substantial change to the experience mod calculation occurred in 2013. The split point between primary and excess losses was increased from $5,000 to $10,000, and went up to $13,500 in 2014. It could top $15,000 in 2015. The split point is increasing simply because the cost of employee injuries has risen dramatically. While the average employee injury cost an insurance company around $3,000 in 1991, it rose to nearly $9,000 by 2011. Basically, employers need to know this change will reduce their minimum experience mod to as low as it can be, but businesses also now have more control and ability to reduce their experience mod and control what they pay for workers’ comp. Brokers can be of great assistance in this area. By helping employers understand how it works and how they can manage it, you are oﬀering real value that will help their bottom line. Every dollar an insurance company pays on a workers’ comp claim impacts the amount they will pay in premium. Here are seven ways to help employers manage their experience mod:
Help them make sure their employees are classiﬁed accurately. A substantial part of the experience mod calculation is based on the nearly 700 employee classiﬁcations used by NCCI. Having employees classiﬁed correctly can prevent employers from paying more than they should.
Advise them of how important it is to hire only employees who they are certain are ﬁt to do the job they are being hired to do. This can be done by using a conditional oﬀer of employment form, which states the employer is oﬀering the job contingent upon receiving a medical opinion that the applicant is mentally and physically able to perform all the duties the position requires. This prevents hiring employees who are unable to safely do the job.
Make sure employers provide thorough and proper training for all equipment used on the job.
Stress the importance of creating and maintaining a culture of workplace safety, in which employees know they must adhere to strict safety protocols. Maintaining a safety-conscious workplace will prevent the vast majority of injuries.
When an injury does occur, make sure the company knows it is important to have it reported and treated immediately.
A clearly deﬁned ‘return to work’ program is also important to get injured employees back on the job as quickly as possible, even in a transitional capacity. A RAND Corporation study found that employers with a written ‘return to work’ program returned injured employees to full duty 46% faster than companies without a written program.
Make sure the employer has relationships with doctors who understand their business and specialize in the workers’ comp arena. They have facilities to treat injured employees and promote appropriate physical therapy to help employees recuperate and return to work faster.
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FEATURE / WORKERS’ COMPENSATION
10 OCCUPATIONS WITH THE MOST INJURIES AND ILLNESSES Rank
% of total
Truck drivers (heavy)
Truck drivers (light)
Janitors and cleaners
Stock clerks/order fillers
Source: US Department of Labor, Bureau of Statistics, 2012
»3 » million: Approximate number of nonfatal workplace injuries and illnesses reported by US private industry employers in 2012, an incidence rate of 3.4 cases per 100 full-time workers.
»905,700: » Number of cases that involved days away from work.
»8: » Median
number of days away from work in those cases. Source: US Bureau of Labor Statistics 2012 Survey of Occupational Injuries and Illnesses
pricing will result in more conservative underwriting by the insurers. Rate increases are understandably top of mind for those who work in the market, as is uncertainty about what the carriers are up to. “The primary issue we see today is that the work comp market is in a type of destabilization where carrier appetites are changing overnight, as well as carrier rates are increasing dramatically,” says Curtis Prince, director of sales and marketing at Roseville, Calif.based Alternative Market Insurance Services. At Alternative Market Insurance Services, Prince says they deal exclusively with integrated workers’ comp programs, which are working well in today’s market environment. “The integrated workers’ comp model offers significant bottom-line savings to clients by providing them with economies of scale unattainable to most companies,” Prince says. “Our programs are using their own capital to buy down deductibles as high as $5m and they are passing on the rate savings to their clients. Most clients are saving around 20% apples-to-apples with their current carrier rates.” Prince says their goal as a wholesaler in an emerging market is to afford agents with tools and programs that can differentiate them from their competition, and the integrated model is helping them reach that goal. His advice to agents looking to expand their workers’ comp business? “Leverage their knowledge and expertise instead of using carrier rates as
a way to build a relationship,” he says. “Surround yourself with like-minded professionals who are experts in their field and can give you and your agency depth on the bench, creating a real addedvalue proposition to their clients.” Keith Steverson, MA, vice president at wholesale broker Omega Insurance Solutions, a workers’ comp and admitted commercial lines specialist in Lakeland, Fla., says he’s seeing a split in the workers’ comp market right now. “In construction it is hard, but with non-construction it is much more competitive,” he says. “Carriers generally now all want the same types of risks.” He is also noticing a trend to apply more human underwriting. “For a while the swing went too far to online quoting without human contact. It is now coming back to template underwriting online for smaller, more mainstream risks, but allowing for underwriters to review for larger or more complex risks.” While Omega write in 43 states, Steverson says what’s new and hot at Omega right now is an exclusive A-rated program in Florida writing workers’ comp for residential janitorial and domestic workers.
THE IMPACT OF THE ACA Healthcare reform may soon make a significant impact on the US workers’ comp market, but so far the impact of the ACA has been minimal. That isn’t expected to be the case for long, and the effects could be both beneficial and detrimental. Ruth Estrich, chief strategy officer at Philadelphia-based MedRisk, a workers’ comp-
TOP 10 WRITERS OF WORKERS’ COMP INSURANCE BY DIRECT PREMIUMS Company
1. Liberty Mutual 2. Travelers 3. Hartford Financial 4. AIG 5. Zurich Ins. Group 6. State Ins. Fund WC 7. Berkshire Hathaway 8. Old Republic Intl. Corp. 9. Chubb Corp. 10. AmTrust Financial Serv.
8.7% 7.9% 6.8% 6.1% 5.0% 4.0% 2.6% 2.3% 2.2% 2.1%
Source: SNL Financial LC (2012)
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WORKERS’ COMP: FACTS & FIGURES »» 9 out of 10 employees in the US workforce are protected by workers’ comp insurance. »» $806.62: Average weekly benefit of a workers’ comp claim in 2011, an increase of 3% from 2010. (Source: US Chamber of Commerce) »» 1911: Year Wisconsin enacted the first official and permanent workers’ compensation law in the US. By 1949, all states had a workers’ comp system to provide benefits should an employee be injured at work. »» Texas: The only state where workers’ comp coverage is truly optional. There, certain large, private companies can self-insure for workers’ comp claims. About a third of the Lone Star state’s private sector employers—113,000 companies— have opted out of the system. (Source: NCCI) »» $35bn: Estimated workers’ comp premium collected by private carriers in 2012, a 10% increase over 2011. The increase was attributed to slight growth in the economy and average wages, bureau loss cost increases and carrier pricing actions. (Source: NCCI Workers Compensation 2013 Issues Report)
focused managed care company, says the impact could come in a variety of forms. One way would be through reduced severity in workers’ compensation. If millions of people who were previously uninsured became insured, one would hope these people would get healthier. For people who have chronic issues (such as asthma), having health insurance that allows them to manage their issues should impact on how quickly
they heal, become functional and get back into the workplace. Someone who is not getting care for their chronic issues will likely take longer to recover in a workers’ comp situation. (See also: “The Last Word,” p56) Estrich says another issue the industry is watching is access to primary care physicians (PCPs). “If you think about all of those folks who will start accessing healthcare through their PCP, we are headed toward a problem with access to primary care,” Estrich says. “People were already predicting that access to primary care will be a problem. It could be a perfect storm.” In workers’ comp, a lot of the treatment and first response in many cases comes via a person’s PCP. Estrich says it is conceivable that many PCPs, who are already in short supply, will elect to stop treating workers’ comp cases, which can be more challenging to deal with. This would obviously be a negative development for the workers’ comp market. The third issue Estrich sees is the potential for a cost shift. People without health insurance have an incentive to ascribe their injury to a workplace event when it may well have happened away from the job, simply because they would be covered by workers’ comp but not if the injury occurred away from work. With more people being covered by health insurance, they would be less likely to claim an injury happened at work. “Those are the three issues we need to be watching,” Estrich says, adding that anyone who is throwing out numbers about the impact of the ACA at this point would be premature.
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26-27_IB STATS Global Risks.indd 26
New WEF report says the potential of ﬁscal crises in key economies presents the highest risk, while pollution and technology accidents and abuse are other areas of concern
TOP 10 GLOBAL RISKS OF HIGHEST CONCERN IN 2014
Fiscal crises in key economies
Severe income disparity
Global governance failure
Profound political and social instability
Structurally high unemployment/ underemployment
Failure of climate change mitigation and adaptation
Greater incidence of extreme weather events
Failure of a major ﬁnancial mechanism/institution
The decline of trust in institutions, lack of leadership, persisting gender inequalities and data mismanagement were among trends to watch, according to survey respondents. Experts added further concerns including various forms of pollution, and accidents or abuse involving new technologies, such as synthetic biology, automated vehicles and 3D printing.
