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IN THIS ISSUE: Agency audits 101 4 fibs that spark E&O claims

Annual Convention


Dewey Beach • June 4-5 More at

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“We’re big on BOP.” Riley Tonkin, Omaha Branch Marketing Representative

EMC’s Businessowners Program (BOP) is bigger than ever. With more classes. More value added loss control services. More online resources to make writing BOP easier for you. Give your smallto medium-sized businesses a big value with EMC’s Businessowners Program, it’s just one of the many reasons why agents Count on EMC®.

Valley Forge Service Branch: 800.333.3622


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Umbrella Programs that Give You More Options Preferred Property Program gives you broader, more flexible coverage with a range of limits Our umbrella liability policies are written by XL Insurance with Chubb Insurance Group for the excess layer—two of the industry’s most highly rated carriers. We offer four umbrella limits, with coverage you can rely on. • $5 to $25 Million in umbrella coverage with up to $50 Million in total limits. • Hi-Rise apartments up to 35 stories eligible, with higher eligible by referral. • Excess of D&O, General Liability, Auto, Employers Liability, Employee Benefits and more. • Developer-sponsored boards eligible.

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Four things that keep your E&O underwriter awake at night Chances are that your actions — and inactions — are stressing out your E&O underwriter. Agency consultant Chris Burand shares the big four: what they are, why they’re risky, and how to mend your ways and, in turn, protect your agency.


Page 10 Why and how of an agency audit If your year-end financial review doesn’t include an E&O audit, you’re missing a key component of the agency’s health. Here, Utica makes the case for incorporating an E&O audit into your evaluation process.

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Sweet little lies In the daily operation of an insurance agency, producers and customer service representatives will be “tested” on their levels of integrity and honesty. How those tests are handled can lead to significant consequences. Here we offer four fibs — a few seemingly innocuous — and why to avoid the temptation of telling them.

Page 18 Mission Statement Primary Agent delivers ideas to help Insurance Agents & Brokers’ members negotiate their unique position as guardians of trust between insurance consumers and companies while facing the challenges of maintaining a small business. Primary Agent also supports IA&B’s mission to preserve and advocate the American Agency System.

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All communications for publications, including news, features, advertising copy, cuts, etc., must reach the editor by 1st of month two months prior to publication. Advertising rates furnished upon request. Address inquiries to:   Primary Agent Editor 5050 Ritter Road    Mechanicsburg, PA 17055-0763    Phone (800) 998-9644 or (717) 795-9100    Fax (717) 795-8347 Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices. Ride-along enclosed. Postmaster: Send address changes to above address. Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2014-6 is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.  Copyright 2014. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and is not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and or other professional advisors concerning specific matters before making any decisions and we disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.

Board of Directors Officers G. Greg Gunn, CIC Chair of the Board Lemoyne, Pa. Diana M. Hornung Hanby, ACSR Vice Chair of the Board Wilmington, Del.

G. Greg Gunn, CIC

Chair of the Board’s M







Norman F. Basso, CPCU Immediate Past Chair of the Board York, Pa.

Members Henry “Butch” Bradley, Jr. Forest Hill, Md. E. Stephen Burnett, CIC, ARM Wilmington, Del. Richard F. Corroon, CPCU Wilmington, Del. N. Lee Dotson, CIC, AAI Wilmington, Del. Michael P. Ertel Columbia, Md. John L. Frankenfield Telford, Pa. John B. Hollister Milford, Pa. Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa. Robert S. Klinger, LUTCF, CPIA+ Germantown, Md. Douglas A. Loesel, CPCU Erie, Pa. Michael F. McGroarty Sr. Pittsburgh, Pa. Craig S. Mader Gambrills, Md.

E & Uh-Oh You know what they say about an ounce of prevention…. And while we all know the importance of risk management — we specialize in it, after all — when it comes to our own shops, it’s surprisingly easy to overlook. This issue of Primary Agent magazine offers some quick and relevant E&O prevention suggestions, including how to avoid common agency missteps and how to audit your agency. And if you write contractors, be sure to check out the write-up on the “Insuring Contractors” seminar, where Jerry Milton will share how to stay out of hot water in light of policy form changes and new case law. And to dive into the details of your agency’s individual risk management practices and coverage needs, I encourage you to give the IA&B Sales Center team a call. The staff members are independent agents just like us, but they specialize in covering the risks of independent insurance agencies. Plus, as IA&B staffers, they’re in the loop on loss-control seminars, know where to find compliance resources and can connect you with the association’s legal team.

Joseph R. Pastor, CPCU, AAI Oil City, Pa.

One of the benefits of belonging to a trade association is that you have someone to lean on and to learn from. So take advantage of your IA&B membership and rely on the association’s resources and its team at the agents’ agency.

Richard M. Rankin, CIC Lancaster, Pa.

Until next time,

Ann Gallen Moll, CIC Reading, Pa.

April E. Ressler, CIC Altoona, Pa. Scott C. Rogers, CPIA* York, Pa.

G. Greg Gunn, CIC

David B. Wasson Sr., CIC State College, Pa. Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del. * Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director


Ask our Experts QUESTION: Are insurance agencies required to have procedures in place to comply with Anti-Money-Laundering rules?

ANSWER: The short answer is yes, assuming you fall within the scope of the regulation based on the “covered products” you sell (described below).

While the PATRIOT Act does not directly apply to insurance agencies, insurance producers are impacted by the Anti Money-Laundering (AML) program, because carriers are required to train their employees and producers as needed and must monitor compliance.

Where does the requirement come from? Anti-Money-Laundering (AML) requirements are addressed in the Code of Federal Regulations (initially at 31 CFR Part 103, now transferred to 31 CFR Chapter X). The original mandate stems from the U.S. Patriot Act, which was passed in 2001 and aims at thwarting money-laundering in the financial world.

Who needs to be trained? It depends. The carrier is the one setting up the AML program, including who should be trained. If the carrier requires that everyone — including all agency staff, follow the training program, the mandate will not stem from the law or implementing rules, but from the company.

What is the requirement? Insurance companies writing “covered products” must develop an Anti-Money-Laundering program. For insurance companies, covered products are permanent life insurance policies (other than group life), annuity contracts (other than group annuity) and any other insurance product with cash value or investment features.

Frequency of training: The regulation only requires that the training be done “periodically.” It is, there again, up to the company to define the frequency in their AML program. To review the regulation in more detail, visit the U.S. Government Printing Office website at The AML program is more specifically described in Subpart B-Programs, under §1025.210. The definition of “covered products” is found under §1025.100.

The program will apply to the covered products and must contain the following parts: w Designating a compliance officer responsible for the program’s implementation w Defining policies, procedures and internal controls w Providing or monitoring that ongoing training of appropriate individuals take place based on their responsibilities

HAVE A QUESTION? ASK OUR EXPERTS! Rely on our experts to answer your most perplexing questions. Visit the Ask Our Experts section of (find the link in the website footer) to submit your question and review answers to other frequently asked questions. Or email your question to us at We look forward to hearing from you.

w Monitoring the program through independent testing


Primary Agent | June 2014

State News New Delaware law gives teeth to certificate of insurance regulations Our priority legislation passed the legislature this spring. Insurance producers and consumers alike will benefit from House Bill 104, which will curtail the improper use of certificates of insurance in Delaware. Law-abiding producers can breathe a sigh of relief. The legislature passed our priority legislation, which addresses the improper use of certificates of insurance – misuse that left producers torn between onerous requests from clients and third parties to amend certificates and the regulatory (and E&O) constraints that forbade it. HB 104 amends Title 18 of the Delaware Code by prohibiting the: w Request of a certificate that does not accurately reflect the underlying policy w Issue of a false or misleading certificate or one that purports to alter, amend or extend the coverage provided by the insurance policy w Use of a certificate to warrant that a policy complies with the insurance or indemnification requests of a contract


The legislation also enables the Delaware Department of Insurance to issue cease-and-desist orders and to assess fines against those who request false or misleading certificates. Your IA&B government affairs team championed this legislation throughout the past two legislative sessions, working to gain the support of lawmakers, regulators and members of the lending and banking communities.

Workers’ comp centerpiece of legislative luncheon The IA&B Government Relations Committee this spring dished about workers’ compensation (WC) reform efforts -- and other hot topics -- at its annual chicken and dumplings lunch with legislators and the governor’s staff. The IA&B Government Relations Committee met in Dover this spring to discuss priorities and create a plan of action for the remainder of the legislative session. Following the meeting, committee members shared insights into agents’ priorities over a traditional chicken and dumplings lunch with legislators and members of the governor’s office. The state’s recent workers’ compensation reform efforts were the main topic of conversation.

Our members’ national advocacy in review This spring a half dozen of our member agents joined over 1,000 other industry professionals at the annual Big “I” National Legislative Conference in Washington, D.C. Attendees visited Capitol Hill on Thursday where they chatted it up with some heavy hitters, including Sens. Chris Coons and Tom Carper. Industry issues discussed during congressional visits included: w The reauthorization of the Terrorism Risk Insurance Act w Adding the National Association of Registered Agents and Brokers legislation to the terrorism insurance extension w Opposition of any attempt by the federal government to control day-to-day insurance regulation w Opposition of raising taxes on individuals and small businesses Thanks to Travelers’ generous sponsorship, members were also able to meet and mingle with Carper at a private legislative reception, where the senator spoke of his early days in Washington and how things have changed on the Hill. View a complete event recap and photos on our website. NLC_in_review2014


New Members

DCRB faces uncertain future

More bang for the UIM buck

Rumors are swirling as Lt. Gov. Matt Denn appears to gun for the Delaware Compensation Rating Bureau (DCRB). A competing rating bureau recently attended a meeting of the state’s Workers’ Comp Task Force.

Delaware’s recently amended state law allows innocent insureds involved in motor vehicle accidents to access their underinsured motorist (UIM) benefits, regardless of the negligent driver’s insurance policy limits.

Approval of the long-overdue loss cost filings hasn’t quelled the state’s workers’ compensation drama. The latest developments point to the potential replacement of the Delaware Compensation Rating Bureau with the National Council for Compensation Insurance (NCCI) as the state’s designated, licensed rating and statistical organization.

All Delawareans who elect and pay for UIM coverage when purchasing or renewing their auto insurance are now afforded more bang for their premium buck in the event they’re injured in a not-at-fault accident with an underinsured motor vehicle. The change stems from amendments to the UIM statute, which took effect this winter.

NCCI representatives attended the April meeting of the state’s Worker’s Comp Task Force. Denn, who heads the task force, continues to blame the DCRB not only for the high rate increases, but also for the rating “drama.” And while at the time this issue of Primary Agent went to print, he had yet to recommend formally that Insurance Commissioner Karen Weldin Stewart replace the DCRB with NCCI, the move was expected. However, whether the NCCI would even accept Delaware is uncertain. The NCCI is the DCRB counterpart in 38 states.

Our new online resource on the lifted UIM restrictions shares more details, including background on what prompted the change, an example of how the old law negatively affected innocent insureds, and links to the full text of the updated law and the legislation that implemented it.