The World Economic Forum (WEF) recently produced a report examining the 31 biggest risks facing the world today, intended as a “stimulus for discussion” for world and corporate leaders at January’s WEF event in Davos, Switzerland. It was put together with the assistance of Marsh & McLennan Companies, Zurich, Swiss Re, the National University of Singapore, Oxford University and the University of Pennsylvania. Source for all data: World Economic Forum Global Risks Report
20/02/2014 3:44:16 AM
Fiscal crises, water crises and climate change top the global risks landscape
Fiscal crises Climate change Water crises
Unemployment and underemployment
Critical information infrastructure breakdown
Biodiversity loss and ecosystem collapse Cyber attacks
Political and social instability Weapons of mass destruction
Failure of ﬁnancial mechanism or institution
Global governance failure Pandemic
Extreme weather events
Data fraud/theft Man-made environmental catastrophes
State collapse Terrorist attack
Oil price shock
Economic and resource nationalization
Failure of critical infrastructure
Decline of importance of US dollar
Organized crime and illicit trade 3.5
The risks considered to be high impact and high likelihood are mostly environmental and economic in nature: greater incidence of extreme weather events, failure of climate change mitigation and adaptation, water crises, severe income disparity, structurally high unemployment and underemployment, and ﬁscal crises in key economies.
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20/02/2014 3:44:40 AM
FEATURE / SPORTS AND RECREATION
PLACE to play
As the family ‘staycation’ grows in popularity, an emerging market of entertainment centers and multi-activity facilities represents a golden opportunity for producers
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JUMPING OFF FROM THE FAMILY ENTERTAINMENT CENTER STARTING POINT After a bleak post-recession period, emerging macroeconomic trends suggest that Americans are ready to step out from the shadow of financial austerity and start to indulge in some of life’s lighter pleasures. However, American family entertainment looks a bit different this side of the Great Recession. The traditional ‘T&E’ budget is still modest for the majority of middle-class families, and most people are in search of local, low-cost entertainment as an alternative to the traditional summer vacation. Enter the family entertainment center—‘FEC’ in industry lingo. Trips to FECs boast fewer Disney castles but promise a great deal more climbing walls; there’s less lazing about on a Hawaiian beach but more rolling around in human hamster balls. FECs boast a wide range of activities in one place for one price and are alluring to consumers both in terms of their proximity and affordable entry fees. Access to go-karts, miniature golf, bowling lanes, trampolines, zip lines and an assortment of other activities obviously makes for major liabilities and insurance placement challenges. However, industry leaders believe it also represents a major opportunity for savvy agents and brokers.
MARKET TRENDS AND SIZE When the economy went south in 2008 and family entertainment expenses followed, traditional recreation centers like bowling alleys and miniature golf courses started to expand their offerings in order to attract customers. “No indoor center or fun center is identical in their operations and the type of attractions,” says Sam Muradyan, co-founder and manager of Liberty United Insurance, a North Hollywood independent agency specializing in the family fun space. “There are usually multiple activities because, from their point of view, they need to be able to attract more clientele.” In his role as senior vice president of sales and marketing for insurance carrier HCC Specialty, Mark Barry has observed the same trend. “Because of the economy, a lot of facilities are adding additional activities like climbing walls, bounce houses and laser tag,” Barry says. HCC Specialty recognized the potential for
ANNUAL COMMUNITY-BASED ENTERTAINMENT SPENDING PER FAMILY BY REGION
$714 South (20%)
$515 Midwest (21%)
$574 West (22%)
Source: US Bureau of Labor Statistics, 2000–8
There are several natural extensions from the FEC and recreation facility space, and producers can take advantage of where FEC-related risks overlap with other sports and recreation markets. According to Lorena Hatfield, K&K’s experience in “insuring the world’s fun”—as the company motto goes—is a good illustration of that overlap. “Our program coverage often pulls from expertise in other K&K divisions,” she says. “For example, a fairground may have musical entertainers, motorsports activities, food vendors and animal exhibits. Our staff focuses solely on sports, recreation and leisure program coverage, so we have the resources available to evaluate the unique risks inherent to entertainment activities.” K&K has recently developed programs for walk/run events in both the competitive and nonprofit categories, she says—a natural extension from insuring similar sports tournaments and competitions. Once they began, it was easy to “continue to introduce new programs based on the needs of our clients and growth in the industry,” Hatfield concludes.
insuring FECs and other facilities early on, establishing its Sports, Hospitality, Recreation and Entertainment & Leisure division in 2010. The group started exploring the space by insuring bowling centers, afterwards expanding to facilities as varied as miniature golf courses, laser tag facilities and FECs. From there, the insurer has seen nothing but growth—200% in 2013 and a projected 100% this year. There is certainly no shortage of clients, either. The International Association of Amusement Parks and Attractions estimates there are more than 2,000 FECs in the US, 22% of which have two or more locations. Consultants Amusement Entertainment Management even places FECs as the “third largest growth potential sector in the United States,” and Muradyan affirms that “the industry is definitely growing.” Including the number of multi-activity and recreation centers that don’t fall under the FEC heading, the potential market of family fun facilities swells even larger. “If you look around your own
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FEATURE / SPORTS AND RECREATION
ANNUAL ATTENDANCE BREAKDOWN FOR US FECS
Up to 50,000
DID YOU KNOW? • The most commonly added attractions in a recreation center include laser tag, educational water attractions and mini bowling, according to Amusement Entertainment Management. • While other entertainment sectors suffered heavily during the Great Recession, FECs actually saw an attendance bump in 2008 from 192,592 the previous year to 196,532. • 25% of Americans surveyed by IAAPA in 2011 said they had visited an amusement park or FEC within the last 12 months, with another 43% indicating they planned to visit one within the next 12 months.
• A typical FEC is designed to attract guests within a 15-mile radius, making it a solid community-based entertainment, according to Frazier Capital.
• FECs and other rec centers also hold events like lock-ins, Easter egg hunts, Hawaiian luaus and company nights that may require additional insurance.
1.5m and up
Source: IAAPA 2011 State of the Industry Report
town, you’ll probably see places like this going up,” Barry says. “I’m very bullish about this area.” He adds that as FECs and other recreation centers become better at marketing themselves and continue to expand their offerings, these numbers have nowhere to go but up.
INCREASED FUN MEANS INCREASED RISK Lorena Hatfield, marketing resources manager for K&K Insurance Group, has also recognized the shift in activities offered by recreation centers. In addition to the market’s potential as an insurance client, she sees the increased coverage challenges it represents. “The creativity in recreation centers is definitely a trend. We’re seeing trampoline facilities and other unusual risks like water walking and human hamster balls come into play,” Hatfield says. “While these activities may look entertaining, they definitely add to the risk level of the facility, and those activities may adversely affect premium or be excluded from coverage.” Muradyan also emphasizes premium variability, commenting that certain pieces of equipment represent higher risk. Trampolines, for example,
are among the most difficult attractions to insure – something that is reflected in insurance rates. Also affecting premiums is very high property and contents values, thanks to pricey furnishings and increased technological capabilities in some newer FECs. “We’re seeing brand new centers that are really upscale. Everything is swanky; it’s hip, it’s cool. It’s not just an old frame bowling center with beer and hotdogs,” says Barry, adding that the millennials who typically run these centers are looking to establish a ‘club’ vibe. “These are multimilliondollar facilities that need to be protected with a variety of high-tech additions.” And then there is the looming threat of personal liability for a center’s owners and employees. With such a great range of activities, the potential for a serious injury translating into a lawsuit is great. If the plaintiff’s attorney is ambitious enough, everyone from the facility owner to the employee overseeing the activity in which the participant was harmed could be named in the lawsuit. That’s something Muradyan says many of his clients don’t realize before they come to him. “I would say only 5% to 10% of them are aware of their employment liabilities, and that there’s a way to protect themselves through insurance,” Muradyan says. “That’s where an independent agent comes into the picture. We break down what they need and give them professional advice on their employment liability.” Fortunately, such complicated liabilities come with relatively easy answers. Uniquely crafted package policies are the industry standard for covering these unique and high risks, Barry says. At HCC Specialty, a general liability package includes CGL, premises, personal injury, liquor, hired/non-owned auto and employee benefits liability coverage. A separate property package features equipment breakdown, flood and quake, business income with extra expense, and replacement cost coverage, among others. “There are other ancillary coverages,” he points out. “We may also have situations where clients elect not to purchase certain policies, and so our broker partners work with them to customize their packages with what they need.”
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FEATURE / SPORTS AND RECREATION
OTHER TRENDS AND LIABILITIES IN THE RECREATION/ FEC SPACE MARK BARRY
We’re seeing brand new centers that are really upscale. Everything is swanky; it’s hip, it’s cool. It’s not just an old frame bowling center with beer and hotdogs. These are multimilliondollar facilities that need to be protected with a variety of high-tech additions.” LORENA HATFIELD
“Extreme sports and fitness activities are an emerging trend; as these activities become more mainstream we’re hopeful that better risk management protocols and safety equipment will be developed and reduce the potential for injury.” MARK BARRY
“In my experience, you do have the aspect of family businesses [in the FEC space]. Traditionally, these facilities were passed on from one generation to another, so you still do have a fair amount of that. We’re also seeing ones that are being run as new facilities, and particularly some of these new high-end ones built from scratch with all of the different attractions within it.”