In the meantime, the task force continues to discuss – and dance around – the issue of Delaware’s medical costs, which the Workers Compensation Research Institute audit showed to be the fourth highest in the country. Our member agent representative, Lee Dotson, continues to serve on the task force and offer the agents’ perspective. Watch Agent Headlines to learn about any developments. UIM_modify

Track state trends in independent agents’ market share Learn how independent agents stack up to their competition. Our customary summary of the latest Big “I” market share report is available. The document provides an in-depth comparison of various distribution channels and various lines of insurance and Delaware-specific market share data for 2012. market_share_report

EZ Term Insurance Agency Newark, Del. [5]

Primary Agent | June 2014

Coverage COR N E R


JERRY M. MILTON, CIC Jerry M. Milton, CIC, teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He is also the education consultant for IA&B, working with CISR, CIC and continuing education programs.

Our insureds are constantly entering into contracts with other entities or individuals. These contracts typically have an indemnification clause obligating one party (indemnitor) to indemnify, hold harmless or save the other party (indemnitee) from and against certain losses arising out of the actions of the indemnitor.

the indemnitee sustains even if there is no third party-claim involved. An example of this is Central Brown County Water Authority v. Consoer, Townsend, Envirodyne (CTE), 2013 WL 501419 (E.D. Wis. 2013). The Authority filed suit against CTE, an engineering firm, alleging that various deficiencies in its services caused the Authority to incur costs of digging up and investigating pipelines installed by its contractor, plus the costs of repairing the contractor’s work.

Do these indemnification clauses apply only to damages resulting from third-party claims against the indemnitee, or do they apply even if there is no third party claim but the indemnitee suffers a loss due to the indemnitor’s actions? Historically, it has generally been understood that indemnification clauses apply only to damages resulting from thirdparty claims against the indemnitee. However, several recent cases have concluded that indemnification is broader than that. Some courts are interpreting contracts to require indemnification for damages and losses

The court rejected CTE’s argument that the damages sought by the Authority were barred by the language of the contract. The contract provided that CTE would perform their work in accordance with the generally accepted standard of care. The contract further stated: If during the twoyear period following the completion of all services covered by this Agreement, [6]

it is shown that CTE failed to meet these standards, CTE shall indemnify the Authority from and against any and all damages, loss or costs if and to the extent arising from CTE’s failure to meet generally accepted professional engineering standards. Rather than applying the narrow definition of Black’s Law Dictionary that indemnity is “to reimburse another for a loss suffered because of a third party’s or one’s own act of default”, the Wisconsin court cited Webster’s Dictionary’s broader definition which states that indemnity is “to make compensation to another for incurred hurt, loss or damage.” The court said a general principle of Wisconsin law is that indemnity agreements “are liberally construed when they deal with the negligence of the indemnitor.” The court also concluded “CTE’s liability is not limited to

reimbursement of the Authority for payments it has been required to make to others. Instead, CTE agreed to pay the Authority for any and all damages, loss or costs arising out of CTE’s failure to properly perform its duties.�


Maybe I’m wrong, but it sounds to me like the court turned the indemnification agreement into a performance bond.


I’m pretty sure that CTE’s Commercial General Liability policy won’t respond to this claim. The CGL and the Business Auto policies define an “insured contract,� in part, as “That part of any contract or agreement pertaining to your business under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization.� There was no third person or organization in this case.



Oh well, another issue for the attorneys to litigate and fight over. Y’all take care!

For me,

it’s about helping y’all understand how contractors are impacted by recent changes. Jerry Milton, CIC IA&B Instructor/Coverages Expert



This program is for anyone writing contractors coverage. It reviews property and liability exposures and discusses the policies needed. It’s especially important for agents who have not taken specific education over the past two years on contractors coverage and, thus, are not up to speed on all the changes that have occurred. 2014 DATES AND LOCATIONS: June 3 June 11 July 22

Philadelphia, PA Baltimore, MD Pittsburgh, PA


PA 8

MD 8

August 13 August 14

Mechanicsburg, PA Newark, DE

DE 8

To read more and register go to


Platinum Profile Insurance Agents & Brokers proudly recognizes Berkley Mid-Atlantic Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

FEATURED PARTNER Berkley Mid-Atlantic Group CHAIRMAN Kevin W. Nattrass PRESIDENT Susan N. Grady COMPANY LOCATIONS Home Office and Capital Region: Glen Allen, Va. Allegheny Region: Columbus, Ohio; Harrisburg, Pa.; and Pittsburgh, Pa. (800) 283-1153 A.M. BEST RATING “A+” (Superior) WEBSITE SOCIAL MEDIA Berkley-mid-atlantic-group

Berkley Mid-Atlantic Group offers more than 400 target classes of business.


erkley Mid-Atlantic Group (BMAG) is a regional commercial property and casualty carrier organized into two full-service territories with local claim, underwriting and loss prevention teams located close to its customers and policyholders. BMAG’s policies are issued exclusively through independent agents in Delaware, Kentucky, Maryland, Ohio, Pennsylvania, Virginia and Washington, D.C. BMAG is a member company of W. R. Berkley Corporation, a Fortune 500 insurance holding company founded in 1967 that is among the largest commercial lines writers in the U.S. Through sound, disciplined underwriting practices, BMAG is committed to doing the right thing for agents and policyholders.


BMAG by the numbers w More than 400 classes of business ranging from small business to middle and select markets, including social services and inland marine w Policyholder claim service rating of 4.77 on a 5-point scale w Four offices in three states, giving BMAG’s 200-plus employees and seven territory managers the unique ability to provide local and knowledgeable decisionmaking, allowing regional relationships to facilitate the underwriting and processing of commercial accounts w Nearly 95 percent of BMAG premium audits completed by company personnel with an average of 15 years experience

Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.

WHAT IS IA&B PARTNERS? The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

DO YOU SEE YOUR NAME? To become an IA&B Partner, choose the sponsorship package that matches your commitment of support. Contact the Member Sales Center at 800-998-9644, 717-795-9100 or visit us online at to get started.

PLATINUM LEVEL ACUITY Berkley Mid-Atlantic Group Donegal Insurance Group Erie Insurance Group Harleysville Insurance HM Insurance Group Insurance Agents & Brokers Service Group Inc Liberty Mutual Insurance MMG Insurance Company Millers Mutual Group Millville Mutual Insurance Co Mutual Benefit Group Penn National Insurance Swiss Re The Main Street America Group Utica National Insurance Group


ISU Insurance Agency Network Progressive Westfield Insurance


Access Insurance Company Allied Insurance American Mining Insurance Co Burns & Wilcox Limited Cumberland Insurance Group Farmers Mutual Insurance Company of Western Pennsylvania Frederick Mutual Insurance Co ICW Group Insurance Companies Juniata Mutual Insurance Co PSBA Insurance Trust Selective The Philadelphia Contributionship [9]

BRONZE LEVEL Aegis Security Insurance Co Agency Insurance Company AmWINS Program Underwriters Inc Auto-Owners Insurance Company Bailey Special Risks Inc Briar Creek Mutual Insurance Company Chubb Group of Insurance Companies Conemaugh Valley Mutual Insurance Co Countryway Insurance Company Encompass Insurance Foremost Insurance Group GMI Insurance Goodville Mutual Casualty Company Guard Insurance Group Hanover Fire & Casualty Insurance Company Harford Mutual Insurance Co Insurance Alliance of Central PA Inc Insurance Placement Facility of PA Keystone Insurers Group Inc Lebanon Valley Insurance Company MAPFRE Insurance Merchants Insurance Group Mercury Casualty Mutual Aid Exchange Penn PRIME Municipal Insurance Reamstown Mutual Insurance Company Rockwood Casualty Insurance State Auto Mutual Insurance Company TAPCO Underwriters Inc The Brethren Mutual Insurance Company The Motorists Insurance Group The Mutual Service Office Inc Travelers Tuscarora Wayne Group of Companies United Fire Group Zenith Insurance Primary Agent June 2014


Four things that keep your E&O underwriter awake at night Chances are that your actions — and inactions — are stressing out your E&O underwriter. On the following pages, agency consultant Chris Burand shares the big four: what they are, why they’re risky, and how to mend your ways and, in turn, protect your agency.

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Primary Agent | June 2014

1. Publishing reckless website copy Agencies are growing careless regarding what their websites state the agency does and will do for their clients. Such carelessness is partially a result of not paying attention, partially a result of good intentions with bad consequences, and a growing result of outsourcing website development. Outsourcing website development is a perfect breeding ground for grand promises without the wherewithal to uphold those promises. Website developers will certainly look much better in the eyes of the agency if they make the agency look great. Website developers often have a flair for thinking of all the services and qualities agencies can provide clients. Meanwhile, agency owners love to see how great they are, especially when a third party writes the script and publishes it on the Internet for all to see.


Advising you are an expert is great if you are and if you provide expert attention to every single insured. —————————————————————————————————

And yet when everyone gets done with the love fest, someone has to do the work. If an agency advertises that they will find the best combination of price and coverage, they had better find the best combination of price and coverage for every single client or put a caveat on their site advising they will only really do this for some clients. Advising you are an expert is great if you are and if you provide expert attention to every single insured. Advising you can write any risk may mean finding a home for every risk. Advising that you will review insureds’ exposures may mean reviewing every insured’s exposures every year. Agents likely are mistaken in believing they can advertise how great they are without having to prove that greatness to every single account every single year.

2. Eliminating policy reviews Some agencies have cut back staff so much due to the tough times that they no longer are reviewing all policies at renewal. Others, believe it or not, may have cut staff so their productivity numbers look better for the various best-practice type competitions in which they compete. Big egos can lead to stupid decisions. Others are just greedy, but the savings today will be spent tomorrow in E&O claims and employee dissatisfaction. Penny wise and pound foolish. continued on page 12

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Checklists to check out Chris Burand touts the value of using checklists — and he’s not alone. It’s a consistent recommendation among E&O carriers and agency consultants alike. Take advantage of your discounted access to the Virtual Risk Consultant, an online sales and service resource that will increase your staff’s productivity while limiting your agency’s E&O exposure. The risk analysis system helps producers and CRS to: w Understand business exposures in 650+ industries w Access questionnaires to collect information needed on ACORD applications w Properly document customer files with customer-signed checklists Discounted_Services/VRC

ERRORS & OMISSIONS continued from page 11 I am not going to change those agency owners’ minds with this article. But hopefully by making other agencies aware of what is happening, they will see wedges they can use to separate some of those agencies’ clients from those agencies. The customers deserve better.

3. Foregoing coverage discussions for long-time insureds

This is scary to E&O underwriters because, over time, even simple homeowners’ exposures tend to change materially. For example, a study some years ago showed that a majority of homeowners who renovate their home forget to tell their agent. The result is a severe under-insured homeowner. This is a problem that has plagued this industry for at least the last 25 years. To help your E&O underwriter sleep better at night, regularly contact your clients, especially the ones from whom you never hear.