While producers seek coverage for the more obvious liabilities associated with unusual and extreme activities, they shouldn’t forget to counsel clients on limiting simpler risks associated with any sports and recreation facility. “Often [clients] simply overlook basic safety such as a parking lot that’s poorly maintained, stairs that are not well lit, wet floors or trees with dead branches that need to be trimmed,” Hatfield says. “Clients can reduce their risk of claims just by taking a walk around the facility and taking a hard look at the upkeep of the premises. Slips, trips and falls consistently contribute to a majority of claims.” Muradyan also says he makes a regular practice of referring FEC owners to risk management strategists specializing in the family fun and recreation space, such as Northern California’s Event Planners Association. “There are a few different safety programs online for family entertainment centers, so we refer [clients] out to these programs where they can take an online course and even get certified,” he says. “We
AVERAGE US CONSUMER ANNUAL SALARY DISTRIBUTION
15.61% Insurance and pensions
11.15% Apparel and services
5.49% Everything else
Source: Dept. of Labor, 2009
strongly recommend this to everyone, especially the newer ventures.” It won’t necessarily help clients find lower insurance rates, Muradyan says, but could definitely decrease claims activity.
BRANCHING INTO THE FEC/MULTI-ACTIVITY MARKET While competition and increased commoditization in the professional and amateur sports insurance space has edged out many would-be producers, Barry believes the recreation and leisure market is ripe for prospective producers in all market sizes. “I would say this is the space to really think about as an agent or broker,” he says. “Big brokers aren’t targeting this account because it’s not big enough for them. There are brokers who specialize in this category, but most of our business is coming from local, main-street brokers.” While there is “no real profile” for the ideal producer, Barry says experience in insuring other recreational facilities such as roller-skating rinks or bowling alleys could be a step up for producers making cold calls to FECs. “If a broker has already been targeting bowling centers, then there would be synergy to get into other types of family entertainment centers,” he says. “It’s a different risk, but the broker is already well versed in exposures faced by activity centers and I think it would be easier for them to go to a prospect and demonstrate expertise in the sports and family fun center category.” Whatever producers lack in personal knowledge about FECs, they can make up for it by partnering with an experienced, qualified carrier, Hatfield adds. Of the more than 6,000 brokers who work with K&K, “some specialize in sports and recreation
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risks, but many of the agents … only place one or two accounts with us.” She notes that experienced underwriters are “a great resource for agents who may not have great depth of experience within the specialty programs” required by a family fun center. “We’re also able to support agents with books of business or larger risks with complex coverage and loss control needs,” she says. Once producers have built up a solid book of business, servicing the account becomes fairly straightforward. As with clients in most sectors, owners of recreation facilities should be revisited at least once a year, at which time producers should inquire about any plans to add new activities or attractions. “If there are any major changes in the operation, [brokers] need to know about it in case of a specific exclusion for something like trampolines or climbing walls,” Barry says. “That doesn’t mean you
can’t get the coverage [if you have those exclusions], but you’ve got to notify the insurance companies and have them assess it and probably get a premium change.” A yearly tour of the facility is also in order, as brokers can identify any new risks or equipment that may necessitate new or altered coverage. And when claims come up, the same mentality required for servicing accounts in any sector is needed. “Brokers should advocate on behalf of the client, make sure the claim is submitted properly, and ensure adjusters arrive on a timely basis,” says Barry. “You need to develop a relationship of trust with the client.” For those who get it right, the rewards are great. “It’s a lot of work, but it’s been a blessing,” Muradyan says of Liberty United’s choice to focus exclusively on family fun clients. “We set a very good reputation in the industry for our services, and we’re very happy with what we’ve accomplished so far.”
How do you
S TAY C O N F I D E N T when
The HCC Sports and Recreation Facilities program offers a comprehensive package policy that addresses your clients’ unique risks and allows them the freedom to pursue opportunity with confidence. A process of insurance we call Mind over risk. 401 Edgewater Place, Suite 400, Wakefield, MA 01880 (781) 994 6000 SportsRec@hcc.com
HCC Specialty Underwriters is a member agency of HCC Specialty, a division of HCC Insurance Holdings, Inc. Not all coverages or products may be available in all jurisdictions. The description of coverage in these pages is for information purposes only. Actual coverages will vary based on local law requirements and the terms and conditions of the policy issued. The information described herein does not amend, or otherwise affect, the terms and conditions of any insurance policy issued by HCC.
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FEATURE / NONPROFITS
NONPROFITS need your help
With unique and often unknown exposures, many organizations need a broker’s help to make sure they’ve got it all covered It is estimated there are approximately 2.3 million nonprofit organizations operating in the US, and more than 1.6 million of them are registered with the IRS. Not nearly that many have the proper liability insurance coverage they need, leaving those organizations and the people who run them one event away from a potential financial disaster. Nonprofits are legally constituted organizations whose primary objective is to support or actively engage in activities of public or private interest without any commercial or monetary profit purposes. Their ranks include organizations such as charities, religious institutions, homeowners associations, museums, colleges, trade and professional associations, foundations, hobby clubs, fraternal societies, chambers of commerce, credit unions, veterans organizations and more. They are run by controlling members or boards, many of which have paid staff, including management, while others utilize unpaid volunteers or even executives who work without compensation (or for a token fee to meet legal requirements). Virtually anyone associated with a nonprofit— officers, directors, employees and even volunteers —can be subject to liability. Nonprofits have unique exposures and therefore unique and varied insurance needs, typically encompassing coverages 34 | MARCH/APRIL FEBRUARY/MARCH 2014 2014
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DID YOU KNOW? • The Bill and Melinda Gates Foundation is the wealthiest non-college nonprofit organization in the US, with an asset trust endowment of $40bn (including nearly $13bn from Warren Buffett). The foundation employs 1,200 people and has made total grant payments exceeding $28bn since its inception, including $3.4bn in 2012 alone. Source: Bill and Melinda Gates Foundation Fact Sheet
• In 2010, nonprofits accounted for 9.2% of all wages and salaries paid in the US. Source: The Nonprofit Almanac 2012
• 2.3 million: Estimated number of nonprofits operating in the US, including 1.6 million registered with the IRS as of 2012. Source: The Nonprofit Almanac 2012
• 63% of nonprofits have reported a D&O claim within the past 10 years (2003–13); 85% of claims were employment related (hiring, firing, etc). D&O claims are filed twice as often in nonprofits as in private companies. Source: Towers Watson Directors & Officers Liability Survey, 2012 Summary of Results
such as directors and operators (D&O) insurance, employment practices liability insurance and fiduciary liability insurance, which they normally procure with the guidance and expertise of independent agents and brokers. A relatively small number of insurance companies provide coverage for nonprofits, and even fewer specialize in underwriting this sector, meaning agents and brokers wishing to break into this niche market need to do their homework first. Insurance Business America spoke to a pair of experts who do specialize in the nonprofit sector, and their advice provides unique insight into the issues, challenges and opportunities of the non-profit market, as well as some of the misconceptions nonprofits have regarding their risk exposure.
KNOWING THE RISKS “Non-profits often view management liability coverages as luxuries, but they’re very important in protecting the balance sheet,” says Steve Cohen, management liability senior underwriting manager at Victor O. Schinnerer & Co., Inc, in Chevy Chase, Md. “Trade groups that set industry standards or provide credentialing or accreditation can find
themselves as the defendant in anti-trust lawsuits, as well as professional liability or errors and omissions claims. Cohen says membership organizations in particular should be focused on buying privacy and security coverages to address their exposure in handling large amounts of personal identifiable information. He also cautions that all organizations, of all sizes, can be the target of employmentrelated lawsuits—even by volunteers. “Typically, smaller charities and foundations simply don’t view these exposures as meaningful, as they feel their charitable nature creates goodwill internally and externally; this simply isn’t the case,” Cohen says. “Everyone is a potential target, and brokers should be well versed in the spectrum of exposures to discuss with their clients.” Riley Binford, CIC, executive vice president at Charity First Insurance Services in San Francisco, says his company specializes in dealing with smaller- to mid-size nonprofits that are not CASE IN POINT
Quick examples of how market specialists partnered with brokers to solve problems for nonprofits RILEY BINFORD CIC, CHARITY FIRST INSURANCE SERVICES
“We recently looked at a public entity spinoff that was set up to coordinate the municipality’s various nonprofits that were providing services within its city limits. The municipality had a large retention and they did not want to subject this spinoff to the retention. The agent was having a very difficult time finding coverage because the city had not officially separated this spinoff and it was really still in the name of the municipality. We strongly suggested the city take the time to establish a separate 501(c)3 for this organization, with a completely separate board. Once they did that, finding coverage was no longer a problem.”
STEVE COHEN VICTOR O. SCHINNERER & CO., INC
“With the current market we are seeing, there is a move to non-renew accounts with any claims activity, whether there was a payment or not. Most of these accounts can easily find new coverage, but those with particularly significant claims are finding it difficult to secure coverage. Recently we have been able to help two brokers secure coverage for insureds who had been involved in claims that we felt would never happen again.”