4. Dismissing

coverage checklists

E&O underwriters know a coverage checklist is the best way to eliminate E&O exposures, and yet, almost no agencies use them consistently. Maybe some E&O underwriters are just numb on this point, and their sleep is no longer hindered. But take pity on the new underwriters. They are not numb yet to the huge risks they see, which could be mitigated by a relatively simple tool. They know it is not a matter of “if” but “when.”

This particular situation is actually a fascinating proof of how humans assess risk. When risk is not imminent, most people cannot assess risk correctly. The further someone is from the risk themselves, the clearer they can see it. Just like agents and underwriters. Exacerbating the problem is how humans perceive frequency and severity differently. The industry is pretty good at addressing frequency problems, but it is not so good at addressing severity problems because neither the people within the industry nor the public can articulate severity.


E&O underwriters know a coverage checklist is the best way to eliminate E&O exposures, and yet, almost no agencies use them consistently. ————————————————

For example, UM claims have a tendency to be few but severe. People can mentally assess why they need insurance if they have a 25 percent chance of incurring a claim, even if the claim is likely small. But they have a really difficult time assessing the importance of insurance when the chance is less than 1 percent, but if it occurs, they are likely to incur a very large claim.

[ 12 ]

Humans as a whole have a large blind spot when it comes to severity, which is why so many producers and agency owners cannot assess the value of a coverage checklist. But have one claim where a checklist would have saved them, and they will be an immediate convert. Help your E&O underwriters sleep at night. Even if you do not see the risk and they do, they have your best interests at mind. Take pity on them, and even if you don’t do it for yourself, take these steps for them.

Chris Burand wrote this article. He is president of Burand & Associates LLC, an insurance agency consulting firm. Contact him at (719) 485-3868 or Also, find his new book, “50 E&O Tips You Should Never Forget,” at Note: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal council is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.

My Events J U N E


2 0 1 4




CISR Personal Residential

Mechanicsburg, PA

Insuring Contractors Seminar

Philadelphia, PA


P&C Licensing Study Course

Lehigh Valley, PA


Annual Delaware Convention

Dewey Beach, DE


William T. Hold—3 Cs: Comp, Crime & Cyber

Lancaster, PA


L&H Licensing Study Course

Mechanicsburg, PA


CISR Commercial Casualty II

Hagerstown, MD

Insuring Contractors Seminar

Baltimore, MD


CISR Commercial Casualty I

Altoona, PA


James K. Ruble Graduate Seminar

Annapolis, MD


CIC Commercial Property Institute

Erie, PA


CISR Personal Residential

Pittsburgh, PA


E&O Risk Management Seminar

Erie, PA


CIC Commercial Casualty Institute

Lancaster, PA


CISR Elements of Risk Management

Lehigh Valley, PA


CISR Personal Auto

Mechanicsburg, PA

JUNE 2014

[ 13 ]


Why and how of an agency audit

If your year-end financial review doesn’t include an E&O audit, you’re missing a key component of the agency’s health. On the following pages, Utica makes the case for incorporating an E&O audit into your evaluation process.

[ 14 ]

Primary Agent | June 2014


t the end of each year, agency ownership/management does the typical “crunching of the numbers” to assess how the agency fared. An overall review will include an evaluation of premium and policy count changes, an assessment of how well various objectives/metrics were met and a careful dissection of the agency’s financial picture. Looking at these issues, as well as producers’ hit ratios and by-customer policy numbers, reveals your status from the business side of the equation. Yet how well do they determine the agency’s “E&O health”? To a significant degree they don’t, creating a need to perform a review that probably does not get as much attention as it should: namely, “auditing” many of the key agency procedures to verify to what degree each of the staff is meeting the various agency expectations.


Focus on those procedures/expectations that are most important: documentation (is it being done promptly, accurately and professionally?), the handling of emails, policy checking. ———————————————————————————————

What to address If your agency has not been performing a staff audit, now is a good time to start, focusing on those procedures/expectations that are most important. This includes documentation (is it being done promptly, accurately and professionally?), the handling of emails, policy checking and more. Employees not meeting the agency’s expectations increase the potential for an E&O issue to arise, so it is best to discover the issue and resolve it before it grows. Moreover, the possibility that agency expectations are not being met could result from employees not completely understanding those expectations, which suggests a need for further training. When it comes to producers, how comfortable do you feel with the way they perform their duties? When was the last time the agency owner/ sales manager “rode along” with a producer to see how the call is handled, hear what is said and note how those discussions are documented?

When to audit Ideally, an audit process — essentially a review of a set number of files per-person based on his or her position — works best when the review

[ 15 ]

Must-know E&O info – on the go Your best defense against an E&O claim is knowledge. Learn with our On-Demand E&O courses, available whenever and wherever you are … and approved for loss-control credit. E&O Risk Management: Meeting the Challenge of Change w  Covers new and evolving E&O

exposures and emerging ways to protect your agency w  Includes discussion of social

media and data breaches Ethical Behavior and E&O w Taught by Jerry M. Milton, CIC w  Works from assumption

that E&O claims stem from the L-Syndrome: lack of knowledge, lack of consistency, lack of communication and lack of documentation


is broken down and performed at periodic times during the year. Most agencies should perform this review quarterly. It is more efficient that way and allows for a quicker identification of problems or issues that must be addressed via training or individual/group consultation. While performing periodic quality control audits helps management understand what’s happening within the agency, it will also demonstrate that the staff is being held accountable for their work product and the performance of agency procedures. While the mention of an audit process might get some folks nervous, the staff must realize that auditing is performed in virtually every business and helps ensure the organization’s health.

What (and who) to include If you don’t have an audit form today, don’t worry about getting the process perfect right from the beginning. As you perform quality-control audits, you will be able to identify areas that must be added — or deleted — from the audit form. How many files should be reviewed? Many agencies strive for a 10 percent sampling, although the proper number will depend greatly on the amount of work performed. The goal is to review the number of files that provides credibility to the final score. If, for example, you are reviewing files for all customer service representatives, make sure it really does include all customer service representatives.

While you may want to trust that your 30-year veteran is doing his or her job, it’s still best to “trust, but verify.”


Marketing, customer service, sales, accounting — ensure that each of these is reviewed. Each area could cause problems for the agency. ————————————————

Because your agency probably consists of numerous disciplines — marketing, customer service, sales, accounting, etc. — ensure that each of these is reviewed. Each area has procedures that, if disregarded or not performed properly, could cause problems for the agency. Now is also a good time to review the agency’s website and promotional material to determine to what degree they continue to accurately portray the agency. Are you using any of the “dangerous words” such as “expert” or “specialist”? If so, you might want to change them.

How to leverage Results should be tabulated and reviewed for each of the areas within the agency and for each employee. Advise staff members who performed well on the review and thank them for their efforts and commitment. For those that struggled or did

[ 16 ]

not “pass” the review, meet with them individually to better understand the reasons. Is there a need for additional training or another reason, such as the employee thinks his or her way is the better way? Consider factoring the audit results into an employee performance review to add some “teeth” to the process. Bottom line, it is difficult to grow in professionalism and efficiency without an auditing process. Your year-end agency review is not really complete without a review of the year-end audit results.

The Utica National E&O Program supplied this article. Insurance Agents & Brokers Service Group Inc. is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania. For questions regarding this article or your E&O coverage, contact IA&B at 800-998-9644 or

Hammering home contractor coverage How policy updates, case law threw a wrench in the works Join Jerry to learn the latest


hanks to recent policy updates and case law, insuring contractors is akin to hammering a moving target. In 2013, ISO revised its Commercial General Liability and Commercial Property forms, as well as introduced and revised several endorsements. And in Pennsylvania the complications keep coming thanks to a string of court cases, beginning with Kvaerner in 2006, that upset longstanding interpretation of faulty workmanship coverage.

This summer Jerry Milton, CIC, will hammer home what producers need to know to properly insure their contractor clients and to protect their agency from E&O claims. The “Insuring Contractors” seminar will address:

On top of these seemingly endless changes of the past several years are the myriad property and liability exposures contractors face year in and year out … stemming from the buildings they own, lease, renovate and demolish; their employees and subcontractors; and their work in progress and once it is complete.

w If ISO endorsements satisfy contracts

w Where continuing litigation stands for damage to “your work” exclusion w How to handle states (like Pennsylvania) that say faulty workmanship is not an occurrence

w Which entities need insured status w How uninsured subcontractors impact contractor’s insurance w How workers’ compensation applies to out-of-state work w When contractors need professional liability coverage

Learn more and register at

Remaining dates for the full-day “Insuring Contractors” seminar: June 3 – Philadelphia, Pa. June 11 – Baltimore, Md. July 22 – Pittsburgh, Pa. August 13 – Mechanicsburg, Pa. August 14 – Newark, Del.


Sweet little lies Four E&O-ridden fibs

In the daily operation of an insurance agency, producers and customer service representatives will be “tested” on their levels of integrity and honesty. How those tests are handled can lead to significant consequences. Here we offer four fibs — a few seemingly innocuous — and why to avoid the temptation of telling them.

[ 18 ]

Primary Agent | June 2014


he great comedian Groucho Marx once said, “The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.” As interesting as it may sound, it is probably fair to say that Groucho was not an insurance producer. If he had been, he may have been involved in an E&O claim or two. In the daily operation of an insurance agency, producers and customer service representatives will be “tested” on their levels of integrity and honesty. How those tests are handled can lead to significant consequences. Imagine facing the following scenario: As a producer/account executive/customer service representative, you are looking to write a specific account that, in the company’s eyes, may not be a “perfect match.” Perhaps the account had a loss or two (or three). Maybe it’s a property account, with a significant amount of the building vacant. Quite possibly, the account was non-renewed by the previous carrier. The list of possibilities is virtually endless. As you complete the application, you arrive at the questions addressing these exposures. What are you thinking? Possibly, if you bend the truth, who will ever know? What could possibly happen if someone did find out? This issue has been the central focus of more than a handful of E&O claims. In practically all of these cases, the odds are stacked heavily against the agency. In most of these E&O cases, somehow the carrier did find out the truth and, when this happened, the agent caught the full brunt of the carrier’s consternation. Agency staff interacts with carriers and wholesalers on a variety of application issues. The scenario could involve when the application initially was submitted or when the carrier underwriter contacted the agency with additional questions. Here we offer four fibs — a few seemingly innocuous — and why not to tell them.

1. Lie on an application to get an account written Lying on an application to get an account written is wrong, dead wrong. If lying on applications is how you will conduct yourself, it’s advisable to find another occupation. There are thousands of honest, truthful producers who present the carrier with an accurate assessment of the risk and stand by the carrier’s decision. Doing anything to the contrary gives the noble insurance industry a bad name.

2. Make educated guesses on an application The best practice is to complete an application with the customer’s input. Ask all of the questions, and don’t presume to know the answer to any of them. Where possible, visit the risk you are trying to insure. This enables you to speak with some degree of credibility on any subsequent conversations. Upon the completion of the application, require the

[ 19 ]


In the daily operation of an insurance agency, producers and customer service representatives will be “tested” on their levels of integrity and honesty. ———————————————


customer to review it, and then require his or her signature, thereby attesting to the accuracy of the information.