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FEATURE / NONPROFITS
necessarily sophisticated when it comes to their insurance needs. “Probably the biggest misconception we see is nonprofits not fully understanding the difference between directors and officers liability and general liability. Agents and brokers have an opportunity to sell both if they would clearly differentiate between the two,” Binford says. “Years ago, the best way I’ve heard D&O explained is that it is basically ‘hurt feelings’ insurance. Someone has been offended or angered or has had their feelings hurt from something the board of directors or its officers did. And of course, D&O for nonprofits is now much more than that, with the inclusion of employers practice liability.” Binford also advises agents and brokers to simply keep in touch with nonprofit clients on a regular basis. “Right now, nonprofits are getting very creative on how to increase their revenue/funding flow. Unfortunately, this can inspire some very risky enterprises that the nonprofits should probably never consider,” Binford says. “As the nonprofit’s risk manager, the agent or broker can give great advice on whether or not the nonprofit should venture into a new area.” Agents and brokers also need to keep an eye on their clients’ existing coverages, as carriers seek rate increases or look to restrict terms and conditions of coverage. “Testing the market is very
5 STATES WITH THE MOST NONPROFITS
Florida California: 149,175 New York: 94,108 Florida: 71,344 Pennsylvania: 64,207 Ohio: 61,918
STEVE COHEN VICTOR O. SCHINNERER & CO., INC
“You have to start networking if you’re not already in the nonproﬁt marketplace. Join local business organizations, or at least attend their events, so you can begin connecting with the likely many nonproﬁt organizations in your respective area. Also, connect with knowledgeable and trustworthy insurance underwriters who can aid your basic education, especially on directors and oﬃcers liability and employment practices liability exposures germane to non-proﬁt organizations.” RILEY BINFORD CIC, CHARITY FIRST INSURANCE SERVICES
“It’s a great industry, which for the most part shows great loyalty to an agent, as long as that agent provides them some attention and decent service. A great foot in the door is workers’ compensation. Workers’ compensation is the biggest pain point for nonproﬁts, and if you can solve their WC problem, the rest of the business should ﬂow to you.”
reasonable due diligence to validate the incumbent carrier’s position. If there are material increases in employees or revenues or other new exposures, the organization should be sure to evaluate both the amount and scope of its coverage in order to ensure it is appropriate,” Cohen says.
EDUCATE AND PROTECT New York
ADVICE FOR BREAKING INTO THE NONPROFITS MARKET
And then you have those organizations that aren’t yet covered at all. “Some industry experts feel that the nonprofit marketplace is competitive due to the large proportion of uninsured organizations, making it an opportunity for brokers and potential policyholders to seek multiple, very competitive bids,” Cohen says. “And it is very important. The premiums are well worth the protection against an employment-related lawsuit, which are not uncommon for nonprofits.” Cohen adds that many people take directorships on small nonprofit boards without considering that doing so exposes their personal assets to liability. Directors and officers can be sued for a wide range of issues, including fiduciary duty breaches, failure to fulfill the organization’s nonprofit mission, misuse of funds, or improper
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HARD TO PLACE PROGRAMS? 5 STATES WITH THE FEWEST NONPROFITS Alaska
BLE TRI TYP Wyoming: 4,313 Alaska: 4,967 Vermont: 5,566 Delaware: 5,727 North Dakota: 5,734
conduct of volunteers or employees. Legal fees and damages resulting from nonprofit D&O claims often exceed the organization’s liquid net assets, which may prevent the organization from indemnifying them. If the nonprofit doesn’t have a decent D&O policy, a director may be put into the unenviable position of having to rely on their homeowner’s insurance, which probably wouldn’t provide much, if any, coverage in the event of a lawsuit. While the insurance marketplace has actually expanded for the nonprofit segment in recent years, providing more choice among carriers with broader coverages, this development has not led to softer pricing. “Nonprofits, like any other industry segment, are not insulated from the insurance industry’s overall results from the mini-CATs and other weather-related events that have hammered the insurance industry over the past few years,” Binford says. “While there might be more choice among carriers, pricing has not necessarily come down. What is available now are more carriers to choose from in the event a nonprofit is dissatisfied with their current carrier.”
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FEATURE / MARINE INSURANCE
A surge in overseas trade, twinned with overcapacity in the ocean marine market, makes the world’s oldest insurance space increasingly difficult for clients to navigate The ocean marine insurance market is facing a tough conundrum. While global trade has picked up in both established and developing economies, major loss events like Superstorm Sandy and the Deepwater Horizon oil spill, coupled with a surge of new market entrants, make navigating the marine space increasingly difficult. In fact, the marine insurance industry has suffered a 17% decline in net-written premiums from 2006 to present, with a rickety 37.2% expense ratio, according to rating agency AM Best. While these challenges serve as a reminder to tread carefully while sourcing and writing marine risk, they can also obscure the ocean of opportunity that still exists in the marketplace.
A RECOVERING ECONOMY The global economic recovery is both the source of some of the industry’s biggest opportunities and its biggest struggles. Darren Norris, executive director for broker RK Harrison’s cargo and stock throughput team, has watched the ocean marine market fluctuate for more than 25 years. From his office in London, he oversaw the devastating effects of the financial crisis and its aftermath. “When the economic crisis was in full flow, everybody’s budget was reduced. Therefore, they
bought what they had to buy for the price they had,” Norris said. “Now, in my opinion, because sales are increasing, there seems to be a little bit more money in the budget. They’re starting to purchase more interesting lines of coverage.” Despite the U.S.’s relatively small presence in the global marine market, Norris said he has seen business grow stateside as well. In fact, roughly 28% of RK Harrison’s business comes from the U.S. and it’s growing at a steady clip. And it’s not just large, global trade companies that are ramping up marine demand. According to Allan Ilias, marine cargo lead underwriter with Catlin US, smaller businesses are doing more insured, overseas shipping. “[Our business] runs the gamut from small importers/exporters to Fortune 500 companies,” he said, noting that that’s been a consistent trend in recent years. “That’s the wonderful thing.” While that growth obviously fuels policy sales, particularly in lines like stock throughput and trade disruption which haven’t seen as much uptake recently, it has also led to a surge of entrants in the marine market. That’s worrying to Sean Dalton, a Zurich executive and a graduate of the State University of New York Maritime College. “I think even pre-’08, the attraction of new capi-
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2013 PREMIUMS SOLD, IN USD 1.000
tal and new markets in the business has caused supply to outpace demand,” said Dalton, who has worked as head of marine with Zurich North America since 2010. “It’s really led to a lot of new entrants embracing a commodity approach to the business – ‘me too’-type offerings.” New underwriters in the marine space are lowering the standards for everyone by cutting rates, leading to a quick drop in premium values — $3.1 billion in 2006 to just $2.6 billion 2012. “It’s just not a sustainable business model,” Dalton said. The market share these underwriters are hoping for includes larger vessels, larger shipments and an overall higher cargo value. The massive increase has led to the increased placement of property under cargo policies, even when those large property contents schedules go beyond the scope of traditional cargo coverage. That’s helped along by pricing advantages and deductibles much lower than commercial clients would find in the property market.
Unfortunately for brokers seeking sufficient cover at an affordable price, such losses have made the task of sourcing risk for operations both large and small much more difficult. As reinsurance costs rise, carriers in the marketplace pass along some of that risk to clients. And, because it is impossible to completely track and measure value accumulations onboard a vessel, accurately representing catastrophe risk through premiums is a challenge. “There’s no precise way to know what your accumulation of values is on a vessel or in a port area,” he pointed out. “There’s a lot of work being done in that area, but it’s not as exact as a property-type area where you have excellent cat mapping and modeling capabilities.” Brokers hoping to sort through these difficulties will need to work with carriers who offer value-added services such as marine risk engineering to make their accounts more desirable and score a better deal for underwriters.
THE WIDESPREAD CATASTROPHE CRISIS
Identifying the right carriers with whom to partner may be tough, however, given the recent surge of new entrants into the market. If Dalton’s belief that younger carriers view marine insurance as a commodity is correct, brokers will have a lot on their plates when it comes to matching markets with a client’s priorities. Working for a global broker, Norris says his faith lies with larger insurers in the U.S. market. “I think ocean cargo insurance is still with the big companies,” Norris said. “It very much feels to me that the main players in the U.S. cargo market are the same as they have been for a good number of years now.” That may be because larger, more established carriers have the resources their younger counterparts do not when it comes to servicing an account from the cradle to the grave. At Zurich, Dalton points to the company’s value-added services like marine construction and container load and stow operations when explaining the company’s success and future longevity. “We feel it’s imperative as a value proposition we offer to our customers,” he said. “Of all our new business in marine, two-thirds comes from existing Zurich customers [because] we don’t just look at it
New, cutthroat competitors in the marketplace aren’t the only reasons for marine’s current difficulties, however. There were at least 103 disasters at sea in 2013, according to the Maritime Bulletin, while the industry continued to reel from larger loss events in past years. “Compound the Thai floods, the Japan earthquake and tsunami and Superstorm Sandy, and you really had kind of a perfect storm of challenges in front of you,” said Dalton. Sandy was a particularly devastating cat loss, with the marine market bearing the brunt of the burden. According to an estimate from AIG, Sandy-related marine losses are estimated to fall in the $2.5 to $3.5 billion range. That’s 10% of total claims payouts from the incident. In fact, weather accounted for half of the vessels lost between 2009 and 2012, a report from the International Union of Marine Insurance found. And weather is not the only problem. A significant number of non-catastrophe losses in the marketplace, including the sinking of the Costa Concordia off the coast of Italy and Deepwater Horizon oil spill in the Gulf of Mexico, have also plagued insurers looking to level out their balance sheets.
720,980 Marine Liability:
592,150 Offshore Energy:
1,918,989 Source: AIMU
UNSTABLE MARKET PLAYERS
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FEATURE / MARINE INSURANCE
THE EXPANSION AND OPPORTUNITY OF THE ARCTIC OCEAN The Arctic Ocean’s new shipping rules may benefit the commercial marine space, AIMU president says
as a marine transaction — we look at it as how to best serve that customer.” Requisite attention to and policies that fulfill various global trading regulation is also key when advising accounts that do global business. Premium taxes and penalties are at risk if an insured does business outside of the local jurisdiction in some areas, so insurance applications that reflect those exposures are of immense value. “People do not want to run amiss of local regulation,” Dalton said. At Catlin, the carrier prides itself on its handling of marine claims — something Ilias says should be a top priority for brokers servicing all accounts. “From the claims standpoint, you want someone there to support you,” he stressed.
THE FUTURE OF MARINE Despite the onslaught of difficulties ahead, Dalton can’t help but be bullish about prospects for the marine market. “I have the good fortune to look out on New York Harbor and I see nothing but assets we have insured or could potentially insure. For companies that can do multiple things very well, they’re going to have a bright future,” he said. “The exposures are growing. World trade is growing. The industries we insure are going to have increasing needs, and they’re going to need insurance products to meet those needs. I think the opportunities have never been greater.”
The continually expanding Arctic Ocean may receive a new set of shipping rules as members of the International Maritime Organization continue to discuss the future of the region. The rules, part of the Polar Code, could impact sales opportunities for carriers and producers selling ocean marine insurance — though not for some time, says American Institution of Marine Underwriters (AIMU) president John Miklus. “The Polar Code is an interesting topic and it’s something we’re watching,” Miklus said. “The Arctic Ocean isn’t commercially viable yet, but it’s going to be at some point in the future, and the insurance implications are big, particularly if the polar ice cap keeps melting.” The Arctic Ocean has already expanded greatly over the past 30 years, with summer sea ice shrinking by about two-thirds. And while the waters are treacherous, the appetite for exploration among global gas and oil giants is plentiful. Up to a tenth of the world’s undiscovered oil and a third of its undiscovered gas are thought to lie under Arctic waters, Reuters reported, and a northern trade route would cut the sailing distance between Asia and northern Europe by roughly 40%. Currently, no international conventions regulate shipping operations in the Arctic — something that concerns both global regulators and AIMU. “If a ship gets in through [in the Arctic], the risks from an insurance point of view are tremendous,” Miklus said. “It’s a very unforgiving environment if something were to go wrong. It’s not like you can call up AAA and they’ll send out a tow truck. It’s going to be very difficult to salvage a ship that has a problem.” The expected changes to the Polar Code have been years in the making, and are expected to regulate pollution, safety, training and certification for ships crossing the ocean. Additionally, any vessel traveling through the high Arctic — above 72 degrees north — must agree on a separate policy with its insurer to cover the associated risks. A draft of the code is expected soon, with rules going into effect by 2016.
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FEATURE / THE
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10 | NOVEMBER/
Producers at WHA Insurance goodbye to Agency are their comfort saying of zones. the Future: The The agency, Evolution of based in Eugene, Property and its focus on Ore., is expanding Insurance Distributi Casualty commercial on. “The role that lines and new areas developing of specializa tion within role they played agents are playing today transportation is not the those lines: insurance for in risk selection 20 to 30 years ago, specificall example. taxis and buses, and pricing,” for co-author says Rob Hartman,y “Historically, of the report. we have had “The agent used to their agents who were very used to be areas of specializa underwri on the front there,” says tion and they line of Vince stayed writing ting and pricing of a director at WHA, Ada, information technolog policy, had authority, did underwhich inspections y employs approxim the customer, people. “But of homes, knew knew the business,” you ately 50 “There’s you have done can’t just sit comfortab says Hartman. a lot less need ly in what in the last five for that today, in all personal have to learn or eight given years. You multiple industries lines—and that commercial—carrie increasingly WHA recently .” in small black-box underwrirs are moving to more and is implemen hired eight additional employees of a ting ting model, to accurately company interact technologies that will where the fill out an task is help the 50 more effectively application The agency to 60 questions with customer is also stepping about the business and answer s. questions up its marketing in order to or 10 to 20 grow sales in efforts it—and about you and the car personal and lines, and is and how you that’s it.” commerc taking measures drive Multichannel to boost efficiency ial WHA’s experienc or direct sales . e is emblemat increasing happening by carriers ic of what steadily, and at many small are is accounts auto insurance and mid-size agencies and for 70% of , which insurance brokerages premiums, commoditized, across the are becoming is becoming US. Many Hartman says. more efficient, marketing focused on Carriers are technology-driven, more commerc also spending more aggressively, with the are also developin ial lines and specialize industry than $6bn d. They In g new approach a year some lines, They may have es to marketing notably personal on advertising. little choice. . competing with auto, carriers “There are agents and brokers. signs that are the economic traditional agent s of the model are beginning THE DIRECT according to of all P&C premiums to unravel,” CHANNEL a recent McKinsey Direct written by independewere & Co. report, Agents personalsales have punched a nt agents noticeable auto, and hole in Source: the hole is Market Share growing larger A.M. Best/Independe Report 2013, nt Insurance
Agents & Brokers
2013 | 11
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BUSINESS STRATEGY / SUCCESSION PLANNING
SUCCESSION PLANNING When it comes to succession planning, there are some essential points to bear in mind to ensure that you maximize the value of your business and achieve a successful exit, explains Craig West
Most business owners go into business planning to maximize the value of the business and extract that value (most often by selling) when they exit. But the research tells us most don’t have a plan or strategy around how to do this and therefore often fail to either maximize or extract the value or both. Achieving a successful outcome is really about focusing on two areas: internal and external.
INTERNAL AREAS When it comes to internal areas, the question to ask is ‘what are the key things we can focus on to ensure our business is valuable, attractive and saleable?’ In my experience, there are eight key areas to focus on when answering this question:
customer service online presence the people you employ your pricing strategy your marketing materials: I met a financial adviser recently who told me he looked after high-net-wealth individual clients, was extremely good at what he did, and as a result charged a premium. But he then gave me a business card on very flimsy paper that looked like it had been printed as cheaply as possible
Revenue Recurring revenue is vital. Do you have trail, contingent or incentive commissions, or another type of residual income trail?
Size Simply put, ‘size does matter.’ There is plenty of research supporting the fact that businesses with a turnover of $5m or more nearly always sell at higher multiples than their smaller counterparts. While I am not in favor of growth for growth’s sake, designing your business to grow to at least this level of turnover will maximize value.
Sales and marketing Your business needs to be able to generate new business, leads, inquiries and, ultimately, sales without relying on either your or a key person’s skill and sales ability. All businesses need a sales and marketing machine.
Business model Is your business operating under a boutique or scale model and, even more importantly, is every aspect of your business aligned with your model? This includes:
Systems Save yourself time, effort and money: not only are systemized businesses far simpler to run, far less stressful and generally far less risky, but they are also more valuable.
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Employees Do you have an employee incentive plan in which employees are rewarded based on performance? This could either be a profit sharebased plan, or ideally an employee share ownership plan. This substantially reduces one of the key risks for buyers—that your employees will exit when you do!
Corporate governance and compliance Corporate governance and compliance is often ignored by business owners as either something only large businesses need to worry about or something that’s simply too hard and far too boring. Focusing on this area can add considerable value (particularly when we look at attracting the right type of buyers), as well as reducing risk.
Owner dependence The business must be able to run independently of your involvement. For example, you must be able to leave for two months for a holiday in Europe without contacting the office, while the business maintains, continues and even improves its performance in your absence.
EXTERNAL AREAS When it comes to external areas, the question to ask is ‘what do we need to prepare to attract the right buyer (who will pay more)?’ Having bought and sold several businesses over the last 15 years, there are several factors that stand out to me when answering this question:
Strategic buyer For every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers. The most common example of this is complementary products and services.
Information memorandum (IM) document It is amazing to see the number of businesses, which are otherwise quite valuable, whose owners are prepared to sell up on the basis of a cheap, home-made flyer-style document. A wellprepared IM will be able to attract and convince the right buyer.