3. Answer carriers’ questions on your own Don’t presume that you know the answers when handling follow-up questions from carriers. Take down the questions, and then contact the customer to secure the answers. If the customer answers your questions over the phone or in person, document those discussions in the agency file. Send a letter or email back to the customer that memorializes the discussion and the responses, and include a copy in your file. ————————————————

Don’t expect any carrier to be too understanding and accommodating if it finds out there has been a breach of honesty.

Should honesty be the basis of your carrier relationship? Yes! The consequences can otherwise be significant. While losing one’s license is a definite possibility, the carrier/ wholesaler could decide to terminate its relationship with you. Don’t expect any carrier to be too understanding and accommodating if it finds out there has been a breach of honesty. Agency management should make it a goal to ensure that all sales staff knows that honesty is the only way and that anything outside of it will not be tolerated. Lying to your carriers has many significant consequences, including the damage done to the relationship between the agency and the carrier. In addition, if the carrier suffers a loss and believes it was misled into writing the account, it could rescind the policy, essentially leaving your agency as the “insurance carrier.” That’s definitely a position you do not want to find yourself in.


4. Fudge the truth when educating customers Customers often ask questions try to understand insurance and how it works. How the producer chooses to answer those questions is extremely important. Providing the customer with incorrect information is wrong. Suppose a producer thinks, “The only way the customer will know I was wrong is if they have a claim. What are the chances of that?” The producer is wrong. An anonymous quote summed it up best: “I’d rather be honest than impressive.”

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The Utica National E&O Program supplied this article. Insurance Agents & Brokers Service Group Inc. is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania. For questions regarding this article or your E&O coverage, contact IA&B at 800-998-9644 or

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[ 20 ]


Primary Agent | June 2014

Technology U P DAT E


CLAUDIA MCCLAIN Claudia McClain is owner and principal of McClain Insurance Services, an Everett, Wash.-based independent insurance agency she founded in 1977. Her team of four licensed agents, a receptionist and a part-time “communications director” specializes in preferred personal lines protection and serves more than 2,500 clients. The agency was named Better Business Bureau of Western Washington Business of the Year in 2012 and Everett Area Chamber of Commerce Employer of the Year in 2010. She can be reached at This article reflects the views of the author and should not be construed as an official statement by ACT.

It’s a great time be an independent insurance agent. Technology lets us reach, engage and retain customers in ways we couldn’t have imagined even a dozen years ago. It’s also a great time to live in the Seattle area. This winter our Seahawks capped a stellar season by winning the Super Bowl. Recently, we were able to combine these two “greats” — our industry role and our local NFL franchise’s accomplishment — to engage the community and bolster our visibility. Here’s how: Several days after the Seahawks won the NFC championship, I was contacted by PEMCO, a Seattle-based mutual insurer that helped me get

my start in the business. Our agency was chosen to host what PEMCO was calling its “12th Fan” banner signing. PEMCO has promoted the 12th Fan — its take on the term, “12th man,” which refers to fans that support the 11 players on the field — throughout the season. It was leveraging that promotion by creating a 100-by-40-foot banner. Fans were invited to sign the banner, which would fly over North Jersey’s MetLife Field during Super Bowl weekend. With less than four days to promote the event, our six-person agency went into high gear. We issued a press release that was picked up by our [ 21 ]

newspaper, two radio stations and a local blogger. We tapped social media to promote the event with photos and video. We created a Facebook event, invited fans to attend, and paid to promote the event, boosting our reach to nearly 20,000 Facebook users. We built a website landing page for the event and placed a button on the home page pointing to it. We created and distributed to local businesses 2,000 postcards they could share with employees and customers, and repurposed postcard artwork to build an online ad for a local independent blog.


We reached nearly 1,900 clients with an email that pointed them to our website and a football-themed customer survey. The email enjoyed a 44.6 percent open rate. We picked up 20 great testimonials through the survey. And we earned an average grade of 4.95 out of five and a Net Promoter score of 95 percent, which means that more than 9 out of 10 clients are loyal enthusiasts who will keep buying and will refer others. We programmed the video sign in front of our office to announce the evening event and rented portable lighting to illuminate our parking lot. We ordered pizza, salad and Skittles — the favorite candy of Seahawks running back Marshawn Lynch — to feed McClain team members working the event. During the event, we gathered 1,632 banner signatures — including the 12,000th one. We took lots of photos, which we’ve shared with local media and posted on our site and social platforms. We raffled off a signed Seahawks jersey. We generated buzz that continues to this day. And then our entire team went home and crashed. As frantic and hectic as things were, we could pull this off very quickly because of what we’ve learned — through ACT and some wonderful friends and partners in the business — and what we already had in place to engage prospects and clients. Industry resources Some years ago, I was blessed to meet ACT’s Jeff Yates when I served on Progressive’s National Agency Council. Staying in touch with Jeff led to opportunities to help on various ACT projects addressing agencies of

the future, the social web, business intelligence and, our latest endeavor, the customer experience. The white papers and articles these and other work groups generated have been especially useful to our agency. Frankly, I wish more agents knew of and used them. It’s a living research center for things we encounter every day in our agencies.