Tax planning Every exit has several different elements of taxation; nearly always capital gains tax, and
sometimes other taxes as well. Inadequate planning in this area can cost you a large percentage of the sale price in taxation.
Due diligence and documentation Many transactions fall over at this point, but this can actually be used to assist in improving the value of the business. If all of your documentation is complete, accurate, up to date and demonstrates a well-managed business, it will support your value proposition, not detract from it.
Negotiation Being in a position to create some competitive tension by attracting several of the right buyers is a good start, but the conduct of the negotiations and discussions leading to the actual sale is a very important aspect of the process.
Legal agreements Often business owners are concerned that legal agreements will ‘scare off the buyer,’ but this is very rarely the case. Far more importantly, legal agreements need to be structured to protect you after the sale, particularly regarding the key issues of any warranties, assurances provided, and also any event or finance included as part of the sale terms.
Corporate advisers Business owners should not try to sell without the best advice. Well-represented businesses are generally taken far more seriously and are perceived to be far more valuable than those without representation. A corporate adviser who has a reputation for selling good-quality businesses automatically positions your business in that category. Importantly, post-exit you will also need assistance with asset protection, estate planning and ongoing investment planning. The change from business owner to self-funded retiree is substantial.
KEY OUTCOMES The correct implementation of the items outlined above will achieve two key outcomes: maximize the value of the business and successfully extract that value upon exit.
About the author Craig West is the president of the Australian chapter of the Exit Planning Institute. He is a strategic accountant who has over 20 years’ experience in advising business owners. His practice, Succession Plus, provides mentoring, advice and strategy for clients looking to prepare their business for a successful exit. He is currently working on a PhD in Business Succession and Exit Planning
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BUSINESS STRATEGY / CONTENT MARKETING
MARKETING HERE TO STAY Content marketing might be the latest marketing buzzword but what does it mean and more importantly, can it add value to your advice business? One thing for certain is that for the foreseeable future, content marketing is here to stay. Peter Bowman explains all
Content marketing involves creating and sharing content in order to promote your business, retain existing clients and attract new ones. The content you create is stored on your website, which acts as your online shopfront. You share your content by adding website links on your social media pages. So how is content marketing different to traditional marketing? Traditionally most services used a mix of television, newspaper, radio and telephone directory advertising. This provided people with the ability to find you and make an appointment. When you think about it, itâ€™s really one-way communication â€“ your business sending a message to the market place. If they were satisfied with you, they might tell their friends about you and make a referral.
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Content marketing, however, is more like twoway communication. People have the opportunity to interact with you and share your content with their own connections.
WHY SHOULD YOU CARE? There are six reasons why you might consider adding content marketing to the marketing activities of your business. The sharable nature of social media makes content marketing highly believable when it is shared and liked by your followers. Prospective clients are more likely to trust a referral from a friend than they will trust an advertisement. Therefore, content marketing provides a great way to introduce your expertise to people who you don’t do business with yet. In some ways, it’s the modern version of a referral – it’s a virtual handshake. Traditional advertising is seen by many consumers as an interruption to their television viewing, radio listening or newspaper reading. Content marketing, given that it’s ‘news you can use’ or ‘entertainment’, is more likely to engage with consumers than interrupt and annoy them. If you’re not on social media, you are likely to be seen as old fashioned. Once upon a time a business needed a fax number and a website just to be considered credible. The same can now be said for Facebook and LinkedIn company pages. Tomorrow’s clients live with social media. Teenagers today don’t know what life is like without the internet. And although it’s medically possible, many don’t think they can live without a Facebook update or a tweet. The point here is that the internet has changed the way we communicate and interact, not only with each other, but with businesses too. If you don’t embrace change like this, you’re likely to be limiting your business’ longevity. Content marketing is highly measurable. With inbuilt metrics within social media tools and Google Analytics for your website, you can see how widely your content is shared and what this marketing effort and cost is bringing to your business. Accountability in marketing is always a good thing and content marketing allows you to assess the cost of a new client clearly. The more content you have, the more credibility you have with search engines like
TRADITIONAL MARKETING VS CONTENT MARKETING CREATE AND PLACE YOUR MESSAGES
ACTIONS TAKEN BY POTENTIAL CLIENTS
• Contact you to make an appointment • Potential to tell their friends about you by verbal referral
• Contact you to make an appointment • Potential to tell their friends about you by verbal referral PLUS ONLINE THEY CAN
• Follow you • Like you • Comment on and ask questions about your content • Share your content with their friends
Google. Content marketing can help improve your Google rating. More and more people are going online to search for assistance rather than look through the telephone directory.
SO WHAT CONTENT SHOULD YOU CREATE? Creating sharable content is the key challenge of effective content marketing. Sharable is the key word here. Sharable content identifies a problem, helps solve a problem, entertains or a combination of all three. By sharing this kind of content, you have the opportunity to be seen as the ‘go to’ person for help within your community on your area of expertise. Effective content marketers avoid straight selling. They do this as straight selling is likely to be seen as ‘spam’ by an audience and they are likely to switch off. The types of content you can create is really only limited by your imagination and your marketing MARCH/APRIL 2014 | 45
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BUSINESS STRATEGY / CONTENT MARKETING
budget. Typically though, content marketers produce things like: • • • • • • • • •
Fact sheets Did you know... blog articles White papers Case studies How-to guides and e-books Interviews Podcasts YouTube videos Video recorded seminars
WHICH SOCIAL MEDIA CHANNELS SHOULD SHARE YOUR CONTENT? There are new social media channels popping up every day, but the most popular ones are Facebook, LinkedIn, Twitter, Instagram, Google+ and Pinterest. It makes sense from a content marketing perspective to create pages on the social media channels where your existing and ideal clients are. It also makes sense to have a personal LinkedIn profile so your professional network can connect to you online.
WHAT DOES IT COST? In traditional advertising (radio, newspaper, television and telephone directories) there are usually two costs: the cost to create the advertisement and the cost of advertising space itself. Content marketing only has the cost of creating the content, as all of the popular social media channels are free.
HOW DO YOU MAKE THE DECISION TO EMBRACE CONTENT MARKETING? Using the principles from my book, Service 7, here are seven questions you should ask yourself before jumping head first into content marketing. Can it add value to our business?: How you define value will depend on your business. But for most, it comes down to client satisfaction, business income and profitability. If you don’t believe content marketing can add value on these measures and your own, then perhaps it is not right for you. Does it help us understand our clients better?: Understanding your clients and meeting their needs is certainly a key for success within any service. By connecting with your clients online, not
1 Peter Bowman is a private marketing consultant for AM WEEK, and is the author of Service 7, a book that helps professional advisers market their firms more effectively.
only can they follow you, but you can keep up to date with what’s going on in their world in a nonintrusive manner. Does it help us tell our story better and build our reputation?: Content marketing may afford you the opportunity to tell your story better over time. Articles and factsheets can demonstrate your expertise and opinion leadership. YouTube videos are great at helping explain complex matters and sharing personal messages where traditional face-to-face communication would usually work better. Can it help us attract new clients?: As with assessing all business development decisions where you intend to make an investment of time and money, it’s prudent to ask yourself how effective this effort might be. If no one is using the telephone directory or reading the newspaper any more, then ask yourself if content marketing offers a way to connect with prospects and potential clients. Will it help us deliver better customer service?: Not only might you be able to attract new clients with content marketing, you might also be able to service them better. Perhaps there are frequently asked questions or difficult issues you can share some insight on. Or perhaps you can offer tax time reminders as a part of your content marketing – so you are delivering a part of your service online too. Remember, content marketing is two-way communication. Can it help us enhance our service design?: Content marketing has the ability to change the way you deliver your services. Perhaps it’s time to create an online service capability that might include an introductory client fact page and a welcome video. Will it help us create the future, or is it just change for the sake of change?: As with all innovation it’s important that you’re confident you are making changes within your business because it makes sense to. It’s also likely that your competitors are considering content marketing too. Given the increasingly online nature of the world we live in, content marketing isn’t going to go away. As with all marketing initiatives however, it’s important that you take some time to create your goals, plan your messages, select your channels and assess the results to ensure your content marketing strategy is working for the betterment of your business.
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BUSINESS STRATEGY / RELATIONSHIPS
CLIENT RELATIONSHIPS HOW TO DRIVE SALES While you may have all the skills, experience, knowledge and expertise in the world, if you can’t get your relationship marketing strategy right, you’re never going to see exponential growth in your business. Nikki Heald explains
So you think you’re pretty savvy technically, right? You know all your stuff and have spent years acquiring skills and experience. Additionally, you know your product inside out, back to front. You believe you are the technical guru. Unfortunately, however, you can’t seem to hit your sales targets and don’t understand what’s going wrong… Welcome to the world of relationship marketing – a process whereby sales are increased via the relationships you have created with others. Technical is out; rapport is in! At a time when competition for clients is intensifying and profits are shrinking, building effective alliances has never been more vital. The reality is that business is not business – business is personal and people do business with people they like.
HUMAN NATURE Unfortunately, not everyone we meet in business will instantly warm to us. Human nature is such that people can be indifferent, inconsistent and unpredictable. Diversities in personality, viewpoint and needs come into play, and rolling out a generic ‘client relationship strategy’ simply won’t work. Successful sales professionals realize that their
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10 CLIENT RELATIONSHIP TIPS 1. Invest time, energy and commitment in getting to know your client: It won’t happen overnight.
results are achieved due to a willingness to adapt to their prospects. They individualize their approach to client interactions and build unique connections. They research, ask questions and observe to gain insight. They realize clients are not driven or motivated by the same things. Effective salespeople forego taking shortcuts and recognize that outdated selling tips such as ‘always be closing’ are no longer applicable. All too often, opportunities are lost due to assumptions made or jumping in with the hard sell. Today’s clients are seeking a business partner who assists them with the right solution and responds to their needs. If we think about it, the very heart of the sales process should be underpinned by wanting success for our clients, rather than success for ourselves. The underlying goal should be to understand their challenges, create solutions and add value wherever possible. So how do relationships influence the sales process?
6. Keep in touch regularly: Look for reasons to keep yourself at the forefront of their mind.
2. Be determined to focus on your client: Remember, it’s about them, not you.
7. Generate ideas: Be creative with solutions and provide unique options.
3. Adapt your communication style to suit: A one-size-fits-all approach won’t cut it.
8. Design a shared goal and ask for their opinion: Work together to construct a collaborative alliance.
4. Find out their interests and hobbies: Create a database to store the information you learn. 5. Say ‘thank you’ in a tangible way: You don’t have to go to great lengths or expense to do this.
9. Don’t sell on price: Focus on explaining your value and the outcomes you generate. 10. Invest in ‘interpersonal skill’ staff training: Your employees should understand the importance of complementing their technical ability with connection ability.
targeted specifically at implementing and boosting client engagement.
THE STAGES OF ENGAGEMENT
BETTER AND BETTER
The cycle of sales can be attributed to various stages of engagement identified as follows. Clients are most likely to buy from you when in the moderate and high-trust zones – when rapport and credibility have been firmly established. However, time and patience must be observed in progressing through the initial stages. No one likes to be rushed into anything! Each interaction you have with a client, no matter how small, contributes to solidifying and cementing the relationship. Making your clients feel valued and important is essential to a solid foundation and future business prospects. Let potential or prospective clients feel as though they have chosen you, rather than feeling ‘sold’ to. Think about how you and your team currently interact with clients in your business: • What tools do you presently have in place? Is there room for improvement? • Could you try something different or learn new strategies to nurture alliances? Perhaps it’s time to take a different approach
The interesting thing about all relationships, including those in business, is that, once established, they have the potential to get better and better. The challenge is to ensure this occurs. Ongoing contact and maintenance should form part of your overall relationship management plan to ensure that clients feel a genuine, rather than token, connection with you. See the ‘10 client relationship tips’ box above for some points that may assist you in building better and more effective relationships. Remember, once you have built solid relationships, those alliances instinctively want you to succeed and are more than happy to refer or recommend you to others. Additionally, some clients are willing to pay more for a product or service if they feel they have a personal connection in place. The decision to focus your energy on a relationship with your client is an unlimited method for increasing sales and capturing new opportunities.
Nikki Heald is a corporate trainer, presenter, businesswoman, founder of Corptraining and co-author of Views On The Way To The Top.
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BUSINESS STRATEGY / BRANDING
STRAT FAIL Far too often a companyâ€™s shiny new branding strategy fails to live up to hopes and expectations. Jean-Luc Ambrosi explains the common reasons for failure, and what companies can do to get their branding strategy right 50 | MARCH/APRIL 2014
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TEGIES It finally happened: the new brand strategy was launched with pride and with the hope that it would reinvigorate the organization’s image. But a few months went by and the hopes didn’t materialize. It all looked like a waste of money and effort. It’s not uncommon for brand strategies to not deliver – or to be perceived as not delivering – concrete outcomes. The reasons for this can be varied, with the usual suspects being poor strategy or poor implementation. But there is more to it than that, and often it comes down to the root cause of how brands are managed within the organization. No matter how big or small your organization, whether you are a large financial services provider or a boutique firm, one of the most fundamental reasons for success or failure is the fact that branding is often considered separately to the business. Brand strategies and their implementation should not be confined to the ability of the brand manager, the executive sponsor or the founding partner. Brand strategy is holistic by nature; it includes all areas of the organization, from communication to products and service delivery. And this is the crucial point. Brand strategy does not sit on its own, in some remote corner office, nor does its implementation. It is required to be worked on throughout the organization and at all levels.
The brand strategy is what allows your organization as a whole to differentiate itself from the others: what you stand for, how you deliver value-add to your customers, what makes you special, and how you go about delivering it today, tomorrow and the day after. So how do you build a successful brand strategy? There are five key elements to consider:
1. A clear definition of vision and purpose. 2. A leadership and culture that promotes the vision and purpose.
3. A structure that supports the delivery of the vision.
4. The integration of business intelligence to support the decision-making process.
5. An image and communication strategy and
implementation that truly reflects the brand difference and speaks the language of customers.
These five points cover how the brand is managed internally and how it is expressed to customers. It starts by defining a clear vision, a reason for being; defining what difference and value proposition the brand is bringing. It must be set in concrete terms, understood by everyone involved, unambiguous and achievable. This is not about a mission statement;
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BUSINESS STRATEGY / BRANDING
this is about being clear about who you are (and are not), and where you are going. The leaders of the organization must then share this vision, embody its value concretely and ensure that their teams are fully on board, irrespective of the size of the team. This really means that the first aspect of branding communication is about internal communication, to create internal buy-in. But this alone does not suffice. For the message to work right throughout the organization, the structure must be supportive. Peopleâ€™s roles must be aligned to the brand promise; training and support must be provided in key areas, and effort allocation clearly defined. For example, if your value proposition is to provide the best-quality products and services in your category, your client services team must not be driven by the objective of closing all calls within three minutes!
Jean-Luc Ambrosi is an award-winning marketer and recognized expert in branding and customer relationship management. He is the author of the new book, Branding to Differ: A Strategic and Practical Guide on How to Build and Manage a Successful Brand.
OK, but where is the branding execution in all this, you may ask? Where is the new logo, the advertising campaign, the new collateral? To be able to embark on the communication aspect, you must not only be clear about your own vision and road map but you also need to understand your customers. This is where insights and business intelligence play a role: the more you understand your customers the more you can appeal to them. In a boutique environment you are likely to have a clear idea of how customers come to you and why. In larger organizations, market research and customer behavior analysis will help frame a vision of who your customers are, where they come from and why they buy from you. Once you are able to build an image of your customers, understand their purchase behaviors and understand their attitudes, you are able to shape your go-to-market strategy. This allows you to build a communication plan that both reflects your brand promise and is relevant and appealing to your prospects and customers. This is the other point to remember: branding strategies must be relevant to your customers. Itâ€™s about them, not about you. The communication aspect is the last component. The clearer the vision, the more aligned the organization, the greater the understanding of prospects and customers and the greater the ability to build an effective communication strategy. So the communication strategy is about creating a clear message that reflects your entire organization
as big or small as it may be, and expresses it in a language and format adapted to your audience.
HOLISTIC FOUNDATIONS Many organizations consider branding strategy to be a communication exercise and leave it to the marketing department or advertising agency to come up with the goods. While you should rightfully leave the communication techniques to the experts, the foundation, as we have discussed, must be comprehensive and holistic. This leads me to one conclusion: the reason most branding strategies fail is that they tend to be treated like a beauty treatment. A change of name, a change of logo, a change of look and feel, a change of tagline â€“ their effects are only skin deep and therefore do not last. These components are only the visual representation of what the brand stands for.
Brand strategy is holistic by nature; it includes all areas of the organization
This leads to disjointed messages, with your advertising and website saying one thing, your sales people another, and the customer experience following yet another path. The result is a lack of consistency, a disparity between promise and delivery, and the negative impact this can create. As brands are fundamentally a promise, the delivery of this promise must follow through to engender customer satisfaction, repeat purchases and word-of-mouth recommendations. Customers have never had more options to choose between different brands and products than they do today. Therefore they have the ability to switch brands faster than ever before. So if your brand promise tells one story and your delivery another, your branding exercise is nothing more than a short-term sales effort and your brand will suffer over the medium to long term. To succeed, branding must be viewed holistically throughout the organization and not as an isolated communication exercise. It needs to be embraced at every level, from top management to clientfacing staff, and, most importantly, the strategy must be based on a thorough understanding of what the brand stands for and how it impacts customers.