——————————————— Community involvement and customer engagement are foundations of our growth strategy. ——————————————— The exposure through ACT to futurefacing visionaries — fellow agents, associations, consultants, carriers execs and vendors — has helped us immensely as we bolster our technology and marketing capacity. These individuals focus not just on what we’re doing today, but what we must do tomorrow. Being surrounded by innovative thinkers like that — people I would not have met otherwise — gets my imagination going faster and more deliberately.

helping to make us more accessible to clients. I just wish more agents were listening to the conversation. Community-based approach The conversation has helped us grow organically. Today, we enjoy a 95-96 percent retention rate. By sustaining strong client relationships, we can grow much more effectively. Many agents say their biggest source of growth is referrals, but do they know why they are getting them? Do they have a strategy for increasing referrals beyond what just might normally trickle in? For me, community involvement and customer engagement are foundations of our growth strategy. I frequently ask my team, “What must we do to be worthy of referrals?” There has to be a reason clients feel so bonded with our agency that they want their close friends and relatives to do business with us, too. To be worthy of referrals, we need to continue to find ways to give back to the community. We need to show a concern for things outside of insurance — things more important to our clients than insurance.

Particularly valuable are ACT discussions and resources on today’s — and tomorrow’s — insurance buyer. When we talk about how the new consumers will want to do business, my attention piques. As agents, we must stop doing transactional things consumers can do themselves. We must focus on building stronger relationships. Good technology frees up time to do this.

Community involvement has been part of our agency’s existence for some time. Years ago, we got involved with our local police department’s National Night Out activities. We evolved from that into sponsoring our parks department’s outdoor movie series. Before long, we were hosting our own events, including an e-cycle day — held just after Christmas — when folks come to our parking lot and safely dispose of televisions, computers and other electronics.

I get especially inspired at ACT meetings by some younger agents in the group and by vendors who are

As an agency, we aim to do a community event every six weeks or so, but because we’ve done many

[ 22 ]

Primary Agent | June 2014

of them before, it’s not that difficult to manage. When agents say they couldn’t maintain such a schedule, I suggest they start small. Master one event, learn what it entails, and then add a new event down the road. That’s how our community activities evolved. For example, each Flag Day, we do an American Flag exchange. I pull out last year’s press release, email, newsletter article and video sign, update them to promote it, and people show up. Automating activity Several years ago, we began to capitalize on technology to expand our reach, promote events and build stronger relationships in the community. Of course, we had been using our agency management system to handle policy- and account-based

relationships for years, and this still is the centerpiece of our business.

——————————————— Our agency management system talks to the marketing engine several times a day. ——————————————— In the mid-2000s, we ventured online to better reach an increasingly digital insurance-buying public. We brought on a high school student, who stayed on after graduation and through college, to launch our social media presence. We partnered with a digital marketing company that designed a new site and provided a marketing engine that operates behind the scenes. Now, when people click to

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“get a quote,” their information is sent to us by email, and they are subscribed to various marketing sequences we designate in that engine. Our agency management system talks to the marketing engine several times a day. This conversation eliminates rekeying. If someone requests an auto quote, they’re in our marketing engine database as a prospect. If they don’t convert right away, they become a warm lead. If we write them, they become active in the agency management system, and the marketing engine realizes they’re no longer a prospect. Once they sign on, we trigger a welcome sequence that begins with a video from me and involves a series of

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communications over the course of the year. It’s all done seamlessly. We rely heavily on social media and digital community engagement to drive website traffic. I have a part-time person, Nathalie, who has worked with me since 2006. Between the two of us, we pretty much handle all of the online and other marketing. She works on everything from social media and newsletters to graphic design and programming our electronic sign. Everyone else is encouraged to participate in social media, too. Often, employees or their spouses share items we can promote or take part in. And whenever we come up with a hairbrained idea like, “Wouldn’t it be fun if we got a 12th man flag signed?” or “We need help with a shredding event,” they give their time willingly. We’ve got a great team. Lessons learned Part of the reason we could pull off the 12th Fan event so well was experience gained — and processes in place — from earlier initiatives. We had done press releases for other events, so we had that down. We are active in social media, of course, so that was a natural. Our experience with landing pages and relationships with a printer and local media let us turn on all the faucets and get the word out quickly. We have a marketing calendar for the year, which we post in our break room, that helps keep us — all of us — in the know and on track. Technology, of course, helps manage it all. Use of the various platforms and tools helped us reinvent the agency. They give us a forward motion and a clear view of where we need to go. Knowing that automation delivers a thought-through outcome that [ 24 ]

will happen every time a situation occurs is very freeing. It has definitely made our agency life and marketing a lot better.

or bandwidth, bring somebody in who understands the platforms and emerging technologies and can manage them.”

It also has made customer and community lives better. Today, there are so many ways we can communicate with customers and prospect questions. Our speed of response is up; we can connect pretty much 24/7. Technology helps us communicate our agency brand and be raving fans of our community. We even leverage the tools to help local nonprofits.

There are a lot more vendors now than before that can make life so simple. For example, we just launched a new iPhone app with a vendor I met at the ACT / AUGIE /AIMS Society meetings a few weeks ago. Our earlier app took us an amazing amount of time to get developed, approved and implemented. The new app has much more functionality and was launched in a matter of minutes.

Meeting the challenge The biggest difficulty we’ve faced in our journey is sorting through which tools may not deliver as much value. It’s the typical agent bandwidth issue. Do we do as good a job on some platforms as others? Probably not. But as a personal lines agency, we focus on those we should and try to make the best possible use of them.

My closing advice is simple: It’s easy and affordable to be in the game. Follow the trade magazines and blogs and get involved with groups like ACT; that’s where we get some of our best ideas. If you’re feeling overwhelmed, choose something, master it, and go on to the next thing. And I think you’ll agree it’s a great time to be an independent agent, wherever you are.

When fellow agents say they could never manage such an active campaign, I say, “First, get over the idea you don’t need to do it. Consumers expect us to be in these places. If you don’t have the energy

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Primary Agent - June 2014 - DE Edition