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saying ution. the Agency are g today is not Insurance Distrib WHA Insurance agents are playin Producers at ago, specifically “The role that comfort zones. ding 20 to 30 years an, goodbye to their e, Ore., is expan they played ,” says Rob Hartm based in Eugen ping role on and pricing The agency, lines and develo in risk selecti commercial of those lines: the report. its focus on the front line co-author of lization within on be for specia to of buses, used undernew areas for taxis and “The agent of a policy, had n insurance transportatio riting and pricing tions of homes, knew very underw an. ity, did inspec example. agents who were ss,” says Hartm writing author busine , we have had stayed the rically they er, knew “Histo given that lization and for that today, logy the custom areas of specia lot less need in small ation techno a used to their ’s singly inform “There y 50 Vince Ada, lines—and increa to more of a there,” says ys approximatel all personal g which emplo s are movin in what in task is director at WHA, ercial—carrier sit comfortably , where the You comm you can’t just riting model or eight years. people. “But and answer black-box underw in the last five an application tely fill out you have done ries.” ss or 10 to 20 yees to accura multiple indust about the busine have to learn additional emplo how you drive to 60 questions ly hired eight and the car and help the 50 WHA recent ons about you logies that will questi techno ers. enting are and is implem that’s it.” vely with custom by carriers t more effecti efforts it—and hannel or direct sales company interac up its marketing Multic insurance, which also stepping ercial y, and auto ing al and comm The agency is increasing steadil of premiums, is becom sales in person are also for 70% in order to grow measures to boost efficiency. says. Carriers is accounts d, Hartman matic of what lines, and is taking the industry commoditize ence is emble sively, with ze insurance ising. more aggres WHA’s experi year on advert small and mid-si US. Many marketing a many $6bn at than s are happening across the spending more al auto, carrier ms were brokerages logy-driven, notably person of all P&C premiu ndent lines, techno agencies and nt, some s. In more efficie and broker written by indepe specialized. They competing with agents are becoming ercial lines and ting. agents 2013 2013, focused on comm new approaches to marke Share Report Source: Market ping pendent Insurance T CHANNEL are also develo able hole in A.M. Best/Inde little choice. Brokers of America the THE DIREC have punched a notice larger Agents & They may have economics of sales is growing signs that the unravel,” Direct al auto, and the hole to ing “There are model are beginn report, Agents person 11 MBER 2013 | traditional agent sey & Co. NOVEMBER/DECE a recent McKin according to
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Can you teach ethics to insurance agents? Agent Brent Kelly says clients are often the ones who put agents in the most difficult positions My home state of Illinois is one of the 34 states that require all licensed insurance producers to attend an ethics class. Ethics and insurance agents. It’s like peanut butter & jelly. Why are insurance agents forced ... I mean, required, to take three hours of ethics every two years? Aren’t you either ethical or unethical? I recently attended my third ethics class and have asked the aforementioned question every time I am required to participate. Here’s the reality. I face ethical issues every single
Your clients are your lifeblood. Your clients often become good friends. You care about your clients. That doesn’t mean clients ever have the right to put you in a difficult position
Brent Kelly is an agent with Clemens Insurance in Bloomington, Ill. He writes about sales, marketing, and business issues at www.brentmkelly.com
day in my business. I think I’m ethical. You probably think you are ethical, too. Let me ask you a serious question. Are you always ethical? Did you pause? As much as you may think you are, I guarantee you are not. I don’t mean you are unethical in terms of a serious offense like fraud or embezzlement, but in small actions that could lead to greater consequences. If you are an insurance agent, ethical dilemmas are a way of life. Why? Like any business, there could be a number of reasons, but having multiple obligations is one of the biggest issues insurance agents face. As an agent, you have obligations to your clients, obligations to your agency, and obligations to the insurance companies. Who do you serve first? The obvious and most common answer is the
client, but is that always the right answer? • What if your client asked you to bend the truth a little? • What if your client asked you to go ahead and sign that paperwork on their behalf ? • What if your client told you something “off the record?” The reality is that clients (the ones who pay your salary) will often put you in the most difficult ethical positions. What should insurance agents do in difficult ethical situations? The bad news is that there is no clear answer. Ethics are never black and white. Ethics are often as gray as the clouds on a cold winter day. Every situation is different, and every experience is unique. That being said, every state and every insurance department has rules. Whether you like those rules or not, you’d better be aware of them and know them. Not knowing the rules for your state or insurance department could cost you THOUSANDS! Here’s my take. You will undoubtedly face ethical decisions every day. Some are easier than others, but when it comes to clients it can become tricky. Your clients are your lifeblood. Your clients often become good friends. You care about your clients. That doesn’t mean clients ever have the right to put you in a difficult position. My philosophy has always been to simply follow the golden rule in all situations. When serving multiple parties, even that can be strenuous. The bottom line is that you must adhere to the regulations of your state. If you follow your instinct, follow your moral principles, and follow the rules, you will have a much easier time making those tough ethical decisions. I don’t know that ethics can ever be regulated. That being said, every insurance professional needs to take time to reflect on past decisions and prepare yourself for future ethical dilemmas.
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PEOPLE / FAVORITE THINGS
Favorite things... Dennis Rabon, Dovetail Insurance Dennis Rabon is the executive VP of business development at Dovetail Insurance, formed in 2006 in Columbia, SC. Dennis knows how to grow businesses, and had a substantial track record of launching and expanding several companies prior to joining Dovetail. Previously, he was president and owner of First National Business Company, SC, a business broker service specializing in matching buyers and sellers of businesses, in addition to providing small business consulting and SBA loan services. He knows it takes not only great vision but also a lot of focus on understanding what customers really need to grow their businesses. He holds a BSc in Risk Management and an MBA from the University of South Carolina Place to be: “With my wife and kids at a South Carolina Gamecocks football game.”
Music: “I listen to a lot of country, but my current favorite is a band named Fun. They are crazy talented guys.” Dennis Rabon
Vacation spot: “Vail, Colorado. There’s nothing like deep powder and bluebird skiing.”
Sport: “Golf and skiing. I live in South Carolina, so guess which one I do more of?”
Book: A Confederacy of Dunces by John Kennedy Toole; Tinker, Tailor, Soldier, Spy by John le Carré; Black Hawk Down by Mark Bowden.
Best thing about working in insurance: “I work with a strong mix of IT professionals and insurance professionals, so I really get a unique perspective on the future of the industry. It’s great to be on the leading edge.”
Food: “BBQ, followed closely by stone crabs.”
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THE LAST WORD
How will the ACA affect
Tom Hebson is the vice president, product development and government relations, at Safety National Casualty Corporation in St Louis. Hebson leads all new product development, in addition to serving as the company’s liaison with state regulators and workers’ compensation agencies
Since the Patient Protection and Affordable Care Act (ACA) became law in March 2010, healthcare reform has begun to significantly change the US healthcare delivery system, though its impact on workers’ compensation has so far been minimal. The Healthcare.gov website was introduced on October 1, 2013, and to date approximately three million ‘eligible’ citizens have enrolled. Unfortunately, an estimated five and a half million have had their health insurance cancelled and are continuing to search for the new coverage options that offer large premium increases and larger deductibles. The ACA requirements for businesses with 50–100 employees have been delayed to allow these employers more time to phase in healthcare. So what happens now? Washington, DC is working to fix the problem. Mid-size employers are getting a short reprieve to allow them to better assess healthcare options for employees. Meanwhile, what might be the impact on the workers’ compensation marketplace? Will workers’ compensation be the fallback medical benefit provider for workers who cannot find adequate or affordable healthcare coverage or are channeled into less effective healthcare providers? The US Department of Health and Human Services estimates an increase of only 7% in the number of physicians by 2020. In the same time period, the US Census Bureau projects 36% growth in the number of Americans over the age of 65, the very segment of the population with the greatest healthcare needs. It is estimated there will be a shortage of 63,000 doctors by 2015. By 2025, this could be as high as 131,000, primarily due to the impact of additional users coming into the healthcare system. This collision of care needs and the shortage of primary care and specialist physicians (as predicted by the AMA Colleges) could greatly impact on the delivery of healthcare in the workers’ compensation market. The future impact of limited access to quality medical care could greatly affect the cost of a worker’s compensation claim. Today’s workers’ compensation lost-time claims average 60% medical and 40% indemnity, and are influenced by the cost and delivery
Will workers’ compensation be the fallback medical benefit provider for workers who cannot find adequate or affordable healthcare coverage or are channeled into less effective healthcare providers? of professional and unencumbered medical services. Despite many perceived cost savings in the workers’ compensation system, having quality care for an injured worker is critical in controlling these costs. Workers’ compensation relies on getting injured workers to care facilities that are in close proximity, and, when claims include lost time, getting them follow-up care and rehabilitation on a timely basis. So what are the potential consequences of this ACA law? What US citizens receive once they are able to sign up through Healthcare.gov will largely determine the overall impact the law has on workers’ compensation. If the ACA results in higher-cost plans, larger deductibles and limited healthcare providers, workers could stray out of this system and into workers’ compensation. Workers’ compensation is a long-tail business, and this will delay accurate data analysis of the ACA impact on costs for years to come. Many of the variables will be analyzed as losses mature within the claims system.
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20603 NAPSLO IBA print1_Ins Bus America 2/12/14 11:58 AM Page 1
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